11-03-2017

VLCC rates to fall further as tonnage outweighs cargo demand

VLCC

Freight rates for very large crude carriers (VLCCs), which fell to five-month lows this week, are set to drop further as excess tonnage and an absence of port congestion weigh on the market, brokers said.

Supertanker charter rates, which are already below the breakeven levels for ship owners, could fall further due to new vessel deliveries, reactivation of older vessels from offshore crude storage, crude oil output cuts and refinery maintenance, brokers said.

That will add to the volume of available tonnage as demand for cargo declines.

Average VLCC earnings, which are down to about $18,400 per day, could fall towards $17,000 per day despite resistance from owners to at least maintain current rate levels. This compared with breakeven costs of about $22,500 per day, brokers said.

“Owners are determined to hold around current levels, but if nothing changes, the rates will gradually come off,” a European supertanker broker said on Friday.

“The real floor in rates is near 40 on the Worldscale measure – about $9,000 per day – because then rates are getting close to daily operating costs,” the broker said.

“I think we will see that – the second quarter will be a misery,” the broker added.

Around 30 crude tankers, totalling 6.9 million deadweight tonnes (DWT), were delivered in January and February, ship broker Banchero Costa said in a report on Friday.

Traders also sold about 12 million barrels of oil held on floating storage, potentially reactivating tankers to trade in the spot market.

Absence of port congestion in Basra and China has added to the tonnage glut. A year ago, tanker traffic jams outside ports led to a surge in supertanker rates.

“There is a lack of demand due to refinery maintenance and oil output cuts,” said Ashok Sharma, managing director of ship broker BRS Baxi in Singapore.

While there is an increase in the volume of fuel oil shipped from the North Sea to Asia there were very few VLCC fixtures from the Caribbean to Asia, Sharma said.

“It’s doom and gloom all around,” with low demand until the refinery maintenance in Asia is completed by May, Sharma added.

VLCC rates on the Middle-East-to-Japan route dropped to around W56 on Thursday, the lowest since Sept. 30, 2016, from W58.75 last week.

Rates on the West Africa-to-China route fell to about W59.50 on Thursday, the lowest since Oct. 7, 2016. from W62.50 a week earlier.

Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia climbed to W113.75, equivalent to about $12,380 a day, and the highest since Jan. 24, from W107.75 the same day last week.

Source: Reuters

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