A lack of spare oil tankers and an increase in OPEC production are driving shipping rates to records, said Morten Arntzen, CEO of Overseas Shipholding Group, the largest U.S.-based oil tanker owner.
"This is the first time in 31 years that we've had close to 100 percent utilization of the world's tanker fleet," Arntzen said last week. "Right now there is almost a perfect balance between supply and demand."
Ninety percent utilization of the world's tanker fleet is considered full use by the industry. Above that level, daily rates to ship oil have tended historically to double, according to Teekay Shipping, the world's largest shipping company.
Higher rates caused third-quarter 2004 earnings for tanker owners to surge up to 10 times over from a year earlier. Overseas Shipholding boosted earnings by a factor of five, and Teekay saw its profit jump more than tenfold. Fourth-quarter earnings may show steeper gains because rates have climbed since late September.
Royal Dutch-Shell Group of Cos. chartered the Crown Unity, one of Overseas Shipholding's 22 very large crude carriers, to transport 2 million barrels of oil from the Arabian Gulf to Europe last week for $183,113 a day, according to data compiled by Bloomberg and a formula on the Web site of Norway-based ship broker R.S. Platou.
That's more than 10 times Overseas Shipholding's break-even cost of $17,400 a day for such giant crude carriers.
"What caught everybody by surprise this year was the increase in OPEC production," Arntzen said.
The distance to ship oil from some members of the Organization of the Petroleum Exporting Countries, such as Saudi Arabia and Nigeria, to leading importers, including the United States and China, takes tankers out of the market longer than would shorter voyages.
"OPEC production by geography creates more ton-mile demand for tankers," Arntzen said. "It's the nature of where the oil comes from." That extra ton-mile demand has helped push tanker rates to levels not seen for thirty years.
The New York-based company entered the liquefied natural gas market last week by forming a joint venture with Qatar Gas Transport to buy four LNG tankers for $924 million. The tankers, owned 49.9 percent by Overseas Shipholding and 50.1 percent by Qatar Gas, will enter 25-year time-charter agreements upon delivery in 2007 and 2008 to transport LNG to Great Britain from Qatar for Qatar Liquefied Gas.
LNG tankers are expensive, costing about $200 million versus $100 million for a new giant crude carrier.