Friday, April 17, 2015

Asia VLCC rates at more than 2-month high on supply squeeze, strong demand

Platts

http://www.platts.com/latest-news/shipping/singapore/asia-vlcc-rates-at-more-than-2-month-high-on-27297050

Worldscale rates for VLCCs are at the highest in more than two months on tight supply due to delays in Basrah and North Asia and rising demand amid the postponement of refinery maintenance shutdowns, market participants said Friday, April 10.

The number of cargoes is turning out to be much higher than expected in April, providing a sudden uptick in demand, they said.

Until a few days ago the rates were struggling to stay above w50 but have since rebounded sharply.

At least two VLCC fixtures were finalized overnight by Thai Oil for Persian Gulf loading later this month at w65, a level not seen since end January, brokers said.

One of the fixtures for April 17 loading was done on a 15-year-old ship which did not prove a deterrent to garnering a higher rate, they said.

Rates are high at a time of year when they typically slide due to refinery maintenance season, when demand to move crude falls.

Charterers who were earlier holding back on fixtures in anticipation of the seasonal decline in rates rushed to seek tonnage this week.

"Owner sentiment is strong and we expect to see rates approach w70 after the [Persian Gulf cargo] stem nominations for May are out by next week," said a chartering manager with a VLCC owner.

Even charterers who usually do not pay higher rates are doing so now, the manager said, adding it had tried to pull rates below w50 a few times in the last month but they were pushed back again.

Lower crude prices have indirectly contributed to pushing up VLCC rates because refiners are putting off maintenance plans due to higher margins, said a chartering source with a Japanese refiner.

Sources said Indian refiner Essar Oil has deferred the planned full turnaround of its 20 million mt/year (400,000 b/d) refinery at Vadinar to September or October from the initial May-June schedule.

"There seems to be enough demand for third decade loading to maintain the new market level but the challenge for owners is to carry the sentiment into the first decade of May," said a VLCC broker in Singapore.

CRUDE FIXTURES UP ON YEAR

The number of crude oil fixtures for loading in the Persian Gulf for voyages to both East and West combined were estimated at 126 in March, up from 109 a year earlier, according to broker estimates.

So far close to 100 cargoes for loading in April have been covered with tonnage.

"With the third decade fixing in full swing and a more balanced tonnage list, owners look set to enjoy the upper hand for rest of the week," Morgan Stanley said a daily report.

Analysts pointed out that the loading program was strong even in April last year, with more than 130 VLCC fixtures from the Middle East, but supply is tight this time around.

"The market has started to rise and the main reason for this is tight tonnage," said a chartering source with a South Korean refiner. This is caused by several factors including logistical delays and inclement weather in Basrah, the source said.

At least five ships are tied up at one South Korean terminal because of bad weather, he said.

One of the ships that was scheduled to reach Fujairah in the last decade of April remained stuck in South Korea.

More than 20 VLCCs are lined up to load crude in Basra as Iraq has allocated more cargoes than the country's port infrastructure can handle, said a shipping industry official in Taiwan.

The rally in rates is translating into higher earnings for owners.

At current worldscale rates, daily earnings from some spot charter voyages on the Persian Gulf-North Asia route are close to $60,000, compared with $14,600 a year earlier, brokers said.

Lower bunker prices are also contributing to higher earnings for owners. 380 CST bunker delivered in Singapore was assessed at $323-$324/mt Thursday, down from $590.50-$591.50/mt a year earlier, Platts data showed.

--Sameer C. Mohindru, sameer.mohindru@platts.com
--Edited by Wendy Wells, wendy.wells@platts.com

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