VLCC rates decline further

03 April 2006

Crude stocks in the United States went above 200 billion barrels for the first time since before the hurricane season last year. There is therefore no great incentive to add to these already large reserves.

Interruptions in supply from West Africa and the fall in Suezmax rates have persuaded VLCC owners to ballast back to the Arabian Gulf. The tonnage supply was, therefore, larger than normal, putting downward pressure on rates.

The second difficulty for VLCC owners was the refinery maintenance season in the Far East which made some oil company-operated tankers surplus to requirements. This increased the tonnage availability still further and placed more pressure on rates.

Tonnage fixing from the Arabian Gulf to the West thus saw freight levels dip below Worldscale 70 for both north-west Europe and the US. Trips to the East were also affected and rates here took a similar dive.

Traditionally these pre-summer falls seem to last until the 're-stocking season' in August or September. One can adapt the old stock exchange saying: "Fix in March and go away, charter again on St Anthony's Day."

Suezmax
Although not suffering quite the falls seen in the VLCC market, last week was not a particularly pleasant one for Suezmax owners either. There was slightly increased activity in West Africa, but without the volume normally seen.

This had the effect of frightening away the VLCCs and reducing Suezmax rates. They gently weakened from the mid-WS120s late the previous week to around WS115 for trans-Atlantic discharge currently.

WS112.5 was agreed by a brand new ship still hampered by a shortage of major oil company approvals.

Although there are hopes that the situation is beginning to improve for owners, around a quarter of Nigeria's production is still shut in and has been for some time now as a result of the recent civil unrest. This has significantly reduced output from here, but it has not been replaced from elsewhere in West Africa. As mentioned, stocks in the US are quite high.

The Black Sea and Med areas were fairly active, but lacked direction. 135,000 ton cargoes from Novoro-ssiisk is now typically paying somewhere in the region of WS127.5, and cross-Med deals have been done at about WS117.5-120. There was some demand seen for Far East and trans-Atlantic discharge options. The 50 point drop seen over the last few days for Aframaxes here means that the Suezmaxes will not be able to poach in the 80,000 metric tonnes market as several did in the previous week. In north-west Europe one Suezmax was reported fixed at WS115 for US Gulf discharge.

Across the Atlantic, charterers have been showing interest in Caribbean to Far East cargoes, and $4 million has been reported paid for Caribbean to Singapore.

East of Suez, rates fell to the lowest levels seen for many months. As the older single-hulled ships find their employment opportunities limited in other parts of the world, they tend to congregate in the Arabian Gulf in numbers. They are like a colony of seabirds and fight hard over any suitable scraps of business. As a result, charterers are able to apply the squeeze and at least three older ships agreed rates in the WS70s for Gulf/India, down from the previous week's range of WS90-100. Opportunities for modern ships are very few and far between.

Of the eight fixtures reported from the Gulf and the Red Sea, only one was a double-hull.

The current lows in the VLCC market do not bode well for the million barrel units in the immediate future. St Anthony's Day beckons for them as well.

Aframax
In the Arabian Gulf, there was very little enquiry and rates eased for the third week in succession. It is so bad that vessels are being fixed at WS110, a rate paid to VLCCs only a few short weeks ago.

Further east, things are not as bad, but rates have still fallen for voyages from Indonesia to Japan and Australia and are now down to WS125.

Another slow week in the North Sea and Baltic caused rates to ease further, despite a number of ships leaving the area last week. A cargo of 80,000 tonnes inter-UKCont slipped to WS110, and the same quantity to USGulf/USAC paid around WS170-175. 100,000 tonnes Primorsk/UKCont paid rates of around WS140, with non ice-class tonnage attracting rates of about WS120 for a similar voyage.

It was to be expected that the previous week's downward pressure on rates would continue last week in the Caribbean. But a few early cargoes put off the evil moment and it wasn't until the second half that the market level dropped below WS200 for a 70,000 cargo. Too many ships were then pursuing too few cargoes and the market fell to WS175.

Should early cargoes appear however, the shortage of prompt tonnage could well see the rates rebound. The game is not yet over.

- The writes is a shipbroker and marine consultant with more than 40 years of experience in the tanker and dry cargo markets.