OPEC Cuts To Hurt Crude Carrier Industry, Lower Shipping Rates

If OPEC manages to reach a deal to cut oil output, the very large crude carriers (VLCC) would see their earnings drop as the crude oil shipping industry would be forced to cut rates to combat reduced demand from the lowered production, analysts reckon.

According to 13 analyst forecasts compiled by Bloomberg, the VLCC are now expected to earn US$31,000 daily next year, down 15 percent compared to the rates the analysts had expected in August.

So far this year, the benchmark earnings have been averaging US$40,000 a day, and last year the earnings averaged around US$68,000 a day, Bloomberg data shows.

Analysts also see the shipping and huge tanker businesses suffering from potential OPEC cuts.

“The cut will have a big impact on the shipping market. The rates could be cut by $5,000 to $10,000 from the current forecast levels as it will remove demand,” Magnus Fyhr, managing director at Seaport Global Securities LLC, told Bloomberg.

According to Per Mansson, a shipbroker at Affinity Shipping LLP:

“A decision to cut output will mean higher oil prices, lower demand and trade and bad business for tankers.”

Oil trade via sea, including that of refined products, is expected to average 59 million barrels per day this year, while OPEC’s cut would lower that expectation by 1.7 percent, according to Frode Morkedal, an analyst at Clarksons Platou Securities AS.

Earlier this week, Goldman Sachs raised its oil price forecast and now expects oil to average US$55 per barrel in the first half next year, up sharply from the previous estimate of US$45-50.

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“With greater confidence that the global oil market can finally shift into deficit later next year, we now believe that there is a strong rationale for low-cost producers to deliver a swift production cut to normalize inventories,” said Goldman Sachs, which is now “tactically bullish” on oil.

So, analysts and oil traders have already been factoring an OPEC deal into their latest forecasts. Whether the cartel can pull off a deal is a question whose answer is expected in five days. OPEC sources, delegates and officials have been increasingly optimistic this past week.

In one of the latest twists in the months-long OPEC saga, OPEC is reportedly asking non-OPEC producers to also make big cuts in output, in its attempt to spread the burden of declining production to prevent market share gains by non-OPEC producers.

By Tsvetana Paraskova for Oilprice.com

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