Constrained vessel supply and strong global demand for oil will continue to pressure crude tanker freight rates higher, according to a panel of tanker owners at the Marine Money conference in New York City.
"We are at the point of the cycle where we think it looks very encouraging," Frontline cheif executive officer Lars Barstad said. "The tanker market has been challenged for quite a few years, and the market actually owes us a lot of money. And we're looking forward to collecting that."
Time-charter equivalent (TCE) rates, which represent daily earnings or losses for shipowners, had been low and at times negative during the pandemic. But earnings for scrubber-fitted very large crude carriers (VLCCs) bound for China from Texas and Saudi Arabia have averaged $51,248/d and $56,295/d, respectively, since July 2022.
The International Maritime Organization's (IMO) rollout of new environmental regulations is keeping the orderbook for new crude tankers low as shipowners wait for new technologies to invest in, while sanctions resulting from the war in Ukraine have increased ton miles for Europe-bound oil, creating "very good" supply-demand balance, according to Navios vice chairman Ted Petrone.
"Our job in senior management is to poke holes in that, to see where the weaknesses are," Petrone said. "Outside of another black swan event, which seem to be coming more frequently, or China going into a recession even though they're importing more oil than they've ever done, it's hard for me to see any change."
Shipowners who invest in recently built vessels conforming to the new IMO regulations and outfit their current fleet with sulphur-scrubbing technologies will benefit from premiums paid by chartering agencies as the industry continues to shift to more sustainable practices.
But the premium paid by charterers for these eco-friendly vessels will depend less on the vessel itself and more on where the market is currently trading, according to Petrone.
"The biggest spread in rates is in the middle of the market," Petrone said. "At the top of the market, the bad ships get almost as much as the good ships, charterers just need a ship. At the bottom of the market, the more efficient ships have to reduce their premiums."
The oil supply side of the equation is the only area where it is "difficult to understand what is going on," Barstad said.
"If the ones advocating demand growth are right, we're going to run out of oil," Barstad said. "If the ones advocating for demand reduction due to shifting energy demand or recession are right, we're still actually going to be OK on the shipping side, so this is a pretty unique proposition we're facing."
