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SCMP Reporter

The improvement in tanker freight rates is now well established and optimism has become more widespread, according to the latest survey by British consultants Drewry.

 However, Drewry said the sustainability and strength of the recovery still were uncertain.

 The consultants said the volatility and unpredictability of the tanker market had been apparent in the first four months of this year.

 'The seasonal improvement in freight rates has generally surpassed expectations, being supported by rising crude exports from Iraq and an array of arbitrage trades,' the study said.

 'In the last 12 months, the market's uptrend might have been masked by seasonal movements.'  Drewry said firm spot rates had sustained interest in acquiring modern tankers.

 As newbuilding prices continued to decline and long-term confidence in the market grew, there had been an explosion of orders for new tankers.

 The first four months of 1997 saw more orders placed than in all of 1995, and more very large crude carriers were ordered than in the whole of 1996.

 Drewry said that while the recent surge in tanker demand effectively had removed any uncertainty from the 1997 forecast, the level of tonnage now scheduled for delivery in 1998 meant that further orders could create some risks.

 The consultants said they still believed that 1998-99 would mark a cyclical market peak and that rates had the potential to peak 500 per cent above their 1996 averages.

 The study concluded that rapid growth in oil output from the Atlantic Basin would continue to impinge on Middle Eastern supplies, giving further impetus to the development of trades from the Black Sea, North Sea and West Africa.

 This trend is set against the background of steadily increasing oil consumption. Excluding the former Soviet Union, consumption growth between 1990 and 1995 was 12.3 per cent.

 This was despite the fact that oil's share of the world energy market stayed constant, about 40 per cent.

 The study said the tanker fleet inevitably would contract, with the average age of vessels leading to retirement levels which would require a substantial degree of new ordering.

 It said that even modest tanker demand growth, in the region of 1 per cent per year, would translate into a meaningful tonnage requirement.

 The report contended that freight rates were moving inexorably towards a new peak.



Optimism buoys tanker market