Oil-Tanker Market Expected to Rebound With Economy

Source: WSJ

By CLAIRE RANGEL

Oil-tanker companies, after posting heavy losses in the fourth quarter, are more optimistic for 2010 as the economic recovery is expected to stimulate oil consumption and boost shipping volumes.

Most publicly traded tanker companies, such as Overseas Shipholding Group Inc. and General Maritime Corp., lost money in the last three months of 2009 as tanker voyage earnings crumpled on reduced demand for shipping. Refiners were faced with huge oil stockpiles amid weak levels of fuel consumption as the recession dragged on, reducing the need for seaborne imports. Tanker market conditions are expected to improve, since a rebound in the economy should spur greater fuel consumption. Fleet growth is likely to be crimped by the phase-out of older, single-hull tankers and an expected delay in the delivery of new tankers.

"I'm celebrating that 2009 is behind us; last year was one of the most challenging of my 30-year career," Morten Arntzen, chief executive of Overseas Shipholding Group, said during a recent conference call. The company posted a loss of $23.2 million for the fourth quarter, with voyage revenue plunging 41% from a year earlier.

The shipping market is expected to benefit from rising long-haul trade this year as developing countries, such as China and India, increase oil imports from Latin America and West Africa.

A reduction in global oil inventories should also give a boost to the tanker market. Such a drawdown in stocks could lead the Organization of Petroleum Exporting Countries to ship more oil, Jeffrey Pribor, chief financial officer of General Maritime Corp. said on a conference call after his company posted a loss for the fourth quarter. He added that a recovery will also be dependent on a rebound in U.S. oil demand.

Last year's record-high flood of new tankers into the market that drove down rates is expected to abate. Estimates from tanker companies show the global oil-tanker fleet grew by a record 6.6% last year, but Norway-based Frontline Ltd. sees the fleet of very large crude carriers moderating this year.

With the phase-out of single-hull tankers to meet environmental rules and the likely cancelation and deferral of new ship deliveries, "we could have negative fleet growth for the year," Jens Martin Jensen, chief financial officer of Frontline said on a recent conference call. Frontline was one of the few tanker companies to eke out a gain in the fourth quarter, reporting a $3.9 million profit compared with a $51.6 million profit a year earlier.

Tanker companies, such as Frontline, say consolidation in the tanker sector was possible as the economy improves.

Frontline is "looking at everything: buying ships or chartering in, looking for new ideas and deals like everyone else out there," Mr. Jensen said.

Even with a glut of tankers in the market, not many are available for purchase, though some distressed sales by owners stuck taking delivery of a vessel that has dropped in value are possible, some executives said.