2007

Same Market Different Views

The wonderful thing about being human is that each person can look at the same facts and come away with a different view or perspective of what the information means. We will leave the theorists to determine whether the influences are chemical, biological or environmental and just enjoy the results of these analyst’s views of the oil market.

On Wednesday, Jonathan Chappell of J.P. Morgan Securities Inc. reiterated his 2007 outlook for the tanker market suggesting that tanker spot markets will continue their decline in 2007. His argument is supply side focused where the “…massive capacity additions (the highest since 1976) and limited scrapping [will] more than [offset] modest demand growth.” Bearing in mind that the supply side is always easier to quantify, Mr. Chappell applies a multiplier to the IEA’s forecast of oil demand growth of 1.7% or 1.43 mbd to calculate a need for 12.9 mdwt of new tanker capacity versus a net fleet increase of 25.6 mdwt (34.1mdwt delivered less 8.5 mdwt removed). Despite the significant supply overhang as well substantial deliveries in the next two years, he sees a measured decline in 2007 of 18-32% in crude tankers and 9-12% in the products tankers. On the other hand, support for rates comes from demand growth, which remains above the 20-year average of 1%, and J.P Morgan’s economic forecast of a relatively solid global economy alleviating concerns about a recession. Other support comes from changing trade patterns with a concomitant increase in the ton-mile multiplier, together with phase-outs, discrimination against single hulls and scrapping.

This is only an excerpt of Tanker Analytics – 01/11/2007

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