The oil tanker market is by far the most volatile of all the shipping segments. Freight rates are subject to severe ups and downs, usually triggered by a temporary supply/demand shortage.

Apart from the last six weeks, 2007 was not a particularly good year for oil tankers. In fact, after reaching sky high levels in 2004, freight rates have been sliding down ever since. There are several reasons for this. Substantial deliveries of new tonnage in the past two years combined with lower than expected oil demand resulted in owners struggling to obtain decent freight rates. Due to the mild winter in 2007, the usual seasonal peak in the demand for oil never took place. In late November, when almost everyone was left with no hope, the market surprisingly improved, with freight rates rising by some 400%. The sudden spike was most probably triggered by a temporary supply/demand shortage. Rates fell again in late December, although during the first quarter of 2008 they maintained an average that was twice as high as that in the first 10 months of 2007.
A vast number of single-hull (SH) tankers have been sold for conversions, predominantly into VLOC (very large ore carriers) but also into Heavy-Lift vessels and double-side tankers. There are different opinions about how many vessels are currently scheduled for conversion. According to Clarkson Research, nearly 16 million DWT of the tanker tonnage is likely to be converted in 2008 and another 11 million is possible in 2009. However, this process will be very much driven by the market itself and the final number of conversions will depend on the developments in freight rates.

As we approach the 2010 phase-out deadline, we expect that many old tankers may soon be sold for scrapping, especially in light of the very attractive scrapping prices. The above will certainly help to maintain a healthy supply/demand balance and to keep freight rates at a higher level. It is also worth mentioning that despite IMO regulations removing SH tankers from operation, they will still be able to trade until 2015 due to possible bilateral agreements between countries. On the other hand, there are still some 1,200 vessels (134 million DWT) to be delivered in the years to come. Even if we take into account that some of this tonnage will be absorbed by increased voyage distances, we will still need a higher demand in order to be able to utilise the entire fleet.
Despite circumstances such as lower oil demand, extremely high oil prices and a slowdown in the world economy, the tanker market is still quite strong. More than 330 vessels ordered last year (31 million DWT) indicate that many owners believe in good long-term prospects.

When it comes to contracting, 2008 looks promising so far. 91 oil tankers (crude and products tankers), corresponding to 14.5 million DWT, have already been contracted during the first 4 months. A lot of activity has been noticed within VLCC contracting, and 35 such vessels have already been ordered in 2008, compared to 28 contracted during the entire 2007. The total orderbook consists of 1,156 vessels and 134 million DWT, equal to 37% of the existing fleet. Massive tonnage scheduled for delivery in the next 4 years will allow the oil tanker fleet to grow by an average of at least 6.5% per annum. The exact growth will depend on the levels of scrapping and conversions to other ship types.
In terms of DWT, the orderbook is dominated by VLCCs, which represent 43.6% of all contracts. Smaller tankers, predominantly products carriers (268 vessels) as well as Aframaxes (275 vessels), represent the biggest share of the oil tanker orderbook in terms of numbers.
The South Korean orderbook holds almost 60 million DWT (433 vessels), China has contracts for 39 million DWT (287 vessels) while Japan has orders for *25 million DWT (196 ships).