In June, the month started at a slow pace, a pattern which continued throughout the month. Initially, the low level of activity was attributed to various holidays. Following the first week of June, tonnage demand was expected to pick up as a higher level of activity was predicted. Yet, low activity and decreasing inquiries continued to characterize the market for the rest of the month. Consequently, freight rates continued to drop further to lower levels. The vessels position list was widely open during June on expectations based on some tightness that had been observed towards the end of the month for early July fixtures. However, even that was not enough to lift declining rates.
In view of that, the reaction of owners to the market situation was split. Some owners were resisting the lower rates and were trying to maintain higher levels; but this was unobtainable in an oversupplied tonnage market where charterers maintained the upper hand. Other owners preferred to secure employment for their ships to avoid remaining idle and sought to fix these at the persisting low levels. This took into consideration the huge decrease in bunker prices, which had strengthened owners’ profit margins and maintained their daily returns. Indeed, after reaching near record levels in early 2012, bunker fuel prices saw a remarkable fall in June in all major bunkering ports following the decline in crude prices.
Reduced bunker prices can have a two-fold impact: On the one hand, lower prices will add to the owners’ margins as bunker fuel is one of the main elements of the oerational cost; on the other, the decrease in bunker costs can discourage the slow steaming operations — sailing at lower speed to reduce bunker consumption, a tactic that has been adopted widely during the high peaks of prices — which means that a greater number of tankers could be available in an oversupplied market. Global oil fixtures were almost stable in June with a minor decrease of 1.9% to stand at 18.7 mb/d, while OPEC fixtures increased by 7.7% from May to reach 11.85 mb/d.
Preliminary data showed that OPEC sailings declined slightly by 0.9% to stand at 23.91 mb/d in June. On an annual comparison, OPEC sailings gained 4.7% over the same month a year ago. Middle East sailings followed a similar pattern and dropped by 1.4% in June compared to the previous month. All arrivals followed the same pattern by registering a moderate drop in all main routes. Preliminary data indicated that North America arrivals had the highest drop among other routes, declining by 11.6% in June compared to a month earlier, while Far East and West Asia arrivals declined by 3% and 2.1%, respectively. European arrivals saw the lowest drop by 1.7% in June. In comparison to the same period last year, arrivals at North America and West Asia in June declined by 5% and 9%, respectively, while all other routes increased.
In the dirty tanker market, the VLCC spot freight rate witnessed a significant decline in June on all reported routes, averaging 23% in comparison to the previous month. Average VLCC spot freight rates for Middle East to East and Middle East to West in June fell by 23% and 20%, respectively, to stand at WS44 and WS33 points. The largest drop of all routes was on the West Africa to East route which experienced weak activity and ended with a rate decline of 25% from May to stand at WS45 points in June. This came on the back of reduced tonnage demand from West Africa. Generally, the number of total VLCC fixtures during the month was significantly lower than usual, as the tonnage demand level for July was below expectations. Suezmax spot freight rates were under the same bearish pressures. The monthly average declined by WS8 points or 12% in June over the previous month. Loadings from the Black Sea and the Mediterranean supported the rates and partially offset the decline in June.
The Aframax spot freight rate average managed to close the month with a minor positive gain in June from a month earlier. On average, the Aframax spot freight rate gained 6% in June over the previous month. The positive momentum was experienced on all reported routes except for the Caribbean to the US route in which freight rates had reached their bottom low levels since the beginning of June, ending the month with a loss of WS9 points to stand at WS108. This reflected an 8% decline over the previous month but a 9% gain compared to the same month last year. On the remaining routes, the Indonesia to East route was almost flat with a small increase of 2% to WS86 in June, while Mediterranean to Mediterranean and Mediterranean to Northwest Europe achieved a similar gain of 16% in June over the previous month to stand at around WS101 points. The improved rates encountered in the Mediterranean were attributed to positive activities and the tightening of the position list.
Facing the same factors driving the dirty tanker market towards the softer rates, the clean tanker market was influenced by decreasing tonnage demand, weak activity and a mostly oversupplied tonnage market. Generally, average clean spot freight rates went down by 5% in June from the previous month. Among all reported routes, the largest decline was seen on the Northwest Europe to US route which declined by 17% in June from the previous month to stand at WS118 despite the increase in gasoil shipments on that route. The Caribbean to US route ended the month almost flat at WS148, which is 3% lower than the previous month, as higher middle distillates tonnage demand from South America partially offset the decline. On the Middle East to East route, clean spot freight rates dropped WS9 points in June from May to stand at WS105. Similarly, clean rates on the Singapore to East route dropped WS6 in June from the previous month to stand at WS120 points. The drop came on the back of limited naphtha demand in Asia and increasing vessel availability.