Wednesday, January 19, 2011

Growing supply to hit Mideast crude tanker rates

*VLCC availability still high despite firmer demand

*Market still struggling with end of floating storage

By Jonathan Saul

LONDON, Jan 17 (Reuters) - Crude oil tanker earnings on the key Middle East route were steady on Monday, although increasing tanker availability was set to keep earnings under pressure in the coming days.

The world's benchmark Very Large Crude Carrier (VLCC) export route from the Middle East Gulf (MEG) to Japan DFRT-ME-JAP reached W45.84 or $8,489 a day, from W45.32 or $8,111 a day on Friday and versus W48.59 or $13,515 a day last Monday.

"A slow start in the MEG following a couple of low fixtures from last week. With ample tonnage available, charterers are feeling no pressure for early February fixing," broker ICAP Shipping said.

VLCC rates have remained volatile in recent weeks due to the supply overhang.

"With more than 80 VLCCs available in (MEG) over the next four weeks and the February program in its early stages, we think the VLCC market will struggle to gain ground in the short-term," Arctic Securities said. "While demand appears to be decent, January being the fourth consecutive month exceeding 100 cargoes, the supply of vessels is weighing down on the market."

Average VLCC rates hit their highest in over four months on Nov. 2 last year at $42,517 a day, helped by a flurry of fixtures from Chinese crude oil buyers in particular.

VLCC rates plunged last October as the end of a speculative trading play, which at one point last year involved an estimated 100 million barrels of crude oil held on tankers at sea, meant the market was awash with tankers.

Dahlman Rose & Co said it expected crude tanker rates to be mostly flat this year relative to 2010, with vessel availability expected to limit upside potential.

"During 2010 VLCC rates averaged $37,000/day, improving from $32,000/day in 2009 but still averaging much lower than peak levels of $60,000 to $90,000/day from 2004 to 2009," Omar Nokta, head of research, said in a report last week.

"We believe the demand side drivers for tankers are generally improving this year, but the potential increased urgency to book cargoes seems likely to be offset by excess supply."

VLCC rates from the Gulf to the United States DFRT-ME-USG were at W31.04 on Monday from W30.18 on Friday and W30.04 last Monday. VLCC rates from West Africa to the U.S. Gulf were at W49.80 from W50.07 on Friday and W51.86 last Monday.

(Editing by Jonathan Saul)

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