After a summer of record refining margins, yet another symptom of tight capacity in the oil industry surfaced this quarter. A shortage of tankers pushed freight rates to 30-year highs as producers continued to push more oil onto the market. The surge in freight rates, which began in the VLCC market at the end of September, soon spread to other sizes of vessels, distorting arbitrage spreads and restricting the normal inter-regional movement of crude and products.
Tanker owners have not enjoyed such a bonanza since the early 1970s. Freightrates for VLCCs(250,000 tonne and over) rose from Worldscale (WS) 80* in early September to around WS 300 late last month, taking the cost of moving crude from the Middle East to the US or Singapore to over $6/bbl. This year’s increase in oil demand appears to have caught the tanker industry by surprise. The volume of oil being transported around the world is greater than ever before, and the capacity of the tanker fleet has not kept up with the extraflows.
Global liftings have averaged almost 37 mbpd over the last six months, an increase of 1.5 mbpd on the same period last year. Unlike previous years, this high level of loadings has been sustained consistently month to month, boosting the volume of oil at sea and increasing the pressure on the tanker fleet’s capacity. Since June this year, the average month-to-month variation has been just 80,000bpd compared with an average 800,000 bpd in the previous two years.
In addition to high volumes, there has been a structural shift in the nature of world trade as more oil moves longer distances between producers and consumers. Liftings from the Mideast Gulf have risen sharply this year along with OPEC production, but Asian refiners’ demand for light, sweet crudes from the Atlantic Basin has also led to a boom in long-haul trade from West Africa, the Mediterranean and South America to the Far East. Eastbound shipments from West Africa this year are 40% up on 2003. This combination of a rise in global liftings and more oil moving on longer journeys has stretched tanker capacity to the limit this quarter.