Tanker Market - Mar 12

Source: OPEC_RP120309 3/9/2012, Location: Europe

Following the upward trend in January, OPEC spot fixtures continued to increase in February, by 1.31 mb/d, to average 12.27 mb/d. This increase was supported by both eastbound and westbound sailings, as a result of higher requirements. Compared with the same month last year, OPEC spot fixtures were 6% higher in February. According to preliminary data, OPEC sailings rose by 65 tb/d in February to average 23.32 mb/d, supported by increased production. However, compared with the same month last year, they decreased by 3%. According to preliminary estimates, arrivals in the US, Europe and the Far East showed slight declines of 8 tb/d, 22 tb/d, and 53 tb/d respectively, to close at 8.57 mb/d, 11.78 mb/d and 8.09 mb/d, as a result of seasonal activity. However, arrivals in West Asia increased by 36 tb/d, to close at 4.77 mb/d in February.

Crude oil tanker market sentiment continued to weaken in February across all vessel categories, especially VLCC and Suezmax. Dirty spot freight rates on all reported routes were down in February from a month earlier, except on the Indonesia-to-East and Caribbean-to-the US routes. Clean spot freight rates also experienced declines on all reported routes, except on the Middle East-to-East and Northwest Europe-to-the US. Persistent tonnage over-supply, the holiday season, shifts on trade routes and tanker market dynamics put pressure on overall spot freight rates and weakened market sentiment. Moreover, increasing bunker fuel oil prices further weighed on ship-owner margins, as rising operating-costs left ship-owners in difficulty over breaking even.

In the dirty tanker market, average spot freight rates for VLCCs declined by 8% in February from the previous month to average WS47 points. The decline was driven mainly by the drop in VLCC spot freight rates operating on the Middle East-to-East and West Africa-to-East routes. Ample tonnage supply in the Middle East area put pressure on these rates, despite higher fixtures. Improved Asian demand, as well as the substitution of East African crude resulting from lower exports from Sudan, supported Middle East fixtures. The drop in loadings from East Africa negatively influenced VLCC rates for tankers operating on the West Africa to-East route, as some vessels relocated to West Africa and increased availability. Rates for tankers operating on the West Africa-to-East route declined by 9% in February from the previous month to average WS54 points. For VLCCs operating on the Middle East-to-West route, the rates followed the same trend and dropped by 4% to settle at WS37 points, on the back of lower activity and higher tonnage availability.

Suezmax spot freight rates followed the same trend as VLCCs in February. Rates for tankers operating on the West Africa-to-the US route decreased by 12% to average WS76 points. Rates on the Northwest Europe-to-the US route fell by 6% in February from the previous month to average WS69 points. Higher US oil production, supported by shale developments, weighed down on transatlantic trade, in addition to oil price differentials. Moreover, refinery shutdowns on the US East Coast, as well as shifts in seasonal demand, further affected rates. Improved weather conditions, that reduced delays in the Turkish straits, further influenced Suezmax availability and put pressure on rates in February. Compared with a year earlier, average Suezmax spot freight rates showed a minor increase of 2% in February.

The Aframax sector also came under pressure in February, except on the Caribbeanto- the US and Indonesia-to-East routes. Average Aframax spot freight rates for February stood at WS98 points, a decline of WS2 points from the previous month. Rates for tankers operating on the Mediterranean-to-Mediterranean and Mediterraneanto- Northwest Europe routes declined by 13% and 12 % respectively in February. Tonnage over-supply and fewer delays in the Turkish straits were behind the drop. An exceptional gain of 11% in February in the Caribbean-to-the US rate was supported mainly by improved fixtures, higher trade activity and weather disruptions from fog that caused a port-closure.

Product tanker market sentiment followed the same bearish trend, as the dirty market and spot freight rates declined on all routes, except the Northwest Europe-to-the US route in February. East of Suez average clean spot freight rates edged down slightly, by 1%, in February from the previous month, while West of Suez clean rates dropped by 12%. The declines in both East and West clean spot freight rates came on the back of ample tonnage availability and a shutdown of petrochemical plants. In East of Suez, clean spot freight rates for tankers operating on the Middle East-to- East route remained flat in February from last month, while rates declined on the Singapore-to-East route. Balanced activity for product trade, mainly naphtha, left Middle East-to-East rates flat in February. Meanwhile, the refinery maintenance period, especially in South Korea and Taiwan, and holidays were partially behind the decline of 3% in rates on Singapore-to-East.

In West of Suez, clean spot freight rates experienced the biggest drop in February, compared with the previous month, for vessels operating on the Mediterranean-to- Mediterranean and Mediterranean-to-Northwest Europe routes. Compared with the previous month, Mediterranean-to-Mediterranean rates declined by 20% and Mediterranean-to-Northwest Europe by 18%. Tonnage over-supply and improved weather conditions, that reduced delays in the Turkish straits, were partially behind the decreases. However, transatlantic open arbitrage continued to support Northwest Europe-to-the US rates, where they increased by 4% in February from the previous month. Clean spot freight rates for the Caribbean-to-the US route dropped by 12% in February, partially on the back of high tonnage supply.


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