VLCC Tanker Newbuild Orders Continue To Pile Up

https://seekingalpha.com/article/4077349-vlcc-tanker-newbuild-orders-continue-pile

Over the last five years, the VLCC fleet has experienced significant growth leading to the current oversupply situation.

2016 saw a drop in newbuild orders placed leading to speculation that a re-balancing of the fleet may be on the horizon.

But low newbuild prices coupled with the potential for a recovery proved too irresistible for some and 2017 has seen a large number of orders placed.

Overview

VLCC stands for Very Large Crude Carrier and they typically transport approximately 2,000,000 barrels of oil. Companies engaged in the ownership of these vessels include DHT Holdings (NYSE:DHT), Euronav (NYSE:EURN), Frontline (NYSE:FRO), Gener8 Maritime Inc. (NYSE:GNRT), Navios Maritime Midstream Partners L.P. (NYSE:NAP), and Ship Finance International Limited (NYSE:SFL).

Background

The crude tanker market has been under pressure lately due to an influx of vessels hitting the water which have increased vessel supply at a faster rate than demand growth for seaborne crude imports. This growing disequilibrium has been responsible for the decline in charter rates.

But low charter rates coupled with a lack of investment and/or credit availability led to a massive drop in newbuild orders in 2016, which paved the way for a potential rebalancing over 2018 and 2019.

Shipyards, which expanded capacity prior to the 2008 boom to supply vessels for what turned out to be an unsustainable market, faced increasing competition for a shrinking number of orders leading to exceptionally low newbuild prices.