Tanker owners are enduring a fifth year of declining rates as fleet growth outpaces China’s demand for oil from West Africa, according to a Bloomberg report.
China’s lowest oil imports from West Africa in at least two years are reducing demand for tankers on the world’s third-longest trade route, prolonging the worst rates in more than a decade for Frontline Ltd. and other owners, the report said.
The voyage to China from West Africa takes about 34 days, compared with 20 days from the Middle East, ICAP Shipping estimates. The longest trade route for oil tankers is between Venezuela and China, followed by the Middle East and U.S.
Chinese refiners will buy 28 percent less West African crude this month than a year ago, the lowest since August 2011, according to loading plans and a Bloomberg News survey of eight traders. Shares of Frontline, which operates 32 very large crude carriers, will drop 38 percent in 12 months, the average of 14 analyst estimates compiled by Bloomberg shows. Euronav SA, with 13 supertankers in its fleet, will see shares drop 24 percent, the forecasts show.
China will buy 702,833 barrels of West African crude per day this month, compared with 973,917 a year ago, the survey and loading programs showed. Total Asian imports from Angola and four other African nations will reach an 18-month low of 1.5 million barrels a day, the data show.
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China’s preference for cheaper Middle East oil over West African supplies means transportaton is cut by 42 percent, increasing the capacity of the fleet, according to ICAP Shipping International Ltd., a London ship broker. Adding to freight woes are changes in trade flows as the U.S., the only country that buys more oil than China, meets the highest proportion of its energy needs since 1986, the report said.
“To avoid an even weaker market, owners will need significant support from shipments out of other areas,” said Simon Newman, London-based head of tanker research at ICAP.
Each as long as three football fields, very large crude carriers hold 2 million barrels of crude. Daily earnings for these giant carriers plunged 92 percent this year to $1,515 on Aug. 30, according to shipbroker Clarkson Plc. Rates averaged $7,397 since the start of 2013, on course for the lowest annual level since at least 1997. They peaked at $229,484 in December 2007.
Billionaire shipping investor John Fredriksen says Frontline ships need $25,000 a day to break even. Company shares fell 20 percent to $2.43 in Oslo trading this year, according to the average of 14 analyst estimates compiled by Bloomberg. Hamilton, Bermuda-based Frontline’s net loss will widen to $144.7 million this year, analysts predict.
The industry has about 75 too many very large crude carriers, equal to 13 percent of the fleet, and owners need to scrap more ships, said Jens Martin Jensen, CEO of Frontline’s management unit.
Tensions in the Middle East could lead to higher tanker rates in the fall, Jensen said.