BRIEF HISTORY OF OIL TRADING AND TANKER TRANSPORTATION

Oil trading began during the late 19th century, with the United States being the leading source and the U.S.-based Standard Oil being the most dominant player, exporting refined oil to Europe using its fleet of purpose-built small ships.

The Nobel brothers, sons of Alfred Nobel (the inventor of dynamite), built up a competing European fleet during the mid- 1880s to trade oil from Russia that flourished until the Bolshevik revolution. Crude oil trading was not considered a feasible option during those years due to the relatively low value of the commodity.

During the post-World War I era, short-haul crude oil trade originated, with most movements being to the United States from the nearby Latin American sources of Mexico and Venezuela. As the crude oil trade increased gradually, so did the need for new refining capacity in major consumption markets.

The Middle East and its vast oil resources came under Allied control during World War II and helped to meet the wartime logistical needs of the Allied forces. Another major development during those war years was the rapid construction of a large number of T-2 tankers by U.S. shipyards to supply fuel to the Allied fleet.

On completion of the war, the surplus T-2 tankers were sold off at low prices, laying the foundation for the shipping fortunes of many entrepreneurial tanker owners during subsequent years.

During the postwar era, the Middle East emerged as the focal point of the oil industry, which by this time had supplanted coal as the most dominant source of primary energy for a world economy recuperating from the ravages of two closely fought world wars.

Thus, although the Gluckauf, a prototype of the modern oil tanker, was launched in 1886, the highly specialized tanker transportation sector of the current vintage did not originate until the 1940s and 1950s. The increased demand for crude oil came not only from the United States and Western Europe but also from a rapidly recovering Japan, a nation devoid of indigenous oil resources.

The distances between such major consumption and production centers of crude and refined oils contributed toward increased demand for the transportation of those commodities, crude oil in particular. Accordingly, the demand for oil tankers rose, hence the meteoric growth of that specialized market in a very short
span of time.

As viewed by maritime economists, tanker transportation is a derived demand industry, for fluctuations in the oil volumes traded usually lead to very perceptible impacts on the trading conditions within the tanker market.

Until 1952, tankers were operated primarily by the big oil companies, with independent ship owners playing a fringe role. It was typical to find marine transportation divisions within the corporate hierarchies of the vertically integrated multinational oil majors.

Traditional ship owners entered the market for a brief span in 1953, to be followed later by government-owned shipping companies. By the early 1960s, the oil majors’ investment in direct ownership of oil tankers had dropped to approximately one third of the global fleet.

However, the oil majors still maintained direct control of 90% of their transportation requirements, supplementing their owned fleets with ships on long-term time charter from independent ship owners. It was important for the oil companies to maintain such control because the ocean transportation component was a factor input in the landed price of their commodity.

If this were to vary depending on daily market swings, it would have an impact on the price of crude oil from various suppliers despite its being a homogenous commodity.

Accordingly, the oil majors procured barely onetenth of their transportation requirements of those years from the open market through spot charter agreements. Although they had the wherewithal to provide all of their tanker needs in-house, such an attempt would only help their competitors, especially the smaller oil companies.