Fuel Tanker Demand Booming as More Oil Is Refined
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The center of gravity in the global oil-refining complex is shifting sharply eastward — and that’s spurring a boom in the business of building ships to haul fuel around the globe.
As many as 38 midrange tankers have been ordered this year, marking one of the busiest quarters since 2013, according to ship broker Braemar. The number of ships assigned international serial numbers — another gauge of orders — is at 28 this year, closing in on the total of 31 for all of 2022, according to ship broker Simpson Spence Young.
Inefficient refineries in the U.S. and Europe shut down after the COVID-19 pandemic crushed demand for gasoline, diesel and jet fuel, while new complexes are being built in Asia and the Middle East. The subsequent rebound in demand has fuel buyers looking to those new producers for supplies, drawing larger amounts of product onto the water.
The trend has ratcheted up the rates the existing fleet can charge, making shipping more profitable and accelerating the construction of new vessels.
“The main, structural shift in the refinery landscape that will support refined-product shipping demand in the medium- and long-term is the geographical dislocation between new refineries and major consumers,” said Alexandra Alatari, senior analyst at Braemar.
The total amount of fuel that can be found at sea is currently more than 200 million barrels, up from 177 million two years ago, according to data from Kpler Inc. The figures include cargoes in transit, being moved from ship to ship, floating in storage or simply stuck in congestion.
Already, buyers on the U.S. East Coast are taking more fuel shipments from the Middle East and Asia as exports from Europe dry up. Australia, which saw some domestic refineries close, is drawing more cargoes from north and southeast Asia, and India is exporting more products to Latin America. In the years ahead, U.S. Gulf Coast refineries are poised to ship more to West Africa and Europe, said John Auers, managing director of refined fuels analytics at consultancy RBN Energy.
Russia’s invasion of Ukraine has bolstered the phenomenon, sending shipping rates surging in recent months as sanctions further reshuffle global trade flows. Tankers in the Atlantic are earning about $40,000 a day, the highest for this time of year since at least 2013. Products are spending more time on vessels for longer-haul routes, while also waiting around to transfer onto other ships and in floating storage.
The increased ship orders are defying rising price tags. The cost for new builds has climbed to around $45 million per vessel, up 14% from a year earlier and the highest since 2008, data from ship brokers show.
The boom also reflects pent-up demand after many shipowners withheld orders in recent years as they waited to see whether national and international regulations would require them to contract so-called eco tankers that can be powered by fuels as well as methanol. When energy prices soared last year, some of that doubt dissipated, and a lot of the new orders are for conventionally fueled vessels, said Claire Grierson, head of tanker research at Simpson Spence Young.
Even with the new orders, which may add around 60 ships in 2025, vessel availability will still stay short of long-term average levels, Braemar’s Alatari said.
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