Freight rates have risen over the last quarter on VLCCs and Suezmaxes. However, there have been supply-side shocks which threaten to reduce tonne-mile demand and though more vessels have been sold for scrap, excess tonnage is still an issue for the dirty tanker market.
VLCC rates have risen steadily over the last three months and the WAF to China VLCC route, basis 260,000 mt, was assessed at $11.44/mt April 3 compared with $13.85/mt June 27, a rise of $2.41/mt over the quarter, according to S&P Global Platts data.
Market fundamentals have not changed and this rise has more to do with the fact that bunker prices have risen while the value of IFO 380 in Singapore jumped $90.50/mt, according Platts data.
Shipowners have been able to achieve slightly higher freight prices this quarter due to rising bunker costs, but even with higher freight prices they are still barely covering OPEX on most routes, sources said.
Suezmaxes hit a six-month high of $10.58/mt May 24, the highest level since, due to a very busy loading program for the June 1-10 loading window and strong demand in the Persian Gulf. Tough times lie ahead though as July-September is typically the weakest time of the year when crude oil demand dips, hitting demand for tankers over the summer, sources said.
VESSEL DEMOLITIONS RISE
The underlying reason for the weak tanker market is the excess tonnage on the water. Demolitions have actually increased dramatically this year due to the weak earnings environment and 14 VLCCs were demolished in the first five months of this year, compared with one in the same period last year.
Nine Suezmaxes were demolished so far this year as well, compared with two in the first five months of 2017. Deliveries are still very high though and from January to April, 19 VLCCs and 24 Suezmaxes were delivered cancelling out any demolitions, according to data from shipbroker Bancosta.
IRANIAN EXPORTS UNDER THREAT FROM US SANCTIONS
In addition to vessel oversupply, there was the shock decision of the US to reimpose sanctions on Iran May 8 which is likely to reduce tonne-mile demand due to fewer long voyages bringing crude from Iran to Europe. The reimposition of sanctions has forced refiners in Europe to curtail the volumes of Iranian crude they import even though the EU opposes the US on the matter.
Italy, France and Spain are the largest importers of Iranian crude in Europe but have had trouble moving barrels. Around 60%-65% of Iranian barrels head to Asia and Japan, and South Korea could also be forced to cut down how much Iranian crude it imports as the country is a close ally of the US.
It is also hard to find a vessel to carry Iranian cargoes because they cannot get P&I insurance, as European banks with exposure to the US banking system are unwilling to provide it. Traders in Asia and Europe are expected to replace Iranian barrels with Iraqi or Saudi crude and they have until November to switch their supply, but they may not be able to replace all the volumes.
The downside of this for shipowners is that it will reduce tonne-mile demand and it lowers demand generally in the Persian Gulf at a time when shipping rates are already very weak.
OPEC RELAXES CUTS
OPEC and 10 non-OPEC partners, led by Russia, have now agreed to increase production by 1 million b/d, although it will take some months for output to ramp up from big exporters. This increase may not be enough to compensate for the sanctions on Iran, the decline of Venezuelan crude output or the recent disruptions to Libyan output.
There has been renewed fighting in Libya around Ras Lanuf and ES Sider, which led to a force majeure being declared at both ports. There is also a stand-off between rival National Oil Companies, with force majeure also declared at Marsa el-Hariga and Zueitina, leading to production losses of 850,000 b/d in the country.
Source: PlattsPrevious Next