Oil tanker rates may drop 42% on Japan worries

Written by Bloomberg | Updated: Feb 29 2012, 09:16am hrs
The largest drop in Japanese oil consumption since last years earthquake and tsunami may cause tanker rates to plunge

42% next quarter, threatening the biggest rally in shares of shipping companies since 2005.

Demand in Japan, the second-largest destination for supertankers after China, will drop 19% in the second quarter from now, according to the International Energy Agency in Paris.

Daily rates for the 1,000-foot-long ships will average $17,000, compared with $29,280 now, the median of nine analyst estimates compiled by Bloomberg show. Investors may profit by buying forward freight agreements, traded by brokers and used to bet on shipping costs, which anticipate $10,883.

The six-member Bloomberg Tanker Index, including Frontline (FRO), rallied 11% this year on prospects for daily crude demand to surpass 90 million barrels for the first time ever.

Thats masking the slump in Japanese consumption and the weakest annual gain in Chinese oil buying since at least 2006.

Shipowners are relying on both nations to help curb a capacity glut as the fleet expands to a three-decade high. Owners need all the help they can get, said Erik Nikolai Stavseth, an analyst at Arctic Securities in Oslo