The most destructive oil crash in a generation is giving ship owners a billion-dollar windfall.
With OPEC abandoning output limits in a drive for market share, ships that carry as much as 2 million barrels a trip are in demand to haul crude from the Middle East to Asia and North America. While the oil price has fallen about 35 percent this year, average earnings for these carriers jumped to US$67,366 a day, the most since at least 2009, according to Clarkson PLC, the world’s largest shipbroker.
“The stars are aligned for us right now,” Tsakos Energy Navigation Ltd chief executive officer Nikolas Tsakos said in an interview at Bloomberg’s New York offices, adding that falling oil prices would likely stimulate demand and cargoes next year.
Tanker analysts are predicting the rate boom will persist for many of the same reasons oil forecasters are bearish. OPEC shows no sign of reversing its market strategy, and Iran has outlined plans to ramp up its exports once economic sanctions against the country are lifted. At the same time, the US just repealed a four-decades-old limit on its exports.
With on-land inventories already at record levels, this could mean more barrels will eventually be stored on ships, further increasing profit, Tsakos said.
The biggest tanker operators that manage fleets from Europe are Euronav NV, based in Antwerp, Belgium; DHT Holdings Inc; Frontline Management AS, which runs Norway-born billionaire John Fredriksen’s tanker fleet; and Tsakos Energy in Greece. All have seen their shares rise this year, while most energy producers have fallen.
“We are benefiting from what is currently a challenging environment for the energy sector,” Svein Moxnes Harfjeld, joint chief executive officer for DHT, said in an e-mail. “We expect 2016 to be a rewarding year.”
Tsakos, whose company gained 4.3 percent in New York trading this year, said the increase should have been higher, given that “the underlying business is doing very well.”
Too often, tankers are lumped in with other oil industry services in the minds of investors, he said.
“Investors look at tankers as an oil service, which we are,” Tsakos said. “But I think very few have identified that this side over here is the only oil service that’s positively affected by the dropping oil prices. I hope in the new year that this will be recognized, and our share prices are moving in the right direction.”
While rates are forecast to slip next year, the ships would still earn US$46,400 a day, the second-best year since 2009, according to the median of six analysts surveyed by Bloomberg and historical data from Clarkson. The average carrier is about 332m long, IHS data show. The carriers’ earnings would more than double this year, according to analyst estimates compiled by Bloomberg. The extra rates would work out at more than US$5 billion in additional revenues if applied across the entire fleet.
“A scenario in which crude oil prices are suppressed across 2016 could lead to a boom in tanker earnings of comparable magnitude to 2007-2008,” Maritime Strategies International senior analyst Tim Smith said in a report.
At the same time, low oil prices have served to stimulate world oil consumption, which rose by 1.8 million barrels a day this year, the highest in five years, according to the International Energy Agency.
With about 40 percent of the world’s crude shipped by sea, that would result in 1.4 million barrels a day more cargoes this year, according to Clarkson data.
One other factor related to the oil rout is that it has driven down fuel prices, further boosting tanker profits. At the start of October, earnings for Very Large Crude Carriers, the official designation for the big tankers, exceeded US$100,000 a day for the first time since 2008, according to data compiled by Bloomberg.
Moving forward, the carrier company Frontline expects rates to be “firm, driven by a high supply of oil,” CEO Robert Hvide Macleod said in an e-mailed response to questions.
Euronav NV declined to comment.
“The very thing which has been negative for oil markets has been positive for tanker markets,” said George Los, a New York- based analyst for Charles R. Weber Co. “We have seen a supply driven boost to the tanker market which has come at the cost of the oil market.”
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