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VLCC: Despite continued enquiry and steady volumes of fixing, the oil companies continue to have the upper hand.

By • Mar 30th, 2014 • Category: Tankers

The Coracle tanker market podcast for March 28, 2014 in association with Braemar-Seascope

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Looking at the VLCC market and despite continued enquiry and steady volumes of fixing, it is the oil companies which continue to have the upper hand, keeping freight rates low, and when the opportunity presents itself, pushing down again. This week started with the AG/East market holding at about 270 at 41.5, but after a week of unrelenting pressure and some smart chartering, rates are now 270 at 36.75. Previously this was a rate fixed for a straight AG/Korea voyage which always freighted out better, but now it’s a rate for China with heavy commission and laytime. This 10% reduction in freight rates takes earnings into the red zone and owners will be feeling the pinch as freight no longer supports the cost of operating a modern VLCC, and that’s not even adding in any capital costs..

Rates for AG/West have reached this year’s low at 280 at 25 for US Gulf via the Suez Canal and probably a point or two more via the Cape. There are only very few owners willing these levels, but they do exist and charterers are adept at picking off those seeking employment at the very lowest rates. Having said that and despite the alarming ship count, we expect the market to stabilise at these levels for the time being as owners are unwilling to subsidise actual shipping costs.

In line with the Arabian Gulf, VLCC owners pointing their vessels towards West Africa also lost ground to charterers. The week started with rates looking steady at 260 at 42.5 for West Africa/China but a subsequent fixture meant that rates slipped to 41.75. Although this is not a huge drop, it does show the knock-on effect from the AG market.

The Caribbean market has got into gear this week. There are off-market enquiries, some ships in position in the US Gulf area are disappearing on subs. Reliance managed to cover east coast Mexico for the last decade with a rate of $3.55m.

The 30 day availability index shows 102 VLCCs arriving at Fujairah, of which six are over 15 years compared to 100 last week. We have now counted a total of 43 cargoes for April, 38 of which were fixed in the first decade, which now we believe to be covered, which leaves a total of about 80 left to cover since we expect 120 fixtures in April. The 20 ship overhang into April is starting to become evident in the triple digit ship counts right now and is only a good sign for charterers who will have plenty of choice when approaching the spot market.

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