Page 39: of Maritime Reporter Magazine (June 1998)

THE TANKER MARKET

America, the North Sea and latter- ly resumed exports from Iraq have all supported demand in this sector of the market.

Demand (including Panamax tankers) was assessed to have risen by 2.4 percent in 1997 follow- ing on from a 3.4 percent gain in 1996. The impact on freight rates on the main trades was for spot market earnings growth of around 30-50 percent between 1995 and 1997. However, in 1Q98 there has been a perceptible weakening in the market prompted by a combi- nation of mild weather and increasing deliveries to the fleet.

The Aframax fleet absorbed deliveries of 561,000 dwt in 1996 and 1.8 million dwt in 1997, with deletions of just 280,000 dwt in 1996 and none recorded in 1997.

With the aforementioned increase in demand it is not surprising that freight rates rose. But as we enter 1998. a total of 3.1 million dwt is due to be added to the 198,000 dwt total from the first three months of the year. And with 78 orders placed in 1997, totalling 7.6 million dwt the 62.1 million dwt fleet is likely to remain under pressure for some time to come.

Admittedly, in 1997 increases in long haul supplies from the OPEC producers were underestimated, as the IEA had anticipated a near two million bpd increase in non-OPEC production whereas the 1997 out- turn was just 700,000 bpd. But there is no reason to suppose that there will be any meaningful reduction in OPEC output in 1998.

And if there is, then this is likely to be in the context of a wider cut in production that would have impli- cations for all sectors of the tanker market anyway.

As noted, some of the 20-25 per- cent decline in first quarter 1998 spot market earnings is due to sea- sonal anomalies. However, the fact is that rates are likely to remain under pressure over the remainder of 1998. Given the relative strength in freight rates in this sector in the last couple of years and fact that the age profile of the fleet is relatively youthful, a sharp run up in demolition levels is not likely to turn the market's for- tunes. Instead the emphasis will be very much on the demand side.

Provided the U.S. continues to import increasing volumes of Latin and South American crude, that additional North Sea output is closer to the more optimistic expec- tations, and that Iraqi exports into the Mediterranean are sustained, rates may be cushioned.

June, 1998

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But there are also downside risks, with 18 or- ders placed for ton- nage in the first three months of 1998. Also, low crude oil prices will affect

Venezuelan crude production and may delay some North Sea pro- jects. This sector on balance must look for a reduction in rate levels in the near term, but with the likelihood that they will settle some way between the 1993/94 lows and 1996/97 highs.