The US Energy Information Administration (EIA) said the recent expansion of the global crude oil and petroleum product tanker fleet has results in falling rates for much of this year.
The impact has also widened the geographic scope for “economically attractive” trade at a time when inventories of both crude oil and petroleum products are at high levels.
The EIA said in recent years, global oil production and growth in global refining capacity in markets distant from crude sources led to an increase in orders for new vessels in anticipation of an increasing need for tanker transportation.
This resulted in several consecutive years of an expanding global tanker fleet, with an estimated net change of 205 ships added in 2015, according to Thomson Reuters.
The EIA said in a report: “To date in October, monthly average rates for very large dirty tankers in the carrier (VLCC)-size range traveling between the Arabian Gulf and Singapore, an indicator for the overall dirty tanker market, are down 23% from January. Rates for smaller average freight rate assessment (AFRA)-size range dirty tankers on the same route are down 49% from January.
“Rates for dirty VLCC-size range tankers and AFRA-size range tankers through October have each averaged 36% lower, respectively, than the full year 2015 average.
“Rates for clean tankers are also lower. The average October rate, to date, for a clean long range 1 (LR1)-size tanker on the Arabian Gulf-to-Japan route is down 38% from January. The monthly average rate for a smaller medium range (MR)-size range tanker on the same route is down 22% from January.
“With lower tanker rates, the price spread needed for economically attractive trade between two markets narrows, making it possible for importers to bring in distant supplies at reduced cost. For exporters, lower tanker rates increase the price competiveness of their supplies in more distant markets.
“This can help to explain some of the motor gasoline imports to the U.S. East Coast in 2016 from relatively distant countries such as South Korea, Malaysia, Taiwan, and Japan.”