Since the onset of the global economic downturn in 2008, on average, tanker earnings have been less than half the level achieved during the preceding ‘boom’ period in 2003-08. Taking a look at earnings in some of the major tanker sectors since the start of 2009, it is apparent that there have been some rather large fluctuations within this period itself, but how can these be put in context?
A Tool Of The Trade
One way of comparing the health of tanker earnings across different vessel types is to create an index calculating the ratio of average spot earnings to estimated operating expenses (OPEX). The result is a percentage representing earnings as a multiple of OPEX. For instance, an index of 100% implies that earnings equal operating costs. A range of these indices are illustrated on the Graph of the Month, but what story do they tell?
Above Average Performance?
Comparing the recent tanker ‘upturn’ period (roughly from Q4 2014 to Q1 2016), to 2009-17 ytd as a whole, it is apparent that during the former, the tanker market performed strongly. The ‘upturn’ followed the oil price crash, with subdued oil prices spurring inventory building and boosting tanker demand. During the ‘upturn’, the index was almost double the average level in 2009-17 ytd across each of the featured vessel sectors.
Who Struck Gold?
Assessing performance across the sectors during the ‘upturn’ of Q4 2014 to Q1 2016, VLCCs topped the table with an index of 594%, earning on average almost six times their OPEX. By the end of 2015, VLCC earnings were over $100,000/day. The Suezmax and Aframax sectors weren’t far behind, with average ‘upturn’ indices of 476% and 447% respectively. However, MRs lagged behind, earning less than three times their OPEX. Evidently, the larger crude tankers outshone their smaller products counterparts considerably during the ‘upturn’. For instance, the increase in the index for a VLCC in the ‘upturn’ from 2009-17 ytd as a whole was nearly 300%, almost three times greater in magnitude than that for an MR. This was aided by favourable fundamentals, with crude fleet growth of 0.8% in 2015 compared to 5.9% in the products fleet.
Where Are We Now?
So far in 2017, the tanker market has eased back further, with the indices for the major tanker sectors having fallen by around half since the ‘upturn’. Firm crude tanker deliveries of over 10m dwt in the first four months of 2017 have driven crude fleet growth of a robust 2.4% since the start of the year. Output cuts by major exporters have also contributed to weaker fundamentals, and all featured sectors currently have indices below the post-downturn average (although earnings still remain above OPEX).
So, the index featured here allows for the relative performance of vessel earnings over time and across sectors to be put in context. Post-downturn there has still been a high degree of fluctuation in tanker earnings and although market performance appears to have eased back lately, recent history offers an example of significant upside too.