VLCC Tanker Market Soft, While More Headwinds Should Be Expected
The VLCC tanker market hasn’t started the year well, with rates remaining soft. To make matters worse, shipbrokers expect more headwinds in the coming weeks, as a result of a series of newbuildings expected to hit the water. In its latest weekly report, Affinity Research said that “markets are taking just as long as many of the London workforce to clamber out the holiday slump, with activity across the board remaining soft. VLCCs go into the new year with a higher worldscale flat rate, which may set freight rates up for some shortages in the coming weeks until markets adapt to the newly set flat rate. The AG and WAFR mid-70s from before the new year may be a thing of the past, with a modern WAFR doing a mere WS 67.5. While the discount is a shock, the fact of the matter is the VLCC fleet is simply too big (in fact the biggest its ever been!), which will continue to put some pressure on rates. Aframaxes have seen marginal activity in the Baltic and North Sea, with very little to report. The second decade of the January Rebco program is looking quiet, while the list is looking long. This leaves charterers in a position of continuing to test rates going into next week, especially for non ice class vessels”, said Affinity.
The shipbroker added that “the Med and Black Sea, though, have been relatively active over what was left of the working week after New Year’s. However, there seems to have been less urge to fix ahead after the holiday period, and with the list showing a few options for charterers, rates have started to correct. The Straits are still facing long delays, with northbound look at 17 days and southbound at 15. This is causing long turnarounds for vessels fixing the final remaining Black Sea stems. Poor weather at Milazzo as well has meant berth operations are unlikely to resume before the evening of Sunday 6 th or morning of Monday 7 th , and caused some uncertain itineraries s a result. Rates are likely to keep being tested going into next week. Suezmaxes have sailed through a particularly quiet market over the festive period, with activity only picking up now. We are now seeing lots of Eastern ballasters on the list, while TD20 continues to drop off. The AG has also remained very quiet until now, meaning ships from the east have been left with little alternative”, Affinity concluded.
In a separate report this week, shipbroker Charles R. Weber said that “VLCC rates trended moderately lower this week as owners took stock of a supply/demand positioning that remained largely unchanged despite slow demand. The Middle East market observed sluggish demand for a second consecutive week with 15 reported fixtures representing a 17% w/w decline and comparing with a 2018 weekly average of 29 fixtures. The West Africa market, too, moderated down w/w with four fixtures representing three fewer than last week’s tally. The Atlantic Americas extended last week’s active pace, however, with the regional fixture tally rising by two to eight this week. More attractive freight levels for VLCCs on the USG‐UKC route, relative to Aframaxes that traditionally service the trade, created a flurry of inquiry late this week – though as of writing no corresponding fixtures are reported to have materialized”.
According to CR Weber, “accounting for lightering costs and freight, the VLCC class currently offers the most attractive $/mt value. Any forward expectations around this trade, however, should be tempered by a likely moderating of Aframax rates from prevailing highs. Key Middle East supply/demand fundamentals remain tight, which are likely to keep freight rates strong in the near‐term. The two‐week forward regional availability surplus is expected to conclude January’s second decade with 10 units. This compares with 13 surplus units at the conclusion of the December program and 14 at the conclusion of the November program. Beyond the immediate near‐term, fresh headwinds are expected to materialize in the coming weeks as an onslaught of newbuildings deliver. We project that 18 newbuilding units will deliver during 1Q19 – including 10 during January alone. Adding to pressure, the recent crash of crude oil prices could create greater urgency around planned OPEC+ supply cuts. Although these could push some Middle East demand to the Atlantic basin and thus stoke greater ton‐miles, any positive impact thereof would come after a lag period for the longer period units take to reappear on position lists to be priced in”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide