The tanker segment seems to be in the worst predicament among the three shipping sectors as almost all the tanker companies are mired in huge losses. There is no relief in sight as we do not expect any major improvements in the tanker market over the next few years.

We continue to rate the tanker sector an Underweight as fundamentals are weak and could deteriorate further. MISC remains an Underperform as the higher losses from the tanker division partly offset the reduced liner losses.

Demand-supply gap to widen
We expect overall tanker rates to continue declining before recovering slightly in 2014. Until then, tanker operators will be in a tight spot. Demand growth for oil is expected to remain weak, at around 1.2% due to the fragile global economy. Given this and the Middle East tension that could choke off oil supply, tanker demand could fall significantly. Not helping matters is the newbuildings that are still entering the fleet. Since the tanker fleet is still relatively young and most single-hull tankers have been scrapped, we can expect fewer demolitions.

High bunker costs sapping profits
Tanker losses are likely to escalate in 2012, not only because of lower rates but also because of higher bunker cost. Despite tanker rates hovering at one of the lowest points in 10 years, bunker is close to the 2008 peak due to high demand from the growing shipping fleet and sustained high oil prices. Should bunker fuel remain elevated, many tanker companies would be under financial stress.

Will US crude oil imports collapse?
Experts are predicting a 66% collapse of crude oil imports by the US over the next 10 years due to declining domestic demand and increases in oil production from shale, Canadian oil sands and offshore sources. This may be the game changer that could put tanker rates in a prolonged slump as the US is the largest single importer of crude oil. (Read full report)

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