Kate Mackenzie Storing up a supertanker problem

Oil industry participants and commentators of all creeds are forecasting prices will ultimately rise, perhaps even causing a supply squeeze, as lower prices stifle investment in future production.

Could we see a similar price spike in oil shipping prices as a result of cancelled and delayed orders? Bloomberg reports some shipowners and brokers are predicting prices could rise as soon as the second half of this year, and one of the key causes, they argue, would not be higher oil prices – which many do not expect until 2010 – but a decline in investment similar to what the oil market itself is expected to suffer.

FT Alphaville wrote earlier this month that tanker rates for both ‘dirty’ (crude) and ‘clean’ (products such as gasoline) cargoes fell almost as quickly, if more erratically, than the better known Baltic Dry Index rates decline in October/November. Rates have fallen in some cases to less than a tenth of their previous costs.

Now some are saying these losses could begin to be clawed back: Oslo-based shipping consultancy Fearnley Consultants A/S estimates that prices on the benchmark Saudi Arabia-Japan route could double in the second half of this year. Current prices do not always cover the costs, and one broker says shipowners are in effect paying to ship oil in orderto maintain relationships with customers.

Much of the speculation about a future price rise is based on delayed and cancelled orders. “The amount of money needed to complete the order book does not exist in the world today,” one shipping executive is reported as saying.

In addition, Fearnley says ban on single-hulled vessels as soon as next year threatens to remove about 20 percent of supertankers from service.

Some were comparing the current downturn to that seen after the 1973 oil embargo:

Back then, some new ships were demolished before ever carrying a cargo, according to Martin Stopford, a director at London-based Clarkson Plc, the world’s largest shipbroker. Other tankers turned off their motors and relied on ocean currents to float to their destinations to save fuel, according to Per Mansson, managing director of shipbroker Nor Ocean Stockholm AB in Stockholm and a sailor on tankers at the time.

However equity markets are not so bullish: Bloomberg points out its five-member Tanker Index has so far fallen 31 per cent this year.

Related stories:

Supertanker rates to jump on losing single-hull ships (Bloomberg)
Tanked (FT Alphaville)