It's a boon time for VLCC tanker owners once again, as April has seen TCE (Time charter equivalent) earnings for the Middle East - Japan (TD3) route rising to $45,000/day on a round voyage basis at design speed. This is the highest level of spot returns in over a year. However, more recently VLCC rates have gone through a major downward correction, which might have suggested that the "party" is over and that both rates and earnings are on the way back to the depressed levels witnessed last year. But, yet again, this week the VLCC market started to firm again, as the factors that were behind the pick-up in rates in early April are still largely at play said shipbroker Gibson in its latest report.
According to Gibson "the relative strength in the VLCC market has been supported by extremely high Middle East OPEC production and as a result, very active spot chartering enquiry over the past few months. At the same time, tonnage availability was lowered as many tankers had been operating at slower speeds when trading conditions were exceptionally dire. In addition, an even further reduction in tanker supply was achieved due to the recent gains in long haul trade out of the Middle East to the US Gulf, particularly from Saudi Arabia. Finally, the presence of a new VLCC pool also helped, reinforcing the bargaining power of the wider VLCC ownership. Going forward, OPEC crude output (excl. Iran) could increase further, with more stock builds, in order to offset the upward pressure on crude oil prices on the back of Iranian developments. In addition, the sheer uncertainty regarding Iran is also likely to offer temporary psychological support to VLCC rates" said Gibson.
Furthermore, "apart from the developments in the Middle East, the VLCC market is also being supported by recovering Libyan crude output. Back in 2011, the VLCC trade was hit by the drop in the long-haul crude movements from West Africa to the Asia Pacific, as more West African crude was temporarily ‘pulled’ into Europe to replace the loss of Libyan barrels. This year, a re-balancing to more normal patterns is expected to take place. This, coupled with the closure of refining capacity in the US East Coast will ‘free’ more crude for long-haul VLCC shipments from West Africa to the East. This has already been witnessed to some extent, with more eastbound spot VLCC activity out of West Africa this year than in the second half of 2011.
Combined, the above developments advocate a strong case for some consistent improvements in VLCC earnings this year relative to 2011. Yet, one should not forget about the expected new additions this year and the “hidden” capacity as a result of slow steaming. These supply factors will continue to limit the prospects for recovery, hanging over the industry like a dark cloud" concluded Gibson.
Meanwhile, in the past week, the London-based shipbroker noted that "VLCCs in the Middle East Gulf ended last week in despair, but then realized that it was all of their own doing, and only had to wait a little longer to see better enquiry, and improved conditions. And so it was.. Charterers entered the market in numbers, and the resultant momentum allowed rates to bounce back from WS 50 East to as high as WS 65. With West rates re-calibrated back into the low WS 40’s once again. Consolidation is now likely for a while, but if Charterers get loose again with the second half may programme, then there will be some further upside. Suezmaxes saw better attention than of late, but it was primarily short-haul fare, and was never enough to reach critical mass, so rates continued to average 130,000 by WS 80 East and high WS 40’s to the West. Aframaxes had a merely steady week of it with rates again averaging 80,000 by WS 92.5/95 for Singapore and although availability is better balanced, there are no great hopes for next week" said Gibson.
It also added that "Suezmaxes settled into a rather uncomfortable 'conference' market at 130,000 by WS 62.5 US Gulf, WS 65 Europe, for the whole week, and it may possibly stay that way, but there is more resistance developing, and Charterers will have to make a little more effort to maintain the status quo. VLCCs were effectively shut out of any inter-Atlantic opportunity due to the negligible differential against the smaller size. Eastern interest was strong, however, and as the AG gained, so did rate ideas from ballasters, eventually forcing the market to 260,000 by WS 65 for China with 4.65 m the last seen for a run to West Coast India. After a cautious start, aframaxes in the Mediterranean regained some confidence, and managed to squeeze a few more worldscale points to end at 80,000 by WS 100 cross-Mediterranean with perhaps a little higher possible before the inevitable slowdown - and downturn. Suezmaxes didn’t change structure with not enough action to buck rates up from an average 140,000 by WS 62.5 from the Black Sea to European destinations, but as in West Africa, there is a degree of resistance developing. VLCCs in the Caribbean started very slowly, but a raft of cargoes soon entered, and the clear-out started to drag Owners rate ideas up from the USD 4.6 m level that they had previously been covered at, though not yet breaking through USD 5 m. Maybe next week. Aframaxes started to move a little higher - to 70,000 by WS 100 upcoast, but it was a slippery ledge, and the small gain could be taken back within short" concluded the report.
Nikos Roussanoglou, Hellenic Shipping News Worldwide