Bloomberg News

Record U.S. Gasoline Cargoes Drive 17% Gain in Tankers: Freight

October 04, 2011

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Oct. 4 (Bloomberg) -- Record U.S. exports of gasoline and other refined oil products are poised to eliminate a glut of ships hauling the fuels next year, driving freight rates to a three-year high.

Shipments in the first nine months were 24 percent higher than a year earlier, led by cargoes to Latin America, Energy Department data show. Costs to hire medium-range tankers, holding enough gasoline to fill about 800,000 cars, will gain 17 percent to $14,000 a day next year, according to the median of seven analysts surveyed by Bloomberg.

U.S. nine-month crude-oil output rose 1.7 percent, the highest for the period since 2003. Gasoline demand fell 3.7 percent in July to the lowest for the month in 11 years. At a time when ships hauling crude and coal are forecast to lose money for at least another two years, product tankers may break even as early as 2012. Billionaire Wilbur Ross completed his first shipping investment last month, joining a group of investors buying a fleet of 30 fuel carriers.

“We’ve seen a fundamental shift in the trading of oil products to and from the U.S. over the past three to four years,” said Thomas Zwick, an Oslo-based analyst at Lorentzen & Stemoco A/S, a shipping consultant. “That’s been a huge help to ship owners. It’s given small-tanker markets moderate gains rather than catastrophic losses since the financial crisis.”

Eight Times Bigger

Rates for medium-range tankers averaged $10,617 a day this year, 9 percent more than in 2010, according to data from the London-based Baltic Exchange, which publishes assessments for more than 50 maritime routes. Rents will average $12,000 this year, the Bloomberg survey showed.

Supertankers, which are as much as eight times bigger, earned a daily average of $689 this year. Capesizes, carrying coal and iron ore, averaged $11,593 a day, down 65 percent from last year, bourse data show.

The surge in U.S. exports is also boosting earnings on the Europe-U.S. route, the industry’s benchmark. More vessels that used to sail back across the Atlantic empty after delivering cargoes to the U.S. are now getting consignments on the return leg and to Latin America, said Nikolaj Kamedula, an analyst at SEB Enskilda in Copenhagen. Rates on the route rose fourfold in two weeks to $11,496, Baltic Exchange data show.

Gulf Coast Exports

Exports from the Gulf Coast are driving the expansion in U.S. cargoes. Refineries in the Midwest sent 22 percent more gasoline and other refined products to the Gulf Coast this year than in 2010, Energy Department data show. Benchmark West Texas Intermediate crude traded yesterday at a 23 percent discount to Brent, the grade used by refineries in Europe. A U.S. refinery now makes $27.44 from refining a barrel of crude into gasoline, compared with $4.44 in Europe, data compiled by Bloomberg show.

U.S. gasoline demand fell 1 percent to 8.96 million barrels a day in July, the lowest for the month since 2000, Energy Department data show. Regular-grade gasoline averaged $3.417 a gallon at gas stations as of Oct. 2, from as much as $3.985 on May 4, data from the American Automobile Association show.

Refined-product shipments to Latin America from the U.S. and Europe jumped by about 50 percent from July to September, according to Tina Revsbech, head of tankers at Hellerup, Denmark-based Torm A/S, which operates about 140 tankers. The surge is increasing voyage lengths and reducing the number of vessels competing for cargoes.

Drilling Wells

Gains in charter rates for medium-range tankers, each about 179 meters (590 feet) long, may be curbed by slowing economic growth. The International Monetary Fund cut its world growth forecasts to 4 percent for this year and next on Sept. 20, compared with earlier respective estimates of 4.3 percent and 4.5 percent. About $12 trillion was wiped off the value of equities since May on mounting concern economies will tip back into recession.

In 2008, during the worst global recession since World War II, gasoline demand slipped 0.6 percent, the first retreat in more than a quarter century, according to London-based BP Plc. Consumption of all refined products fell in 2008 and 2009, curbing demand for tankers.

U.S. oil output may also slow as prices drop. Crude traded on the New York Mercantile Exchange slumped 34 percent from a 2 1/2-year high of $114.83 a barrel in May. There were 2,922 wells being drilled for exploration or development in August, 74 percent more than a year earlier and the most since 1986, Energy Department data show.

Order Book

The average of $14,000 a day for medium-range ships predicted for next year in the Bloomberg survey would still leave some tankers close to break even. The vessels need about $13,800 a day to cover operating and financing costs, according to accountant Moore Stephens International Ltd. and ICAP Shipping International Ltd. Breakeven rates vary by company and fleet depending on vessel ages and purchase terms.

Shares of Torm plunged 82 percent in Copenhagen trading this year, heading for the worst annual performance in 16 years. It will report a loss of $147.2 million this year and won’t make money until at least 2014, the mean of as many as nine analysts’ estimates compiled by Bloomberg show.

All eight analysts covering Monaco-based Scorpio Tankers Inc. recommend buying the shares. Scorpio, which began trading in March 2010, will report a loss of $7.43 million this year and profit of $6.1 million in 2012, according to the mean of five estimates. The shares dropped 51 percent this year. Shipments from the U.S. are helping to offset the effects of a decline in European gasoline exports across the Atlantic, Scorpio president Robert Bugbee said by phone today.

Transport Costs

Rates for medium-range tankers are also rising because there is a smaller glut of vessels than in supertankers or capesizes. There are 1,500 of the vessels and the total order book at shipyards worldwide comes to 11 percent of the existing fleet, according to Fearnley Consultants A/S. That compares with 16 percent for supertankers and 30 percent for capesizes, according to Redhill, England-based IHS Fairplay.

Supertankers on the industry’s benchmark Saudi Arabia-to- Japan route will make no more than $13,818 a day through the end of 2013, according to annual forward freight agreements, traded by brokers and used to bet on future transport costs. Frontline Ltd., the biggest operator of the vessels, says it needs $29,800 to break even. Capesizes require about $20,000, and annual rates won’t exceed that level until at least 2017, according to FFA data from the Baltic Exchange.

Ross, the billionaire chairman of private-equity firm WL Ross & Co., and his co-investors spent $900 million on product tankers. Shipping may be “relatively close” to a bottom, he said in an August interview. Transactions across the “highly fragmented” industry will probably accelerate, Ross said at the Bloomberg Dealmakers Summit in New York on Sept. 27.

“There’s such a negative sentiment about the shipping industry as a whole that the whole sector is getting flushed,” said Jonathan Chappell, an analyst at Evercore Partners Inc. in New York. “Product tanker owners should be an exception to that because the extra U.S. shipments to Latin America have helped the vessels to outperform.”

--With assistance from Isaac Arnsdorf in London. Editors: Stuart Wallace, Dan Weeks

To contact the reporter on this story: Alaric Nightingale in London at

To contact the editor responsible for this story: Stuart Wallace at

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