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08 December 2021 The on-line newspaper devoted to the world of transports 01:26 GMT+1

The Tanker market in 2004

Crude oil transport: a year of records


Objective factors  
Subjective factors  
Freight market
The second-hand market
The outlook 

see also : The transport of refined oil products

2003 was marked by a sharp difference between the high freight rates of the first and fourth quarters and a fairly significant drop during the second and third quarters.

If 2004 was also characterised by an endemic volatility of the markets, with signs of relative weakness in the second and third quarters, the short-lived dips never reached the lowest levels of the preceding years. However, the record levels of rates registered throughout the second half, with the exception of the month of December, will remain in the annals, even if one should moderate this excess somewhat with a particularly unfavourable dollar / euro exchange rate.

For more than 20 years and in all categories of tankers, has one seen freight at such levels with daily returns surpassing $ 200,000 per day for VLCC, flirting with $ 150,000 for the Suezmax and exceeding the $ 100,000 level for the Aframax. At the same time, crude oil prices broke the historic level of $ 50 per barrel for a brief period.

Such exceptional results, which few could have predicted with such a sustained strength, require a detailed analysis permitting on one hand to justify (or not) these record levels, and on the other hand, to try to predict in the medium term a forecast for a realistic evolution of our markets.

Objective factors

World oil consumption has been continuously rising for the past four years. Thus in the fourth quarter of 2004 world demand reached 82.5 million barrels / day, its highest level for over 10 years. Forecasts by the International Energy Agency predict a new probable increase in demand for 2005 of 700,000 barrels/day. OPEC production on its own is nearly 30 million barrels/day, its highest level since 1990.

Some countries have registered record increases in their demand. Compared to 2003, China saw an increase of over 20% of its imports (rising from 90 to nearly 120 million tons), with Brazil nearly 15% and India 11%. By comparison, Europe saw its needs increase by 6% and the U.S. by over 3%.

In the case of China and India, who played a minor role in world oil traffic only a few years ago, it is expected to see the rhythm of growth being maintained, which, given the size of these countries, will give them a preponderant position in shipping terms in the coming years.

The other objective factor explaining the steady rise of freight rates during the past two years, has been the selective quality of chartered tonnage. It has become more and more rigorous and the progressive elimination of single-hulled tankers is now a fairly standard generalisation. Parallel to this and, as we shall see later, the situation of the shipyards up until 2008 and the constantly rising price of newbuildings, justifies the attitude of owners and explains their optimism for at least two to three years to come.

Subjective factors

Despite the various objective elements which have just been cited, this certainly does not justify the extent of the freight increases which we have witnessed during the second half of 2004.

Some purely psychological factors, even speculative, can only explain the mad rising spiral which we have seen.

A fear of insufficient raw material helped foster the speculative increase in oil prices, and this psychosis pushed the level above $ 50 per barrel. Some even forecast a price of over $ 60 per barrel in the coming months.

While it is true that there is a problem of availability of sweet crude in the longer term, world proven reserves remain healthy and do not in any way justify the pronounced fears.

To illustrate this, the announced drop in American stocks, which largely contributed to the rise in crude prices, was only a very short term phenomenon. After the announcement at the beginning of December of much less alarming figures, oil prices rapidly plunged and went below $ 40 per barrel in less than a week. However OPEC's decision to reduce its production quota by 1 million barrels/day, has meant that at the end of December crude prices were up around $ 45 per barrel.

If numerous psychological factors have had a significant impact in these last months, one in particular seems important to us: the increasingly important part played in the market by "derivatives", in connection with both the oil and shipping markets. Particularly speculative, this market has certainly had an unforeseen effect not only on crude prices but also on freight levels.

After this general introduction, we shall try, as we do each year, to analyse each sector by type of tanker to enable us then to give a realistic synopsis of the past year and try to draw some conclusions and predictions for the short and medium terms.


This sector of the fleet undeniably remains the driving force today in the freight market. If we revert to the forecasts for growth and production over the coming years, we note the following main elements: in 2010 the share of production from the Arab-Persian Gulf will be about 42 million barrels per day or 47% of the estimated world production of around 89.3 million barrels per day. In 2020 the world production will be 107.3 million barrels per day and it is estimated that the Gulf countries will contribute around 58 million barrels per day. It is calculated that such a figure will require the presence of 27 VLCC per day to cover these exports, equal to an increase in the fleet of nearly 170 units in the next 16 years…

Even if these figures should be taken with some caution, it is nonetheless indisputable that the predominance of this geographical zone and this size of ship is here to stay.

