London/New York: The worst market for supertankers since the 1973 Arab oil embargo is setting the stage for prices to double by the fourth quarter as ship owners scrap ageing vessels and delay orders for new ones.
Prices on the benchmark Saudi Arabia to Japan route will rise to at least $32,000 (Dh117,539) a day in the fourth quarter, from $16,007 now, Oslo-based Fearnley Consultants estimates.
That's more than the $26,994 shown by freight derivatives, contracts used by investors to speculate on future rates.
The collapse in shipping prices from a peak of $177,036 a day in July, to this year's low of $7,173 on April 16, and a ban on single-hulled vessels as soon as next year threatens to remove about 20 per cent of supertankers from service, says Fearnley, part of Astrup Fearnley.
New orders may also be delayed or cancelled as banks restrain lending and owners conserve cash, ship owners say.
"The amount of money needed to complete the order book does not exist in the world today," said Morten Arntzen, chief executive officer of New York-based Overseas Shipholding Group Inc, the largest US-based oil-tanker owner. "We see a net reduction of the trading fleet next year."
Shipping rates plunged as the Organisation of Petroleum Exporting Countries agreed to record production cuts to bolster crude prices, curbing crude cargoes. Demand for oil, which has tumbled 65 per cent from the record high in July, will decline for the second year, the first back-to-back drop since 1983, according to the Paris-based International Energy Agency.
"This market is as bad as I can remember it since the oil crisis from 1973 to the 1980s," said Charlie Fowle, a director at London-based shipbroker Galbraith's Ltd. This time, dozens of ships can be scrapped and output from the Caspian Sea to West Africa to the Caribbean has grown, providing additional cargoes, said Fowle, who was a junior broker in the 1970s.
Back then, some new ships were demolished before ever carrying a cargo, according to Martin Stopford, a director at London-based Clarkson Plc, the world's largest shipbroker.
Other tankers turned off their motors and relied on ocean currents to float to their destinations to save fuel, according to Per Mansson, managing director of shipbroker Nor Ocean Stockholm AB in Stockholm and a sailor on tankers at the time.
The speed of the global supertanker fleet is averaging 9.43 knots with 96 carriers at anchor this year, compared with a peak of 10.6 knots and 58 anchored vessels in July, data compiled by Bloomberg show.
Tanker rates more than quadrupled in 2007 as the supply of ships failed to keep pace with what BP Plc said was the 14th consecutive annual increase in oil demand. Ship owners had already started amassing the largest-ever tanker order book, said Sverre Bjorn Svenning, an analyst at Fearnley Consultants.
Twenty supertanker orders will be delayed each year through 2012 and 14 cancelled overall, according to Niklas Bengtsson, a project manager at a unit of Lloyd's Register-Fairplay, the world's largest provider of shipping data.
Shipyards in South Korea, China and Japan would suffer the most, since those builders have all but two of the 143 orders for very large crude carriers, according to data from Redhill, UK-based Lloyd's compiled by Bloomberg.
Ship owners may benefit from the start of a phased ban on single-hulled tankers as of next year, after 151 countries decided that two layers of steel are better than one for preventing oil spills. BP, Europe's second-largest oil company, says it won't use single-hulled vessels because of the risk of leaks.
While orders to scrap the ships have yet to start, "the time is coming, and it's close," said Anil Sharma, president of Cumberland, Maryland-based Global Marketing Systems Inc, the world's largest cash buyer of ships sold for scrap.
Owners of ageing vessels should "seriously consider scrapping earlier rather than later," Helmut Sohmen, chairman of Bermuda-based ship operator BW Group Ltd, told a conference in Singapore on April 21.
Almost all the 110 single-hull supertankers in service will probably be decommissioned by the end of 2010, according to Jens Martin Jensen, temporary CEO of the management unit of Frontline Ltd, the world's largest operator of supertankers.
