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As China stops filling their SPR, we ask, what next for tanker owners? Nov 30

By • Nov 30th, 2012 • Category: Tankers

The Coracle tanker market podcast for Nov 30, 2012 in association with Braemar-Seascope

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Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for Nov 30th 2012. This report looks at the VLCC, Suezmax, Aframax and clean products markets.

We start this podcast with the VLCC sector and the big news this week from the oil markets is that China appears to have stopped filling up its strategic petroleum reserve (SPR), thereby removing a major source of incremental demand from the global crude oil market. Since much of China’s delivered oil is by VLCC, the tanker market is naturally wary of such news. The estimates by the IEA suggest that China diverted 106 million barrels into its SPR in the first 7 months of the year. In real terms, this means that imported oil has dropped from an additional 650,000 barrels a day above refinery capacity in the first quarter down to 510,000 a day for the second quarter, and finally 100,000 a day for the third quarter. It seems unlikely that the rest of the world can easily replace this loss in shipping volume.

There has been a distinct change in sentiment from VLCC owners this week as the lack of cargoes has sapped their confidence. The relative tightness of the end/early month position is in direct contrast to the greater availability of tonnage for the 10-20 December fixing window. Last week, owners were confident they could push rates higher into the 50’s for East and 30’s for West. At the same time, charterers played their favourite game of hide and seek, disappearing from the market over the Thanksgiving long weekend. This week, charterers drip fed the market for cargoes in the second decade. A multi-option cargo was fixed at slightly above 50 for East and slightly below 30 for West. Sensing a weakness, S-Oil quoted 265 Ras Tanura/Onsan off 10-12 December. The owners all rushed in with offers, meaning a total of 12 were collected. At this stage the writing was on the wall, the fragile confidence was broken and 270 at 46 was confirmed by an oil company relet. This rate has since been repeated on a lesser approved vessel.

As confidence was being eroded in the AG, West Africa followed suit. As is customary, rates take huge efforts to build, and only a long weekend of eating turkey and watching American football to crash. The 30 day availability index shows 41 VLCCs arriving at Fujairah, of which five are over 15 years old, compared to 51 last week. So far in December we have countered a total of 53 fixtures; only 15 more fixed over the whole of this week, proving the slowing down in volume.

The post-holiday cheer failed to extend to the Suezmax market, and the West Africa rates suffered. Having hit what seemed like hit rock bottom, they continued to drop. The early protagonist in this fall from grace was a cargo which received no less than 11 offers and promptly crushed expectations with a 54 for UKC-Med. Whilst 57.5 was achieved to the USAC the market appeared to settle at 55 for UKC-Med discharge. That was until another quoted cargo attracted 10 offers and rates dropped to 52.5. Moving into the traditional party week next week we can expect volumes to increase, but fundamentally there still seems to be far too much tonnage to expect rates to bounce back. With most quoted cargoes receiving numerous offers, it will take a dramatic increase in activity to pick up the slack.

For the Aframxes in the Mediterranean and Black Sea we have seen limited enquiry, which has allowed available tonnage to lengthen and more ships to be sitting prompt. Combined with this, Turkish Strait delays have reduced to 3 days, meaning charterers have been able to pick ships off at will, squeezing rates further as owners are forced to make the decision to sit idle or fight it out to get a cargo. With respect to earnings, for most it is a case of damage limitation. In the North Sea and Baltic the market remained flat this week, with a sufficient amount of tonnage keeping rates and earnings low. Crude liftings from Primorsk and Ust-Luga are now covered up until mid-December, with all being covered at 100 at 57.5. Until the Baltic ports of authority start to introduce ice class restrictions, whether there be ice or not, it is hard to see rates moving upwards.

For the clean market in the West the week started with a good deal of activity across the north west european markets. Both Handies/Flexis and MRs saw the winter renaissance in rates. Charterers found the cupboard was bare and that tonnage was extraordinarily short in supply for Baltic loaders for early December. As rates climbed up to 30 at 162.5, owners were asking more, but the enquiry tailed off.

Thanks for listening