Private Equity Funds Invest In Ships

Up until now, those involved in owning ships have been individuals or families,
mainly in Europe.

The world is changing, and private equity funds in the U.S. have decided
now is a good time to start buying ships, especially tankers.

There is a lengthy article in Bloomberg, highlighting this, as well
as how the demand for oil and oil products will change, due to
refineries being built in China, and the waning of the European and
U.S. economies.

As I have stated before, the U.S. economy will soon be overtaken (if not
already) by China and India.

From Bloomberg
Billionaire Wilbur Ross is betting that the slump in shipping which drove oil-tanker returns to a 14-year low and rates for commodity carriers to the cheapest in a decade is ending.

The 73-year-old, whose New York-based WL Ross & Co. manages about $10 billion in assets, is part of a group spending $900 million on 30 ships hauling gasoline, diesel and other refined products. It is Ross’s first shipping investment and deploying “another few hundred million” in the industry “is certainly easy to do,” he said in interviews on Aug. 5 and Aug. 12.

That outlook contrasts with the pessimism of John Fredriksen, the founder of Frontline Ltd., the biggest operator of the largest crude carriers. The 67-year-old billionaire said in May it would probably be another year or two before ship values collapse and he can start adding to his fleet.

“The history of the industry is one that goes from immense prosperity to immense poverty and back again, and we think that’s going to continue,” Ross said by telephone. “We’re not necessarily at the exact bottom of the cycle, but we think we are relatively close to it.

Demand for shipping will strengthen because new refineries are being built in China and India, increasing the distance that vessels have to travel to deliver crude and pick up refined-oil products, Ross said. That will compensate for a “lackluster” U.S. economy, Europe “in much the same condition” and “very modest” growth in Japan, he said.

click here for link to article

Tanker rates below cost

Some companies have started scrapping tankers, especially the single hull ones.
The rates are depressed, and new buildings coming out, putting more pressure on the rates.

Maersk is trying to delay delivery of new tankers, and even trying to get a price cut on orders placed for new buildings.

The tanker market was the one "bright spot" in international shipping, but it too has gone.

As with everything, until the supply more closely matches the demand, the rates won't be very good. Some are considering lay-up, but apparently with tankers, that becomes problematic due to recertifications which must be obtained to carry oil.

From Bloomberg

Ship owners are contributing $703 a day toward fuel costs to ship Middle East crude, according to the London-based Baltic Exchange. Rates have been below operating costs since July. Should the losses persist, some owners may choose to idle their ships, according to Jens Martin Jensen, Singapore-based chief executive officer of Frontline’s management unit.

“If you see another quarter, then I think owners have to do something,” Jensen said by phone today. “We are subsidizing oil companies.”

The Organization of Petroleum Exporting Countries has cut output by 4 percent this year to 28.4 million barrels a day, according to Bloomberg estimates. Over the same period, the fleet of in-service supertankers has advanced 5.8 percent to 528 ships, according to Lloyd’s Register-Fairplay data on Bloomberg.

The five-member Bloomberg Tanker Index, led by Frontline, dropped 19 percent this year, extending last year’s record 49 percent slump. Frontline rose 3.20 kroner, or 2.5 percent, to 132.70 kroner as of 2:46 p.m. in Oslo, valuing the company at 10.3 billion kroner ($1.7 billion).

click here for link

How many oil tankers are storing oil?

Back in January 2009 there were reports of oil tankers being chartered just to store oil. Speculators were guessing the price would go up, and it has. Probably more so due to all this speculation than actual demand.

Oil prices are rising way ahead of reality, way ahead of fundamentals,” said Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt. “It would be more reasonable for prices to drop a little and correct to $50 or below.”

And, how many ships are storing oil? I don't know how many, but it's gotta be a bunch.

There’s enough unsold crude stored in offshore tankers to supply the U.S. for a week,

click here for complete article from Bloomberg

520 Oil Tankers used for storage

I haven't talked much about the oil tanker market. This market hasn't had the financial crisis of other types of ships.

One of the main reasons is because as the demand for oil dropped, traders have been using the ships to store oil. This is because the future price of oil is more than the spot (contango).

One of the tanker owners, Euronav, is rather optomstic.

The oil price contango has seen oil traders book VLCCs for oil storage in recent weeks, with 22 from the global fleet of 520 presently used as floating storage according to London broker Gibson.

The move has boosted the Baltic Exchange’s average time charter for VLCCs to $47,600 per day by Friday, up from $28,000 seen earlier this month.

Mr de Stoop (of Euronav) rejected fears that VLCCs will flood the market when the oil price contango ended, depressing rates.

“All those ships will be in storage at different places in the world, not in the same location and they will all be booked for a voyage [when the contract ends],” he said.

I don't think the VLCC market will be improving in 2009. At the moment the future price of oil is more than the spot market, but I don't think that will continue for long. I suspect the tanker market will take a dip in about 3-4 months.