As tangible proof: there was a montlhly average of 91 ships fixed out of the Gulf in 2002, this figure rose to nearly 120 in 2004 (+30 %). At the same time the fleet only increased by 5 %. This simple statistic explains already the strong surge in the freight rates.


As we have already stated, the increasingly preponderant share of exports to China and India plays an essential role in the evolution of these rates. One has seen in the last two years that the ratio East/West of exports has gone from 70/30 to about 75/25.

Parallel to this, one observes that in this category of size the proportion of single-hulls is the highest within crude tankers, namely some 40 % of the current fleet in service (177 ships). With less than 110 VLCC currently on order and a progressive and inevitable elimination of older ships, owners have good reasons to remain optimistic even if a large part of single-hull ships now in service were built at the end of the '80s or beginning of the '90s and still have a number of years' trading left.

With the main traffic bound to the East and Chinese and Indian owners up till now being the principal takers of single-hulls, the analysis of the evolution of freight rates is all the more significant.

On the three main routes in our graph, the average returns of a modern VLCC (on the basis of a simple round-voyage) have not stopped rising, going from $ 22,550 dollars per day in 2002 to $ 52,500 in 2003 and over $ 95,000 in 2004.

Over the past 12 months, the minimum return for a double-hulled VLCC was $ 41,000 per day in April and the record was achieved in mid-November with $ 228,000 per day.

In such a climate it is clear that the number of tankers being sent for demilition was low. At the same time few owners of modern ships were willing to fix their ships on long term charters. However on the basis of the few transactions concluded, we can estimate a time-charter rate for one year at about $ 80-85,000 per day, and at about $ 57,500 per day on the basis of a three year charter.


Minerva Eleonora
104,875 dwt, delivered in 2004 by Samsung HI, operated by Minerva Tankers


Generally speaking, this category experienced similar rate variations to those of VLCC, which is hardly surprising given the direct influence that one size has on the other.

As with VLCC, the average daily returns have been constantly rising over the past three years. On the basis of the two routes West Africa / Gulf of Mexico and cross-Mediterranean, these have moved from $ 20,500 per day in 2002 to $ 42,900 in 2003 and have slightly surpassed $ 70,000 in 2004.


If the rate movements have often been erratic, the returns have never been below $2 0,000 per day in 2004, the record being reached in mid-November with over $ 160,000 per day for a cross-Med movement.

Even though the voyages are short, we can see yet again that the driving force is the Mediterranean market and especially Russian exports out of the Black Sea. It should also be observed that this new improvement in freight rates has come about despite exports of Iraqi crude from Ceyhan being particularly weak and erratic following the successive sabotage of the pipeline feeding the terminal.

Exports of Russian crude have not stopped rising and the coming into service of the new pipeline between the Caspian Sea and Ceyhan should help reinforce the role of this zone as a barometer of the Suezmax market.

Record delays of over 20 days during the winter of 2003 in order to transit the Turkish straits have not been repeated. Thanks to new navigational rules and milder weather, round trip voyages have scarcely exceeded 10 days.

Despite an increasing share of exports being taken by VLCC out of West Africa (always with a proportion of 70/30 between East/West destinations), units of one million barrels continue to find a stable market in this zone.

While Nigeria remains the main exporting country, there has been significant and confirmed export growth from other countries, notably Angola, where deep sea drilling is being pursued at a sustained rhythm, justifiable in view of the current level of oil prices.

One has also seen a growing number of fixtures out of the Arabian-Persian Gulf at record freight rates this year, following the spectacular highs set by VLCC. Thus on some spot business rates have gone up to over Worldscale (WS) 400 for voyages to China.

As with other sizes, the elimination of old units has been particularly quick since for the fleet in service at the end of the year, there are only slightly over 20 % of single-hull ships.

Furthermore in line with the other categories, few owners were inclined to place their modern ships out on time charter, but rates can be estimated between $ 55-60,000 per day on the basis of a one year contract.


