The Erika disaster was a pretty big event, on its own and because it coincided with the beginning of a period of rapid economic growth, rising oil demand, and skyrocketing OPEC output. Given all that was going on, it’s hard to isolate the "Erika Effect" with any precision. But our best guess is that it made a $10,000 - $20,000/day difference to spot rates for about nine months after the event, with VLCCs at the low end and Aframaxes at the high end.

Prior to the Prestige disaster, we expected Aframax rates to average about $15,000/day in the first nine months of 2003. So does that mean post-Prestige rates could be $35,000/day next year?

Probably not, in our opinion, although some upward adjustment is likely. For one thing the tanker fleet is about 50% double-hull today versus 30% three years ago. So there is more modern/double-hull capacity out there. In addition, most of the “Erika-effect” came from the sudden desire by European charterers to employ more modern vessels, and since this shift has now been well-established, the fallout from the Prestige spill is likely to be less disruptive.

But more importantly, we don't think we are going to see a period of rapid economic growth and further sharp increases in OPEC output in 2003. So, that foundation is weaker than at the time of the Erika. To put this in perspective, during 2000, we estimate that the overall tanker fleet utilization rate was close to 96%, with the “Erika-effect” pushing the utilization rate for modern vessels up to nearly 100%. Although the current tanker utilization rate is estimated at close to 94%, we expect it to fall back to 90% over the next six months, as fleet growth accelerates while OPEC production falls back a bit.

Of course, the potential for a U.S./Iraq conflict continues to weigh on the market as well, and the desire to build oil inventories up prior to the potential start of a U.S. attack is also influencing the market right now. How much of the latest jump in rates is due to this development vs. a “Prestige-effect” is not yet known. However, our current best estimate is that rates during 2003 will get a boost of less than $5,000/day compared to where they would have been in the absence of the Prestige spill.

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