Couldn’t help but read about this while I was on the road:
Dec. 28 (Bloomberg) — A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.
The ships will unload 26 percent of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News survey of 15 analysts, traders and shipbrokers. That’s below what Frontline Ltd., the biggest operator of the ships, says it needs to break even.
A 25% drop in rates, idled tankers, and a cost structure that may not allow the shippers to break even. Doesn’t sound like an industry robust with growth, if you ask me.
But taking a step back to assess the bigger picture, this tells me that the commodities run we’ve been seeing is not an inflation/deflation story. This is about having faith in “full faith and credit.” On one hand you have people willing to accept fiat currency (and the electronic payment/settlement networks that work with them), and others who don’t. Because the truth is, if you’re looking at commodity prices purely as a function of supply and demand for using the commodities themselves, the story isn’t there. Tankers parked in the English Channel paints a rather glum picture if you ask me.
Michael Shedlock aka Mish has another view on this that I think is very worthwhile.