Wednesday, May 27, 2015

VLCC “burning hot” for yet another week of trading

VLCC upward sentiment persisted this week in the VLCC sector with returns pushing to the highest levels of the year and despite some “profit taking” (whereby owners stop pushing for higher rates in order to fix quickly and lock into what are otherwise high TCE returns), the active first decade of June kept momentum on an upward track. This, according to the latest weekly report from shipbroker Charles R. Weber, which noted that increased production from Saudi Arabia continued as JODI data published Monday showed that exports rose to 7.898 million barrels per day in March – their highest level in over a decade.

Additionally, CR Weber noted that “the introduction of Iraq’s heavy Basrah grade furthered the increased volume in early June loadings. In fact, of the 53 fixtures reported to-date for June loading, 51 have lay-cans beginning within the first decade of next month, marking the loftiest tally within any decade this year and while this pace is not likely sustainable, it does point to a larger volume of cargoes expected for June. The increased demand further entrenched the bullish tone of owners as returns improved to levels in excess of $85,000/day for eastbound business while triangulated returns approached $100,000/day. The latter returns were due in a large part to the surging rates seen on Caribbean export routes where CBS-SPORE rates also neared YTD highs as charterers reached out almost six weeks to secure suitable tonnage amid a growing imbalance between regional demand and arrivals. By the close of the week, however, the market’s hectic pace gave way to a fresh demand lull ahead of the holiday weekends in the US and parts of Europe”.

The shipbroker added that “though unsurprising given the volume of cargoes covered in recent weeks, the slowing nevertheless has had an impact on rates, taking away upward pressure and instead prompting a modest retreat. Though modest further downside could materialize following the long weekend, the fact that a very low number of units remain uncovered in the Middle East following the recent surge in first?decade June loadings, rates are expected to remain elevated as charterers work into the second decade. This week’s activity brought the June cargo count to 53 and as mentioned above was largely concentrated within the first decade. With the higher expectations, we anticipate another 12?15 cargoes to go through the middle of next month. We compare this to a position list with some 28 vessels available over that same period; factoring for around 6 units expected to be drawn to the West Africa market, the remaining surplus is 7-10 units, which compares with 5 surplus units at the conclusion of the May program. As we look ahead to next week we expect some further giveback following a quieter period as owners look to lock in levels that still yield relatively strong returns. AG-FEAST rates will likely settle in the low ws70s, while AG-USG levels fall further into the low ws40s”, CR Weber said.

Meanwhile, in the Suezmax segment, “though chartering demand in the West Africa Suezmax market was unchanged w/w at 16 fixtures, most of these were reported early during the week while the remainder of the week was markedly slower. This came as little surprise given stronger VLCC coverage of the early part of the June program and accompanied the progressing of Suezmax charterers further into June dates (following last week’s rush to cover remaining May stems). Moreover, availability levels for normal dates rose to the close of the week. Rates entered into a correction mode, accordingly, with the WAFR-USAC route shedding 20 points to conclude a ws97.5. Further rate erosion is likely given further availability builds over the holiday weekend. Aframax The Caribbean Aframax market remained active this week with the fixture tally unchanged from last week’s 11-week high of 21. On a four?week moving average basis, the fixture tally stands at 17 – the highest level since early November ’14. The demand gains of late follow the resuming of substantial fixture activity for loadings on Mexico’s East Coast – as well as a surge in heavy crude imports at PADD 3 (USG) as area refiners boosted utilization rates last week and seek to increase imports to offset consumption of domestic light crude. The CBS-USG route added 12.5 points to conclude at ws122.5 on the back of the activity. We note that while rates have been heavily sensitive to date/voyage specifics, supply/demand fundamentals remain favorable to further rate gains during the upcoming week. Contributing further to owner sentiment in the region is the fact that the Caribbean market’s earnings imbalance relative to other key Aframax markets has grown with some regions offering TCEs approaching $60,000/day while the CBS?USG route stands at ~$33,374/day”, CR Weber concluded.

 Nikos Roussanoglou, Hellenic Shipping News Worldwide

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