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Boom and Bust: History of the Crude Tanker Industry

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BDTI

The BDTI (Baltic Dirty Tanker Index) always has a bumpy ride. In the past, it rose as high as 3,000 in 2004 and as low as 450 in 2009. Since 2009, the index has been 453–1,344. Let’s see the story behind these ups and downs in the index.

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Boom and bust

Rates for crude tankers have gone through booms and busts in the past. Shipping rates fell in 2000. This was the time when scrapping activity increased. Before this, companies prolonged the life of a ship as much as they could. During this period, companies’ weren’t willing to order new vessels and the business in shipyards died. The ordering activity increased in 2005 when shipping rates were attractive. This was the time when companies generated returns on assets and equities above 10% and also close to 30% in some cases. Strong demand for OPEC oil was a reason for the rise.

It’s important to note that 2008 was a golden year for the crude tanker industry and companies such as Frontline (FRO), Nordic American Tankers (NAT), Teekay Tankers (TNK), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP). Tanker rates rose to record highs. At this point, the interest rates were low and quantitative easing started. This made credit very cheap. Ship owners took advantage of cheap credit and ordered many ships. The glut of newbuilds entered the market in 2009 just when the global trade was hit due to the economic recession. The crude tanker industry was pushed into a crisis from 2009 to 2014.

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However, 2015 brought new hope to the tanker industry. Oil prices fell due to the supply glut. OPEC failed to agree on a production cut. Oil production reached new highs. This benefited the crude tanker industry. Low oil prices encouraged countries, especially China, to import more crude oil and stockpile it for future use. This trend increased the demand for crude tankers and the industry recorded growth.

Current situation

Strong crude (DBO) tanker rates continued in 1Q16. With the onset of the second quarter, the tanker industry faced many headwinds. The BDTI has fallen to 515 at the end of August 2016—compared to 1,065 at the beginning of the year. From the second quarter, oil production started falling and refinery margins decreased. Also, the supply side pressure mounted with newbuilds entering the market and scrapping activity declining. We’ll analyze all of the factors in this series. In the next part, we’ll see how tanker rates have fared since the beginning of the year.

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