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Some respite for tanker owners as bunker prices fall. Sept 21 Tanker report

By • Sep 21st, 2012 • Category: Tankers

The Coracle tanker market podcast for Sept 21, 2012 in association with Braemar-Seascope

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The VLCC market has been given some respite this week as bunker prices slipped $44/tonne and at the same time the Worldscale rate continued to gently rise. There was a flurry of fixing for end September laycans followed by a bit of a rush for early October dates. It’s not just VLCC tonnage piling up in the Straits of Hormuz; there is currently more military hardware moving into the area than there has been since the Gulf War. Aircraft carriers HMS Illustrious and Charles de Gaulle are in the eastern Mediterranean, while naval vessels from 25 countries are a stark warning to Iran that any attempt to blockade this vital shipping route would be fiercely resisted. Perhaps it is this show of force which has meant that crude oil prices have slipped $8 a barrel over the past week.

Meanwhile, the volume of fixing has meant that owners have been able to maintain last done levels, and in some cases, push rates above the 265 at 40 mark. As we move towards the winter months, there are positive signs for the market. Re-let tonnage will be employed in programme rather than constantly undercutting the market and volumes are expected to increase back to the 130-140 cargoes a month we were counting at the beginning of the year. There has been a slowing in VLCC newbuilding deliveries over the summer, so perhaps all is not lost for the moment. However, it seems inevitable that there will be significant VLCC newbuilding orders placed by Chinese owners to support the struggling Chinese shipyards.
The West African market has been dominated by cargoes destined for eastern charterers. Steady fixing has meant that charterers have managed to keep rates just below 260 at 40, even in the face of a rising eastern market. A couple of VLCCs were reported fixing West Africa/West off first half October dates, despite Suezmaxes trading at base levels.
European traders are starting to ask questions about VLCCs in position to play the fuel oil arbitrage around mid-October, which is starting to look like it could support up to $3m freight North Sea/Singapore, but nothing has been confirmed yet.

The 30 day availability index shows 43 VLCCs arriving at Fujairah, of which 6 are over 15 years old. This compares to 57 the previous week. We have now completed fixing for the September stems, which came to a total of a rather meagre 112. October has kicked off in a flurry of fixing, with 29 cargoes already covered. The freight rate for 280 AG/USG is 27, down 1.5 from last week but with bunkers down $44 to $645/tonne, owners’ earnings are steady at minus $11,300 a day. This compares with 270 at 40 for AG East, returning owners nearly $6,000 a day.

Looking at the Suezmax sector and whilst the high number of projected October stems in West Africa emboldened owners early on this week, this sentiment never really manifested itself in terms of higher rates. Kicking off at 52.5 for West Africa/USG, a mid-week fixture at 65 for Spain and 70 for the Canaries was misleading, coming on a prompt cargo and in the end failing subs. This seemed to kick off a trend of failed fixtures, which dampened expectations. Owners had been pushing for 60 plus on West Africa/US Gulf voyages, but those who recognised the repopulation of the position list promptly undercut them to fix sharpish. With countless vessels still capable of making the first decade, it seems any potential rate increases might have will be stamped out once again.

Short Med voyages kicked off at 62.5 for an Arzew/Fos trip, and the market rate appeared to stall at around 60, with longer voyages to the Continent paying 58. There was a reasonable level of fixing into the USG from the Black Sea, Med and North Sea, though this didn’t seem to dissuade one owner from taking Med/trans-Atlantic at 50 towards the back end of the week. At present, owners seem to have limited options; with long haul preferred and 50 trans-Atlantic representing a poor return, there is a growing appetite for eastbound voyages, with $3m being the rate to Indonesia. Part of the impetus for this trend is the stagnant Black Sea market.

The Baltic and North Sea Aframax market has again remained unchanged this week. However, sentiment is gradually starting build between owners. A number of cargoes from the ports of Primorsk and Ust-Luga have taken tonnage out of the equation, leaving the tonnage lists tighter for end month stems. The resistance has come when owners have been trying for higher premiums for fuel oil cargoes. Ultimately though, some charterers managed to achieve 100 at 60. Fundamentally however, the oversupply of tonnage in the area remains. It’s fairly easy to establish the amount of crude oil that will be exported in any one month, and unless we see any other factors impact this market, such as an increase in cross-North Sea activity (of which there has been little done on a spot basis lately), or an influx of DPP movements on this size (of which there has been a few this week), then we can expect rates to remain as they are.

Now the clean markets and East of Suez the LR2s have had a very busy week with many ships in the first 10 days of October getting fixed away. However, despite people’s expectations that the Japanese would come into the market this week after the Saudi naphtha awards over the weekend, these cargoes have yet to be seen. The majority of interest seems to be for ULSD or jet heading west. Rates have remained relatively steady through the week with numbers around the $2.45m level to the UKC. Rates to the East were, surprisingly, set at around 95 at the start of the week and seem to have been maintained around that level. Many owners are still preferring the eastern voyage to combine with back haul Gasoil from Korea to Singapore and Indonesia. Although it seems the naphtha runs form the Continent or Mediterranean are going to remain more regular, rates are uninspiring for the moment. LR1s have been very quiet. Levels have been reported as down to 110, although many owners of ships around that position were refusing to countenance such levels, and so this resistance may see some recovery from that level.

In the West and the Continent market has taken the momentum of the spring board from last week. Excitement abounds as rates reached the heady heights of 150 for UKC/trans-Atlantic and 157.5 for UKC/West Africa. Larger tonnage is tight and so we are expecting rates to continue this upward trend. Smaller units on the Continent have also enjoyed a renaissance, with little to no flexible tonnage for the rest of the month.
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