DREWRY SEES HIKE IN OIL TANKER CHARTER RATES

Nov. 20, 1995
Charter rates for oil tankers are poised to rise to a peak just before the end of the 1990s. The increase will stem from slowly rising demand, tighter inspection requirements, and a slow pace in speculative building of vessels, says Drewry Shipping Consultants Ltd., London. Freight rates have been rising steadily since 1994 almost unnoticed, (13113 bytes) Drewry said. "Rates for product tankers benefitted most in 1994 with consumption leading the way. In 1995 it has been the crude market that

Charter rates for oil tankers are poised to rise to a peak just before the end of the 1990s.

The increase will stem from slowly rising demand, tighter inspection requirements, and a slow pace in speculative building of vessels, says Drewry Shipping Consultants Ltd., London.

Freight rates have been rising steadily since 1994 almost unnoticed, (13113 bytes) Drewry said.

"Rates for product tankers benefitted most in 1994 with consumption leading the way. In 1995 it has been the crude market that has improved with steadily rising oil supplies from Latin America and North Europe."

Oil tanker activity has remained about constant during the last 18 months, Drewry said, with swings in supply and demand taken up by operating efficiencies in the fleet.

There is surplus tonnage in some tanker sizes, but this will almost certainly vanish by 2000.

Many tankers are expected to be scrapped after their next 5 yearly inspection, and rates are not expected to rise high enough to encourage speculative - as opposed to commercial - building.

TRADE PATTERNS

Another factor affecting charter rate prospects is changing trade patterns.

In 1994, Drewry said, crude oil imports to the U.S. topped 8 million b/d for the first time, although long haul exports worldwide declined. In Europe, intraregional trade accounted for 25% of imports.

"However, imports from the Middle East declined by almost 11% year on year in 1994," Drewry said. "Although the Japanese economy floundered in 1994, crude imports nonetheless staged an increase of 6.2% year on year.

"The mainstay of the very large crude carrier (VLCC) market has been expanding imports into Asia, and this is clearly reflected by a 55% rise in crude imports to 4.3 million b/d dur- ing the 5 year period 1988-92."

Drewry expects oil imports to the U.S., which accounted for more than 50% of U.S. consumption last year, to continue to increase over domestic production.

Similarly, limited expansion prospects for Asian oil production, coupled with rising domestic consumption in most Asian countries, are expected to underpin rising demand for crude oil imports. "Regional trends in the products market included a halving in the share of Middle East imports to the U.S. in 1994," Drewry said, "while imports from Europe jumped sharply.

"Europe continued to be dominated by intraregional trades, which make up more than 60% of the total of about 2.5 million b/d in 1994.

"Japan posted a 5% increase, of almost 1 million b/d, in refined product imports in 1994, with Middle East producers taking a more than 50% share of the market."

Incremental oil demand recently has been met by a rise in short and medium haul supplies, Drewry said, although projections to 2000 show a gradual move to long haul exports from the Middle East.

Yet the 28 million dwt forecast rise in tanker demand between 1994 and 2000 is said to represent a growth of only 2.1%/year, considerably less than the annual rise in recent years.

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