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VLCC Tanker Market Could Rally Until The Holidays, But Rising Trend Not Sustainable

Despite the weakened market sentiment in the VLCC tanker market, things could perk up in the coming weeks, before they “die down” again by the start of next year and into the first quarter of the new year. In its latest weekly report, shipbroker and tanker market specialist Charles R. Weber noted that “VLCC rate sentiment weakened considerably this week as rising available tonnage continued to disjoint fundamentals. In the Middle East market, there were 25 fresh fixtures this week although representing a 25% w/w gain and a one‐month high, it was still below the YTD average—and well below many participants’ expectations”.

Meanwhile, the shipbroker added that “demand in the West Africa market improved by one fixture to six – though this was also below the YTD average and expectations. The Atlantic Americas market saw muted demand as well; among this week’s three fixtures was one for USG loading, marking the first ex‐USG crude fixture in three weeks (comparing with an average pace during October of 2.5/week). Compounding negative sentiment, several fixtures failed on Thursday after news of OPEC’s agreement to extend cuts surfaced”.

According to CR Weber, “surplus tonnage in the Middle East market has risen progressively since briefly narrowing to nine units early during the November program (its lowest in ten months). By the conclusion of the month the surplus rose to 14 units and has remained in a positive trajectory, presently showing 17 units through December’s second decade. Supply fundamentals were considerably worse during the summer and the September program concluded with a three‐year high of 29 units. So while the summer’s earnings lows approaching $11,000/day is not likely anytime soon, the market appears likely to remain soft early during the coming week as earnings adjust to match prevailing fundamentals”.

However, “as December progresses, there is potential for a fresh rallying of rates. Periodic rushes to cover cargoes during the weeks ahead of the holidays and amid seasonal holiday events could bolster demand sentiment. Meanwhile, supply surpluses are not likely to rise further for December cargoes as most units currently servicing the October surge in USG crude exports are not projected to be available in the Middle East until January loading dates and our projecting of other units next positions does not indicate a further buildup. The extent to which rates may rally will ultimately be guided by the extent of the remainder of the December program—which itself remains elusive. Heading into 1Q18, however, fundamentals look set to weaken again. Availability levels could rise rapidly while demand could sag as Middle East OPEC suppliers show early resolve in adhering to their extended quotas, both representing substantial threats to the earnings view”, CR Weber concluded.

The shipbroker said that in the Middle East, “rates on the AG‐JPN route shed 10 points to conclude at ws52.5. Corresponding TCEs were off 31% w/w to ~$17,728/day. Rates to the USG via the Cape were off by one point to ws26. Triangulated AG‐USG/CBS‐SPORE/AG TCEs declined by 11% w/w to ~$26,681/day”. In the Atlantic Basin, rates on the WAFR‐FEAST route shed 6.5 points to conclude at ws62.5. The VLCC Fleet Growth corresponding TCE was down 17% w/w to ~$24,446/day. Rates in the Atlantic basin remained soft on sluggish regional demand. Rates on the CBS‐SPORE benchmark route shed $300k to conclude at $4.1m lump sum. Round‐ trip TCEs on the route were off 12% w/w to ~$25,341/day”, CR Weber said.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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