For owners of the supertankers capable of hauling more than 2m barrels of crude around the world, the crash in oil prices has been good for business.
After suffering five years of flatlining rates and shrinking profits, operators of Very Large Crude Carriers (VLCCs) are enjoying strong trading conditions for the first time since the financial crisis, when a glut of tankers came on the market just as demand collapsed.
Since the turn of the year, the cost of hiring a VLCC has jumped more than 50 per cent, with the rate for shipping oil from Saudi Arabia to Japan — the benchmark supertanker route — rising to almost $90,000 a day, a seven-year seasonal high.
For the big tanker companies such as Euronay, DHT Holdings , Teekay Tankers, Frontline and Nordic American , the oil market rout that started in 2014 is a boon that could allow them to reduce debt, invest in new vessels and reward shareholders that have stuck with them through the lean years.
“It’s a very favourable environment for ship owners,” said Svein Moxnes Harfjeld, joint chief executive of DHT Holdings, a New York-listed tanker company. “Companies such as ours are generating a lot of cash.”
A cyclical and volatile industry prone to booms and busts, the tanker market has three main drivers: demand for oil; the distance between producing and consuming regions; and the supply of new ships. They are all positive at the moment.
For operators who have only small debts and low operating costs, analysts estimate profits could be as high as $40,000 per tanker a day on the routes to China, as producers and traders try to find customers for a surplus of oil estimated at 2m barrels a day.
Even though output from high-cost oil producers is expected to slow next year, forecasts published this week by Opec, the cartel of oil producing nations, indicate the market will remain oversupplied by at least 1m/bd before adding higher supplies from Iran after this week’s nuclear deal.
The near halving in oil prices has helped increase shipments as China and India use the downturn to fill strategic oil reserves. Many oil refineries are also running flat out, as cheaper crude has boosted profit margins for selling petrol, diesel and jet fuel.
