Friday, August 12, 2011
* Average VLCC earnings to stay pressured
* Med market remains subdued
By Jonathan Saul
LONDON, Aug 9 (Reuters) - Crude oil tanker earnings on the major Middle East route stayed in negative territory on Tuesday as a build up of vessels and slower cargo bookings took their toll on rates.
The world's benchmark VLCC export route from the Middle East Gulf (MEG) to Japan DFRT-ME-JAP stayed weak at W45.90 in the Worldscale measure of freight rates, or -$413 a day when translated into average earnings, from W46.88 or -$563 a day on Friday and W47.50 or -$1,734 a day last Tuesday.
"With close to 90 fixtures reported ex-MEG, charterers are under no pressure and waiting to see if any lower rates could be achieved on the back of easing bunker prices," said broker ICAP Shipping.
Average earnings are calculated less costs including bunker fuel and port fees.
"With weaker than expected economic conditions, we believe the required crude oil inventory destocking required to stimulate crude oil tanker demand is unlikely to materialize before YE (year-end) reducing the probability of a significant recovery in charter rates before YE," securities and investment bank Jefferies said in a note.
Frontline , the world's largest independent tanker operator, told Reuters last week it was pulling some of its largest crude oil carriers from the market to limit its losses.
Average VLCC earnings had pushed above the $10,000 a day from June 8 before dropping again below the key level on June 27. They have remained below $10,000 a day since then and negative since Aug. 1.
"Crude oil tanker freight rates are expected to remain subdued owing to the oversupply of tonnage which would handicap the market," said brokerage ICICIdirect.
"Even if some demand emerges in the near term, the tonnage available is likely to weigh on the charter rates and keep them subdued."
Prior to the move higher in June, VLCC rates had hovered for several weeks around or below operating costs, estimated at around the $10,000 a day level, as the market had struggled with growing tanker availability despite healthy crude oil demand.
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.
"The large crude (tanker) segments continue to be pounded by new deliveries and there will be little respite from this assault over the next year," consultants MSI said.
VLCC rates from the Gulf to the United States DFRT-ME-USG were at W36.51 from W37.07 on Friday and W37.07 last Tuesday. VLCC rates from West Africa to the U.S. Gulf were at W47.25 from W47.64 on Friday and W48.32 last Tuesday.
Cross-Mediterranean aframax tanker rates reached W88.96 from W87.21 on Friday and W87.29 last Tuesday.
In recent weeks the aframax Med market has been hit by turmoil in Libya, which has reduced demand for tankers. Conflict in Syria has also contributed to the flat to weak market tone.
Rates for suezmax tankers on the Black Sea to Med route to reached W72.69 from W73.00 on Friday and W74.04 last Tuesday.
"The Mediterranean market experienced the European holiday slowdown, with the lack of cargoes being greatly outweighed by tonnage supply," broker SSY said. (Editing by Anthony Barker)