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Falling bunker price means VLCC rates fall further. Tanker report Oct 6

By • Oct 6th, 2011 • Category: Tankers

The Coracle tanker market podcast for Oct 6th, 2011 in association with Braemar-Seascope

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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for October 6th. This report will look at the VLCC, Suezmax and clean products markets.

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We start this report with the VLCC sector and this week the market in the AG actually slipped further down. This was due to the bunker price easing down to $631 a tonne on the back of crude oil dipping below the $100 a barrel mark. By way of a cultural approach to the VLCC scene, one need go no further than a quick trip across London to Tate Britain. “Apocalypse” by John Martin promises epic canvases depicting biblical disasters: the Tower of Babel collapses, Etna erupts, Babylon falls. The destruction of Sodom and Gomorrah perhaps illustrates the halcyon days of VLCCs once earning $200,000/day, down to today’s $2,000 a day. We are probably not quite at the “saddling up” stage for the four horsemen, but concerns are growing about a sustained depressed VLCC market. The longer that these market levels are maintained, the fewer the vessels – which are already under close scrutiny – will be. In the longer term, even modern ships will start to develop deficiencies, more than just a nasty stain, (under the SIRE system), thus reducing the pool of ships “workable” for major oil companies. Lay-up has not been considered seriously yet and, for whatever reason, owners still operate, disregarding crewing and insurance costs, keeping the vessels moving. 270 AG/East has levelled off at worldscale 41.5, but we have seen rates to the West eroded to 280 for AG/US Gulf at 32.5, and 36 for the UK Cont. This is a reflection of the expensive port costs in that area.

West Africa has seen little in the way of activity. W Africa/East struggled up to 260 at 47.5, and has since jumped , off early dates to cover a suezmax co-freight deal, to 260 at 62.5 for the US Gulf. This is only as sustainable as the suezmax market, which promises to be reasonably short-lived. On the Indian front, there was one cargo fixed this week from W Africa to EC India for an early November laycan. The cargo was fixed at $2.7m by a vessel ballasting from the East, which only goes to re-emphasise the current depressed state of the AG market. We can expect more of the same, with earnings in the AG not expected to improve in the near future.

The 30-day availability index shows 72 double hulls and 1 single hull arriving at Fujairah, compared to 68 doubles and 1 single last week. So far for the month, we have seen 72 cargoes covered, including 42 cargoes covered in the second decade. Despite a lack of oil demand, we still expect at least 110 cargoes for the month.

Looking at the Suezmaxes and in line with the activity last week, the West Africa market finished with a bit of a flutter last week. There was a good level of fixing last week but rates saw no improvement. Moving into October, the sentiment and confidence of owners seems to have had a bit of an autumnal boost, trying as they did to push rates upwards. At the beginning of the week there was no real increase in rates, but the levels of fixing last week had put some pressure on the list in the last decade. The Mediterranean market was also showing signs of life and with the additional contributing factor of a shortening early VLCC list, rates soon started moving north. By the middle of the week we had seen 80 paid for the US Gulf discharge and with a good number of cargoes left to cover in the last decade, owners looked to seize the opportunity and try to push them up further. This led to an inevitable standoff between the charterers and owners, but the next fixture was at 92.5 for UK ContMed. The amount of cargoes left for October will be the deciding factor in this market. The suggestion that there may be only 5 to 7 million barrels left could tip the balance either way. Sentiment remains strong in the near term, but a couple of quiet days may test owners’ commitment.

There was a lot of strength in the Mediterranean suezmax market this week. After the gentle week we had last week, some people may have been surprised by the levels the market was yielding. There were a number of contributing factors, the first being increased traffic queuing for the Turkish straits, with all ships with IMO cargoes now having wait in line. Given this sudden increase in delays to 4 days northbound and southbound, the tonnage list shortened considerably. The pressure first started to show in the aframax market, with rates rising quickly for cross-Med business. This resulted in suezmaxes taking (or at least offering) on part cargoes, adding to the pressure for suezmax charterers. Although the fixed rates have not yet moved from 140 at 85 for Black Sea/UK Cont-Med, the cargoes in the market in the 20-25 window are meeting strong resistance from owners, and it does not look like it will be long before we see 3 figures. There are still 5 cargoes to cover from Novorossiysk in October, and with charterers playing it safe with the Turkish straits delays, the amount of available tonnage looks to be seriously reduced from last week. There was a fair amount of Med activity, with rates Med-trans-Atlantic reaching 70 in the early part of the week as that market looked to follow West Africa. The latest cross-Med cargo (albeit from Libya) fixed at 95, which is perhaps a more accurate reflection of where the market is. As we move into November dates, the weather in the Turkish straits will play a major role in the next direction of rates. Any sign of fog or reduced visibility will help owners kick on from here.

Moving to the clean markets and after last week’s bustle on the LR2s we have settled back into an all too familiar routine. The tonnage list looks fairly tight, or at least the pool of ownerships has tightened up a little. However, lack of activity has left rates depressed. Newbuilding and clean-up ships continue to undermine LR2 rates for gasoil and ULSD heading west. With China, Korea and India all having at least one day off due to national holidays this week it has been quiet in the AG for the MRs. Long haul cargoes have been few and far between with only two naphtha cargoes being confirmed on predictably cheap Far Eastern tonnage for WC India/Japan.

In the West and on the Continent, TC2 has continued the downward trend seen starting at the back end of last week. It is, however, safe to say that the pace of the downward trend definitely seems to have slowed over the past 24 hours. A quiet Monday followed by a pretty slow start on Tuesday enabled 15 points to be taken off last done, with the new benchmark being set at 165. Thereafter a couple of 160s have followed, and although activity since then has been muted, and it could well be argued that nominally rates are probably closer to 155 than 160, it now looks unlikely that 150 will be done this week. The Mediterranean market has remained flat this week, but at least at somewhat higher levels than recently seen. Cross-Med movements are now trading at 30 at 150 levels. Congestion in the Bosphorus has resulted in Black Sea stems fetching a 10 point premium, and trans-Atlantic activity has been very quiet, but nominally at least
10 points below rates being seen ex-Continent.

Thanks for listening