This market has been particularly boosted since the accidents of the 'Erika' and above all the 'Prestige'. Security measures adopted by the main players and the increase in trade movements has allowed owners with renewed fleets to obtain freight rates which give a rapid payback on their investment.

As an example and only on the European market, if the average returns were only $ 12,500 per day in 1999, they jumped to $ 40,000 in 2000 and then dropped to $ 21,500 in 2002, when the 'Prestige' accident in November 2002 totally overturned the supply / demand balance.

This European traffic has been in continual growth since 2002, as between the Mediterranean and the North Sea, the level has gone from 45 % to 50 % of all spot charters done world-wide.

Despite a more marked volatility compared to other sizes, the average daily returns have moved up from $42,500 per day in 2003 to about $58,000 per day over the last 12 months.

Proof of the extreme volatility of this market are the large variations in Mediterranean demand which often put freight rates into a roller-coaster movement, difficult to foresee and to control, but with a strong upward pressure. Returns on cross-Med voyages jumped from about $ 17,000 per day in April up to $ 110,000 per day at end October!


It should be noted that the record levels reached at the end of the year were the result a higher of demand, without any particular influence of delays due to bad weather, such as experienced in 2003 with the transit of the Turkish straits.

As to the structure of the fleet, today the proportion of modern double-hulled units is predominent. The survival of some single-hulled ships is limited to several Russian traders out of the Black Sea, but their days are numbered…

In the North Sea, freight variations and returns closely followed the trends in the Mediterranean with an average yearly rate working out at WS 189 on the short cross-North Sea voyages. In parallel there was also a strong progression of Russian exports out of the Baltic and Murmansk. For such voyages, even though ice-classed ships are now more numerous, rates continued to be extremely high since the beginning of the winter season (up to WS 440).

In the Caribbean market, with the rise in American imports to help reconstitute inventories, we saw an increase in local movements and the average annual rates were around WS 255 compared to WS 207 in 2003.

In such a situation, there were few transactions given that the spot market enjoyed a steep rise. Nonetheless, there are a number of owners who expect downward pressure in the months to come, which would then be a justification for some commitments to time charter contracts.


In face of the particularly erratic fluctuations in rates, any realistic prediction either for the medium or long term is a highly precarious exercise. The slightest event of either macro-economic or geopolitical nature will continue to have an impact on the freight markets.

Nonetheless, as with our preceding report, we consider that owners can reasonably expect to see freight rates remaining firm over the next two years. Even if on the economic front, various analyses suggest that there will be lull in the growth for a number of importing countries, the energy needs of China and India alone will continue to have a determining influence on the world tanker traffic.

It is however unlikely that we will see in the next 12 to 24 months the exceptional levels of freight rates experienced this year. We should witness a steady decline in the average rates and reach a level probably close to that of 2003, therefore still considerably in favour of owners.

The arrival of new units into the fleet is obviously a cause of concern, with such imposing numbers as the table below indicates. On the other hand we can expect that deletions will not be sufficient to compensate for the number of new units. A good number of Asian countries continue to use old single-hull ships and probably do not respect the letter of the law as laid down by international organisations.

As we did in our previous report, the study of the "eligible fleet" adds a clear indication to the forecasts, and gives an initial response which counterbalances the pessimism of those who only look at the massive tonnage arriving on the various markets.


This time we only compare the global tonnage at the end of 1998 (corresponding to the main criteria used at this time by the main charterers namely an age limit of 25 years) with what will be the figures in the coming years but only taking into account ships with double-hulls.

One observes that despite a constant increase in tonnage in each of the categories, none of the volumes surpasses the level achieved at the end of 1998.

The cost of new ships should continue to rise, especially with the continuing increase in the cost of raw materials from which they are built.

The organisation between owners leading to the creation of commercial pools should help avoid sudden drops in the market and allow freight rates to continue for a prolonged period at levels we have seen recently.

Finally, the drastic safety measures will continue to be reinforced and the balance between supply and demand, which determines the rates, will be more and more limited to the quality of ships effectively meeting the requirements imposed by the main charterers and not just by simple comparing supply and demand figures.

Shipping and Shipbuilding Markets in 2004


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