Sobriety returns to the VLCC market. Dec 15th reportBy james tweed • Dec 15th, 2011 • Category: Tankers
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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for December 15th. This report will look at the VLCC, Suezmax, Aframax and clean products markets.
We start with the VL’s and this week sobriety has returned to the VLCC market and rates remained at relatively steady levels, but nothing which will actually start to significantly return money to owners’ pockets. Despite strong volumes of fixtures, rates are unable to flourish because the amount of available steel outweighs the oil for the moment. The 30 day availability index shows 51 vessels, including 5 vessels which are 15 years old or older, and 2 newbuildings, compared to last week’s total of 46. So far, 138 cargoes have been fixed for December. It looks like we are in for another bumper month of AG VLCC fixing. With the freight rate for 280 AG/US Gulf at 37, off one point from last week and with bunkers down $16 to $671, owners earnings $25/day, up from minus $4,000/day last week. This compares with 270 AG/East at 58, down 2 points and returning owners nearly $17,000/day.
The West African suezmax market picked up slightly from last week’s lows and rates for US Gulf followed the UK Cont Med rate to 80. It was expected that last week would see the completion of December dates but we were left with a few straggling cargoes. This led to a slight increase in pressure in the market as charterers came back from party week with pieces of business left to fix. Although there were a good number of ships left on the list, the promptness of the dates led to an increase in rates up to 85 for US Gulf for end December dates. As we moved into January laycans, levels of activity remained strong and this added further pressure to a tightening list. In the middle part of this week, rates rose to 95 UK Cont-Med although this settled down to 92.5. At this point, there were a couple of end December stems that entered the market and are likely to come up against big numbers. Looking into next week, it looks like the market strength will continue in the short term. The week prior to the Christmas holidays can move the market in either direction as charterers look to get their cargoes covered – but on the flip side no owner will want to be left with a prompt ship over the holiday period. The Mediterranean market finished last week relatively quietly, carried along on a strong aframax wave. The December Black Sea program was completed relatively early which in theory should have led to a quiet Black Sea market this week. The Med market picked up slightly as aframax charterers continued to go down the suezmax route, and the number of Med/US Gulf cargoes increased. There were also a clutch of Libya/East cargoes, which was a big increase on the Libyan business we have seen recently. All of this – combined with a strengthening West Africa market – led to pressure being put onto the Med list. There is a bit of a wait ahead of the charterers for confirmed Black Sea January dates, but there are charterers already taking positions in expectation of a strong market. The Turkish straits delays seem relatively stable at 6 days northbound and 6 days southbound, but there is always the risk that these delays will increase overnight. The suezmax market generally is quite busy and it looks likely to carry over into the early part of the week. It remains to be seen whether owners can take advantage of the action before the quiet of the holidays begins.
Since this time last week, aframax rates in the North Sea and Baltic have continued to firm. Towards the end of the week and the start of this week, owners were unwilling to work their ships unless charterers were willing to pay big numbers in an attempt to push rates further and in anticipation that rates would firm significantly. Weather conditions in the Continent and North Sea have been extremely poor and many expected that there would be a number of vessels delayed, inevitably causing replacement fixtures. The highest rate achieved in the Baltic this week was 100 at 135 and as soon as that was done, instead of rates rocketing the market became stagnant and 4 Primorsk cargoes were all fixed at 125. One of the reasons was that charterers have been fixing well in advance and as we reach mid-month, the majority of December stems have been covered from Primorsk, allowing charterers to take a step back. The market then dropped 15 points in one go, where currently it remains at 100 at 110. We expect charterers to push it down further. In the Mediterranean and Black Sea, sentiment was quick to drain from the market following last week’s spike in rates. There has been a sufficient amount of enquiry to keep earnings at a reasonable level for owners, but you can’t help but feel owners will be disappointed that rates did not firm further, continuing on from the strong sentiment last week. Bosphorus delays are currently 6 days northbound and southbound, and we anticipate delays could increase next week. This, of course, would help the market.
Now we look at the clean markets and in the East the LR2s started the week at world scale 100 and after several fixtures are still there. Cargoes have been fixed up to mid-January but only a few have been taken out. With the heavy population of Japanese tonnage for the first half of the month it’s unlikely that rates to the East are going to improve on the next round of fixing. A few cargoes to the West have seen numbers click up to a reported $2.45 m to the UK Cont. The naphtha arbitrage has opened up from the Med causing several ships put on sub to come back East. They will get in the way in the AG again. LR1s have been very quiet. Rates have softened to 120 and are unlikely to get much higher, even if there is a run of activity as people try to clear their books for the Christmas holidays. Rates to the West have reached around $1.9m to UK Cont.
In the West and as was entirely predictable, the Continent market strengthened considerably this week with the wise guys getting in and getting out at 167.5 this Monday and everyone else watching the market ping up. As we speak, 37 at 175 is last done, but for earlier barrels owners are talking significantly higher. Looking into next week, the market is getting heavily hyped at the moment and there is unsubstantiated talk of TC2 on subs at 190+. We still have to see the full extent of how the Continent will play out, but at the moment what can be reliably said is that despite last done being a high point, there is still room for further upward movement.
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