US Shale Boom Causes Oil Tanker Rates to Fall to 16 Year Low

Owners of Suezmax oil tankers, which can transport a million barrels of crude, are struggling to breakeven as a variety of factors work together to lower daily shipping rates to their lowest levels in 16 years.

Euronav Suezmax tanker (Euronav)

The US shale boom has enabled North America to produce its largest share of domestic energy needs since 1986, with daily production at 7.26 million barrels at the end of June. This means that demand for crude imports has fallen to its lowest level since 1996, according to the Energy Department.

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Clarkson Plc., a leading shipbroker, has predicted that seaborne imports of crude to the US will fall to 5.4 million barrels a day, an 11% decline.

Frode Moerkedal, an Oslo-based analyst at RS Platou Markets AS, told Bloomberg that "domestic oil is crowding out West African imports. Overall trade has been declining because nobody is picking up the slack from the U.S."

This is compounded by the fact that in 2008, when daily rates were at an all-time record of $155,000 a day, companies ordered a huge number of Suezmaxes to increase the markets capacity by 40%, just before the global recession began.

Clarkson has said that now a Suezmax charges $10,652 a day, the least since 1997, and 55% lower than breakeven, according to Euronav NV, which claims it requires rates to be $23,600 a day.

Paddy Rogers, the CEO of Euronav explained that the market needed to lose 50-60 tankers from the fleet of 480, in order to reduce the capacity glut and increase rates.

Suezmax owners are hoping that the demand lost from the US will be taken up by China, who this year is expected to import almost as much crude via sea as the US for the first time ever. Unfortunately much of the crude travelling to China from West Africa is done so by very large crude carriers (VLCC) which are cheaper per tonne of cargo. According to Galbraith Ltd., a shipbroker in London, VLCC's shipped 44% of oil from West Africa last month, up from 38% in 2012.

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Tanker making its way down the Suez canal. (Wikipedia)

Another source of hope for the Suezmax is increased demand from Europe, as the Suezmax is the largest tanker able to navigate the Suez Canal that leads to the Mediterranean.

By. Joao Peixe of Oilprice.com