Shipping rates scuppered after oil prices dive

After two years of record highs and surging profits for the brokers, world shipping rates are this week expected to plunge to a 10-year low.

After two years of record highs and surging profits for the brokers, world shipping rates are this week expected to plunge to a 10-year low.

The crash, which is predicted by industry analysts and expected to be confirmed early this week, affects all types of shipping, but will particularly hit the market for oil tankers. Demand for very large crude carriers (VLCCs) is directly tied to events in the oil market, which have, over the past few months, reached new heights of volatility.

Since 11 September, crude prices have tumbled more than 20 per cent and created a crisis among the major producers. After more than six weeks of a bitter price war, Opec and non-Opec oil producers, including Russia and Mexico, agreed on 28 December to a series of production cuts of around two million barrels per day.

While that has had the short-term effect of stabilising crude, it spells bad news for the tanker operators; that reduction creates a reduction in demand for shipping equivalent to 30 supertankers per month.

When rates are calculated this week, they will likely indicate a spectacular fall from their December levels, say London analysts. VLCC rates that were steadily held at $65,000 (£45,000) per day last month are tipped to dive to $17,000 per day for January.

Brokers doubt that this represents the worst of the falls, with some saying rates are likely to sink to around $15,000 in the coming days as more tankers unload their cargoes and go in search of more.

Part of the current problem arose from the various oil tanker disasters that have blotted the industry's history. Increasingly, oil companies have realised they might be liable for spills and environmental disasters if the ships they use are in poor repair. Accordingly, in the past few years there has been a surge in demand for new tankers, which are capable of far greater speeds and can process the product more quickly when it reaches its destination. Because of this, the ships become available more quickly between jobs, and the competition gets fierce.

"It's a simple supply and demand equation," one Dubai-based broker said. "Opec is lowering demand for the ships, but technology means there are more available than ever."