Wednesday, April 6, 2011

Mideast crude tanker rates slide, ship glut grows

* Suezmax market stays pressured
* Libya sailings still at standstill

By Jonathan Saul

LONDON, April 4 (Reuters) - Crude oil tanker earnings on the key Middle East route fell to their lowest in over five months on Monday as growing vessel supply weighed on the market, despite firmer fixing activity.

Brokers said they continued to monitor violence in Libya, which has brought crude oil shipments from Africa's third-biggest producer to a virtual standstill.

The world's benchmark Very Large Crude Carrier (VLCC) export route from the Middle East Gulf (MEG) to Japan DFRT-ME-JAP plummeted to W49.79 in the Worldscale measure of freight rates, or $3,659 a day, from W58.36 or $15,588 a day last week.

Average earnings were at their lowest since late October last year and were below the operating cost level of a VLCC, which is estimated at around $10,000 a day.

"As April chartering activity continues in the Middle East, it's becoming more apparent that the amount of tonnage available in the area is more than sufficient to cover any remaining cargoes," Cantor Fitzgerald said.

VLCC rates have been volatile in recent months due to a supply overhang caused in part by the end of a trading play, which saw millions of barrels of crude oil stored on tankers at sea.

"History repeats itself in the VLCC market," Pareto Securities said. "Strong demand is unable to lift rates as supply-related pressure continues to push rates lower."

Cross-Mediterranean aframax tanker rates fell to W100.00 or $6,473 a day in average earnings from W111.67 or $12,302 a day last Monday.

Aframax vessels on the Med route, which transport the majority of Libya's crude oil, normally carry up to 600,000 barrels.

Last month aframax rates jumped to their highest this year as buyers scrambled to get cargoes from Libya. But a subsequent drop in activity has added to tanker availability and put pressure on rates.

Rates for suezmax tankers on the Black Sea to Med route were at W93.85 from W110.15 last week.

"The weakness in the VLCC market has had a negative impact on the suezmax market," said Arctic Securities analyst Erik Nikolai Stavseth. "With an overhang of tonnage in AG, we see further downside to suezmaxes."

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