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Pundits may be talking up the tanker sector, but this week wasn’t fun for many ship owners. June 15

By • Jun 15th, 2012 • Category: Tankers

The Coracle tanker market podcast for June 15, 2012 in association with Braemar-Seascope

Thanks for downloading the tanker market report podcast from Coracle Online and Braemar Seascope for June 15th 2012. This report will look at the VLCC, Suezmax, Aframax and clean products markets.

As the storms battered the UK this week, so the Arabian Gulf VLCC market, which seemed to have reached its nadir, was also receiving a battering. Korean charterers started the week by pushing rates down from the 270 at 45 to 40 in only a couple of fixtures, reflecting a loss of confidence. The weaker oil demand and subsequently lower bunker price allowed charterers to gain confidence in forcing rates lower whilst owners are seeing little advantage from the lower bunkers as charterers have sensed their weakness. KPC managed to wring the last possible point for Kuwait/US Gulf at 280 at 30, which seems to be a new low. Coupled with the latest reports that a newbuilding is on subjects 270 at 38 for Korean discharge with the fact that fully approved vessels are only managing about one worldscale point more and this reflects the effect of an oversupply of high quality tonnage. OPEC is meeting imminently to discuss production quotas and any reduction in output will only provide for further misery for shipowners…

The West Africa VLCC market is still being driven by eastern bound cargoes whilst cargoes heading west from this load area are being taken on the more versatile Suezmax size of vessel. As the AG VLCC market has collapsed, so have the West Africa/East freight rates. The week started with Unipec fixing a few VLCCs 260 at 48.5 however as confidence was sapped owners were willing to give a discount, first 45 was available and then 43.5 and then 41.5.. From the Indian charterers we saw IOC entering the market for their first July stem from W Africa off 10-11 July dates. They managed to attract 10 offers for the cargo and fixed the business at $3.6m, roughly equivalent of 260 at 45. We expect the Indian charterers to be busier in this region next week and with the market sentiment remaining weak and the tonnage list being well populated (due in part to the presence of the eastern ballasters) the charterers should be able to get lower than last done levels for their business.

The 30 day availability index shows 45 VLCCs arriving at Fujairah, of which 3 are over 15 years old compared to 56 last week. Meanwhile, so far for the month of June 139 fixtures have been reported, proving that volumes are still strong despite weakening oil prices and demand. It also proves that although 140+ fixtures are being regularly reported month on month from the Arabian Gulf and significant W Africa/China business being concluded, the market is still on its knees, which makes for a rather bleak outlook for owners in the short term future. The freight rate for 280 AG/USG is 30, down 2 points from last week and with bunkers at $611 owners returns are minus $1,000/day, down from $3,000 a day last week. This compares with 270 AG/S Korea at 39, down 6 points from last week and making owners a little under $16,000 a day.

Now we’ll look at the Suezmax sector from West Africa and with the number of June vessels dropping below 7, the resistance built back and rates stabilised. A fee stronger fixtures provided enough to push owners confidence and 75 was achieved. The effect on trans-Atlantic rates remains to be seen as there is a lull in cargoes going towards the US Gulf at present but the burgeoning Mediterranean market is likely to put upward pressure on those rates. There is a healthy level of cargoes available at present but the plethora of trans-Atlantic ballasters, coupled with a dearth of cargoes for the first decade of July could mean rates drop. There were 49 1 million barrel parcels done in the first decade of June, compared to 40 in July, so we expect the market to fall next week with fewer stems than normal, especially in the 1-5 window. The strength of the Mediterranean is largely buoyed by the underlying Aframax rates, which have ballooned, attracting several Suezmax vessels to switch allegiance! Mediterranean Aframaxes reached a high of 80 at 125, so, cue wildly optimistic (and completely ignored) shouts for worldscale 150 from owners. Things have since calmed down, and Suezmax rates actually remained unchanged at around 72.5 from the Mediterranean, but realistically, given the well-populated Suezmax list and a quiet week in the Black Sea, this is probably the best owners could have hoped for.

As we’ve heard, the excitement for Aframaxes came in the Mediterranean and Black Sea region this week, when a short burst of activity early on saw a spike in rates. Recent delays for Kirkuk failed to have an impact on the market up until this week and so, in addition to increased demand and a tightening of tonnage, we saw rates move from low 80’s to 80 at 125 for cross-Mediterranean. Unfortunately, as it has been the case for a long time now, tonnage outweighed demand and charterers managed to calm the market down by holding back and allowing sentiment to die down towards the end of this week. Currently, rates remain in limbo and are certainly softer. We expect to see the market correct itself next week back down to worldscale 80 level. For Aframaxes in the North Sea and Baltic, following last week’s flurry of activity towards the end of the week, there was hope that freight rates would move up this week. Unfortunately for owners, demand has been relatively slow and tonnage has reappeared on tonnage lists. This has the effect of ultimately forcing rates to remain at the levels last done.

Moving on to the clean markets and the MR market in the AG failed to inspire this week, apart from a glimmer of success felt for a specific owner for a prompt, short haul lifting as an oil major was caught trying to lift some barrels from West coast India to the AG off 19th – 20th June, but with so many palm oil and veg oil vessels available off prompt dates and few ballast positions off that window, the charterer ended up paying up. Otherwise, rates have remained flat across the board. There have been a couple of cargoes fixed to eastern Africa and South Africa at 35 at 170 and 35 at 165 respectively. These routes used to hold a 30 point differential, but now that the earnings are so poor that differential has been eroded to 5 five points. West bound activity has remained low. There have been whisperings of a few questions on the distillates east/west but with the arbitrage closed it’s only a very select few bidding on barrels. There has been some distillate enquiry out of north Asia, which offered owners precious opportunities to triangulate their earnings.
The LR1 market, as expected, has thrown up no surprises this week. The market is flat and going nowhere fast. That said you don’t have to go far to find an owner who thinks the market is on the verge of improving. But unless there are 10 plus cargos yet to be quoted for last decade June, the market will keep ticking along at the current levels, AG/Japan is lingering at around 55 at 100 and AG/Cont is rated at around $1.775 million. With more than 20 ships left in the AG for June (one of which is a Japanese ship that was talking worldscale 98 for Japan last week) it’s unlikely the level will hold in triple figures for long.

In the West and MR activity continued at mediocre levels. With no real arbitrage existing and prompt enquiry for US Atlantic coast and East Coast Canada/trans-Atlantic, we expect the prevailing levels to continue through to the middle of next week. The Mediterranean has been predictably lacklustre with no movement in rates and no foreseeable end to the doldrums on the horizon. Cross Med rates are stuck fast at 30 at 140 and Black Sea/Mediterranean at 30 at 142.5. Minimal activity for trans-Atlantic out of the Med has done little to alleviate the continued glut of tonnage that is holding rates down.