Tuesday, June 7, 2011

Mideast crude tanker rates softer, still supported


* Aframax market weaker, growing availability weighs
* Suezmax demand slower

By Jonathan Saul

LONDON,(Reuters) - Crude oil tanker rates on the major Middle East route inched lower on Monday although firmer demand and expectations for an OPEC output rise were expected to support earnings in the coming days.

The world's benchmark VLCC export route from the Middle East Gulf to Japan DFRT-ME-JAP reached W55.07 in the Worldscale measure of freight rates, or $9,952 a day when translated into average earnings, from W55.48 or $10,827 a day on Friday and W52.15 or $7,436 a day last Tuesday. There was no Baltic data last Monday due to a public holiday.

"While earnings still remain historically weak, the supply-demand balance is slowly improving with a shorter tonnage list giving owners some confidence to push for better earnings," Cantor Fitzgerald said.

In recent weeks VLCC rates have hovered around or below operating costs, estimated at around the $10,000 a day level, as the market has struggled with growing tanker availability despite healthy crude oil demand.

"The four-week VLCC count in AG (Middle East Gulf) is maintaining a steady drop, now reported to be around 60 vessels -- down from over 90 one month ago," said Arctic Securities analyst Erik Nikolai Stavseth.

"Spot rates have yet to surge, but we expect rates to move higher and can do so quickly if the current activity level continues."

Oil fell on Monday in choppy trading partly on raised expectations that OPEC will raise production targets this week when delegates meet in Vienna.

"If OPEC agrees to raise quotas, it will be certainly welcomed by VLCC owners," broker E.A. Gibson said.

"However, the question remains how much extra crude is needed to absorb at first the overtonnaged trading fleet and then to provide employment for further newbuildings entering the industry."

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

VLCC rates from the Gulf to the United States DFRT-ME-USG were at W38.88 from W38.05 on Friday and W37.04 last Tuesday. VLCC rates from West Africa to the U.S. Gulf were at W55.61 from W55.43 on Friday and W55.21 last Tuesday.

Cross-Mediterranean aframax tanker rates reached W98.75 from W99.58 on Friday and W116.04 last Tuesday.

"An oversupply of vessels for near-term loading in both West Africa and the Mediterranean kept a cap on suezmax rates last week, in our opinion," Cantor Fitzgerald said.

"The aframax sector was also affected by oversupply, particularly in the Mediterranean."

While rates have softened in the past two weeks, political turmoil in Syria was deterring tanker activity in that market, with brokers citing higher risks involved in transporting cargoes from there.

Aframax rates jumped in March to their highest this year as buyers scrambled to get cargoes from Libya, a major market for the aframamax cargo sector.

Rates for suezmax tankers on the Black Sea to Med route to W74.62 from W74.35 on Friday and W76.10 last Tuesday. (Editing by Anthony Barker)

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