The MR2 clean products trade in the Atlantic Basin provided a glimmer of positive market sentiment in 2011. Trade in the region was supported by a variety of factors that managed to absorb tanker capacity. These were the reduced refinery utilization on the US East Coast (PADD 1) and in Europe in the wake of declining demand, combined with the rising cost of crude imports and healthy economic activity in Latin America. Throughout the year, refiners on both sides of the Atlantic announced refinery closures, totaling roughly 1 million b/d of capacity due to persistently weak margins.
The operating cost structure of a vessel is similar across all sectors in the tanker industry. Cargo handling costs are negligible as compared to the general cargo or dry bulk sector. Port, fuel, canal and other voyage costs are incurred, their magnitude dependant on the voyage itinerary in question. Fuel costs and therefore fuel conservation measures play a much bigger role in liquid bulk transport as the major trades, especially for larger vessels, are primarily long haul with the majority of voyage time spent underway at sea.
On the back of the continued weakness in the global economy, oil market disruptions and over capacity, tanker contracting fell to 109 last year, its lowest level since peaking in 2006. Given the current size of the fleet, which stands at 3,498 tankers above 27,500 dwt, contracting is expected to remain low in the short-term. The availability of loans to the shipping industry will remain limited in the current economic environment. This should help the market gradually return to balance as it should continue to limit new tanker orders.
In our recently published 2012-2016 Tanker Market Outlook we noted that demand to transport crude oil and residual fuels contracted by roughly 2% from 2010 to 2011. The market for clean petroleum products posted slightly better results, rising by around 1.5% during the same time period.