VLCCs trading in the spot market have watched freight rates skyrocket in recent weeks but it’s unclear if the gains will continue.
Benjamin Nolan, an equity analyst at US investment bank Stifel, attributes the rally to a seasonal uptick in demand for crude.
In a weekly client briefing the researcher noted day rates have flattened to around $40,900, which is still nearly four times higher than the year-to-date average of $12,235.
In addition, he noted suezmaxes are seeing daily levels around $13,600, a figure that represents a weekly increase of almost 30%.
“We believe structural factors which impacted the dry bulk market are now taking effect in the crude tanker market,” the researcher continued.
“VLCC rates have broached the slow steaming threshold above which shippers are motivated to speed up ships as opposed to conserving fuel, thus introducing as much as 10% to 15% incremental demand and creating a ceiling for rates.
“Also, because VLCC rates were nearly four time suezmax rates despite only twice the capacity, shippers have begun to split cargoes effectively dampening demand for VLCCs and increasing demand for suezmaxes.”
On Friday, a day in which VLCCs were seeing daily levels as high as $50,000, researchers at Gibson warned clients that the pre-winter rally will offer only “temporary relief” to owners even it has been much stronger than in years past.
“While crude tanker owners are hoping rates will remain strong throughout the winter period, the underlying problem of oversupply is still ever present,” they said.
“The current trading VLCC fleet stands at around 600 vessels. But with an expected four more scheduled to be delivered this year, and a further 58 set for delivery from the start of 2014 onwards, default trading conditions are going to remain challenging.”