Market development

 

For the year as a whole, product tanker market rates were on average 12% below the 2006 level, measured on the Baltic Exchange Clean Tanker Index (BCTI). In the tanker market in general, a fine balance has in recent years existed between supply and demand, which has contributed to major volatility. 2007 was no exception.

 

In the first half, the Atlantic market was strong. US demand for refined oil products grew, and was increasingly met by means of imports, as the US refineries generally had difficulty in meeting demand, in addition to which a number of refineries underwent extended maintenance work. The second half was characterised by forward oil prices being lower than the spot market (backwardation). This meant that the demand for crude oil dropped, and stocks were drained. This rubbed off on the product tanker market, reaching its lowest level since 2002 in October, before the winter market caused rates to rise again. The year ended the way it began, with a major difference between the Atlantic and Asian markets, although this time the Asian market was the strongest.

 

The market volatility was concentrated around the spot market, while the fundamental belief in the tanker market proved to be strong throughout the year. Both the period market and vessel values in the first half rose, affected only to a limited extent by the weaker spot market during the second half. The prices of secondhand modern MR product tanker tonnage rose by 9% in 2007.

 

The demand for product tanker tonnage is largely driven by the geographical distances between oil refineries and the major consumer areas. This trend is expected to become even more pronounced as the planned expansion of refinery capacity is predominantly in the Middle and Far East, while the major consumer areas are principally North America and Western Europe. This gradual change in transport patterns increases the amount and distance of sea transports of refined oil products and is an important factor behind the rising demand.

 

With a low overall rise in the oil demand of 1.4%, the demand for crude oil and product tanker tonnage rose by just 2.7% and 1.8% in 2001 (source: Lorentzen & Stemoco), whereas the tanker fleet grew by 5.2%. The market thus maintained attractive levels despite the unfavourable development in the balance between supply and demand.