Demand and supply within this market is highly variable depending on the nature of freight charges utilised. In the case of freight markets where contacts last for one year, the demand and supply are largely determined by the need to transport crude oil (demand) and supply is largely determining by the capacity of the transportation services. Usually an equilibrium must be attained to reach prevailing market prices. (Zuckerman, 2002)
In certain instances, the crude oil tanker freight market may be described in terms of the distance that the crude oil has to be transported. In this regard, the supply and demand of services is largely determined by how long the commodity has to travel. If the nature of commodity is pre-set; in this case it is crude oil, then transportation distances become the major determinants of supply and demand.
For instance, if crude oil was to be transported form Nigeria to Europe through the Atlantic then the supply and demand of services would be much greater than if the commodity was to be transported from Panama to Hawaii alone. In close relation to distance is the quantity of the commodity.
Demand and supply within the crude oil tanker freight market is also affected by political events. For instance, when one type of route has been nationalised like when Egypt nationalised the Suez canal, then crude oil transporters interested in Europe had to avoid that route thus creating more accumulation of crude oil and increasing demand for the commodity. (Edmonson, 2002)
It should also be noted that one cannot represent demand and supply figures in linear graphs. This is because the crude oil tanker freight market is very complex. For instance, nature of supply depends on the availability of transporting fleet, plus newly created fleet and availability of worn out vessels. It should also be noted that even specific ships change with time. The amount of crude oil that can be transported by a specific vessel owner can change drastically when that supplier reduces or increases their vessel space. One can therefore say that in order to enter, leave or make serious decisions about this market, one should consider time charter rates.
This is because the charter rates incorporate all the latter stated factors and give one predictions of the fleet operating at any single instance. It should be noted that it is also possible for ship owners to slow down their vessels so as to diminish the amount of fuel that those vessels consume. This severely affects the amount of crude oil that can be transported. However, suppliers are fond of doing this when freight rates have been reduced and when they are carrying cargo beyond their accepted standards.
Demand on the other hand depends on the demand for crude oil itself. Demand in the crude oil freight market may not change drastically with time regardless of prevailing freight charges. Economists within this sector have asserted that the relationship between demand and freight rate charges is very weak. The major factors that come into play here are largely dependent on the source of the oil itself, the need for oil in the world and transportation distance. (Coates, 2003)