Tanker market update for June 1By james tweed • Jun 1st, 2012 • Category: Tankers
Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for June 1st 2012. This report looks at the VLCC, Suezmax, Aframax and clean products markets.
The Arabian Gulf VLCC market has been put to the sword by charterers this week. The overwhelming tonnage situation, coupled with the assortment of owners available, meant they could choose the weakest link and force the market down. At the end of last week, the market had stabilised at 270 at 55 for AG/East, and owners had managed to hold rates steady despite the fact that downward pressure was starting to build. The break came when S-Oil managed to secure an independent Greek owner 267.5 at 52, and charterers sensed weakness. More then moved in approaching “friendly owners” off-market for 10-15 June rates taking a discount here and there. The same Korean charterer who found that initial break then followed up with the same owner to move the market AG/East to below 50. The softening bunker price has cushioned the effect of the reduced rates, however, on the more bunker sensitive AG/West voyages, charterers have really put the squeeze on. Various charterers have taken the AG/West rates from 280 at 38 to 35.5, with an assortment of charter speeds down to as low as 11 knots to reduce the freight.
West Africa has been less active, with the Suezmax market slipping and less demand for VLCCs. W Africa/East softened again with the Arabian Gulf market charterers pushing rates down to the 56 mark. From the Indian charterers this week, Reliance fixed 2 cargoes for W Africa/WC India off end June dates at $4m each, reflecting the weakening sentiment in the area. The Indian government charterers are awaiting the confirmed stem dates for July loading, which we expect should begin rolling out next week. Taking into account that the Eastern ballasters will continue to put pressure on the rates in the Atlantic in the coming week due to the current levels in the AG, we are assessing W Africa/WC India at $3.9m and to EC India at $4.25m.
The 30 day availability index shows 58 double hull VLCCs arriving at Fujairah, of which three are over 15 years old, compared to 40 last week. The total number of fixtures for June is 88. Some are speculating on a shorter month as the oil price slips and supplies are shortened, but at the moment this is simply speculation. The freight rate for 280 AG/US Gulf is 36, down 3 points down from last week and with bunkers down $10 to $645, owners’ earnings have slipped to $7,400 a day.
In comparison to the highs we have seen in recent weeks, the West African Suezmax market finished on a low last week. Owners were hopeful about being able to keep the US Gulf rates at around 80, but it only takes one fixture to change the dynamics. As it happens, the next fixture was 75, which was a fairly hefty drop. As you would expect this brought in a couple of fresh cargoes as charterers looked to maximise the advantage of a weakening market. As this week began, there were hopes that the period would be busy with the oncoming UK’s Jubilee holiday approaching. The Memorial Day holiday in the US on Monday meant the week started quietly and unfortunately for the owners, it never gathered momentum. As the week progressed, cargoes failed to appear and sentiment among owners waned. Each new cargo attracted 4 or 5 offers. As the week draws to a close, there are reports that 65 is on subs for the US Gulf: it appears that this market will continue on a downward trajectory next week. With the confusion that the Posidonia meetings in Athens generate and the extra-long UK public holiday, it remains to be seen how low it can go. The drop in bunker prices will assist owner’s earnings but it may not help in building resistance. The Mediterranean and Black Sea markets followed a very similar path to West Africa.
Moving to the Aframaxes and in the Baltic and the North Sea any remains of firming have since disappeared, as tonnage has replenished itself. Rate levels have settled back down to 80 at 95 for a cross North Sea voyage. The market is well balanced at these levels, and overall sentiment is flat. In the Mediterranean and Black Sea it has been an uneventful week and fixing has been limited. Charterers have been paying 80 at 85 from the Black Sea and 82.5 for cross Med. Sentiment is low as owners are making minimal returns.
It was a fairly busy week in the eastern hemisphere, highlighted by tight fuel oil supplies in Fujairah and with lower bunker prices offsetting weaker Aframax rates. Traditionally, Singapore fuel oil would sell at a premium to Fujairah, however this trend flipped into negative correlation last week with Fujairah reaching a premium of over $10/tonne, effectively limiting the flow of fuel oil to eastern markets from the AG.
Looking at the clean markets and although the rates being fixed in the AG this week on MRs have been very uninspiring, given the length of the prompt tonnage list on Monday, owners will be reasonably happy that the majority found a cargo before the extended UK public holiday weekend. TC12 has slipped five points to 120 as the cycle of South Korean vessels became available again forcing eastern rates lower. AG / Continent enquiry has been active and charterers have had their pick of the ships. LR1s have been very slow, with a reported deal at the equivalent of 55 at 100 on subs Thursday. Whilst this was disappointing, it was inevitable with the build-up of tonnage and lack of fresh enquiries.
In contrast, the LR2 market picked up, with plenty of activity taking ships east and west form the Middle East region. Rates were initially reluctant to move and seemed to be rooted at 85 to Japan and $2.25m to the UK Continent. However, towards the end of the week things started to move up. Newbuilding Aframax vessels remain languishing in the Far East region and Owners are attempting to gain gasoil cargoes to the west but the arbitrage trades still look uncertain. The rates that owners are required to face to make it work are currently too low for most owners to consider, but interest is gathering momentum.
In the West and for the Continent market the hoped for flurry of TC2 fixing ahead of the UK’s four day weekend failed to materialise so rates dropped from 37 at 150 on Monday to 135 by the end of the week as prompt tonnage accumulated and charterers held back.