Tanker Market - Oct 12

Source: OPEC_RP121009 10/12/2012, Location: Europe

In September, global spot fixtures were almost stable to average 17.02 mb/d, up by 0.1% from August and a rise of 7.2% from a year earlier. OPEC fixtures increased in September from the previous month, by 270 tb/d or 2.5%, to average 10.81 mb/d, but showed a drop of 3.7% from the same period a year ago. Middle East-to-East fixtures rose by 11.7% from the previous month, while Middle East-to-West fixtures declined by 34.4%. OPEC sailings were once again almost steady at 23.89 mb/d in September, which was 0.11 mb/d or 0.4% lower than a month earlier, but 5.9% higher than the same month a year ago. Middle East sailings saw a similar monthly decline of 0.14 mb/d or 0.8% to stand at 17.52 mb/d. Crude oil arrivals in North America fell by 0.32 mb/d or 3.3% from the previous month, but rose by 13.4% y-o-y. Far East arrivals dropped by 0.26mb/d or 3% from a month ago, yet saw a gain of 5.3% over the same month last year. Europe and Asia arrivals increased by 0.8 mb/d and 0.17 mb/d, reflecting monthly gains of 7% and 3.9%, yet drops of 8.6% and 5.4% from last year’s levels respectively.

Following months of under-pressure freight rates reaching the lowest levels seen so far this year for several classes in the summer, both dirty and clean sector tanker spot freight rates saw some recovery in September. The decline in freight rates, which had prevailed in recent months, reached rock-bottom levels that could not cover operational costs and thus often made voyages of no interest to the owners. September freight rate gains — though marginal — offered some hope to owners who had been putting up with depressed freight rates for some time. They had been waiting a long time to see an improvement in rates after the losses incurred when freight rates fell below operational cost levels. In September, there was a strong trend from owners to resist the prevailing low rates after they hit low levels which were not acceptable any more, with some owners refraining from fixing their vessels as “last done”.

Charterers had to reduce or postpone their inquiries at a certain point, faced with the resistance shown by owners. Another factor which strengthened the owners’ stance towards the rates was the increase in bunker prices which frequently squeezed the daily return to a negative figure, despite of the common practice of slow steaming. Generally in September, the position list remained plentiful for most of the time and vessel delays and replacements were easily covered. The vessel surplus remained the main reason preventing freight rates from improving significantly.

In September, VLCC spot freight rates gained on all reported routes. While these gains, which had been sought by VLCC ship-owners who had suffered from a weak market and depressed rates for a significant period of time, were not big enough, they nevertheless brought some optimism to the VLCC tanker market in general. On average, VLCC spot freight rates rose in September by 9.2% from the previous month to average WS36, although remaining 13% lower than the same month a year earlier. Rates for VLCC trading on the Middle East-to-East route increased by 8.3%. Similarly, on the West Africa-to-East route they rose by 8.1% from a month earlier, while the Middle East-to-West route saw a greater gain of 12%.

Despite these monthly gains, freight rates on all reported routes showed a drop, by 11%, 7% and 22% respectively, from the same month a year earlier. The increase in rates was registered mainly in the first two weeks of the month. The first week of September witnessed a rush of inquiries and fixtures for VLCCs on a scale that had not been seen for some time. The influx of activity had a modest positive effect on freight rates in an over-supplied tonnage market, which limited the outcome to gains of only a few WS points. And the second week of September maintained the gains registered in the first week, despite a lower level of activity which came about with the completion of September cargo-fixing.

The ample supply of vessels continued to be the main factor controlling the VLCC rates in September, although the tonnage list was in better condition than what had been seen during the summer. Following the already low levels in August, Suezmax average freight rates declined by a further 1.8% in September. Spot freight rates for the West Africa-to-US Gulf Coast route ended the month flat, to stand at WS55 points. Suezmax trading in the West Africa market was stable in September, with no improvement from the previous month. West African tonnage demand remained quiet, with a growing list of available vessels. The same applied to the Northwest Europe-to-US route, which dropped by 3.7% from the previous month to WS52 points. In an annual comparison, the two routes dropped by 19% and 4% respectively. Mid-September saw more activity, as October inquiries came alongside a slight improvement in freight rates. Towards the end of the month, the inquiry flow was steady, yet it hardly achieved any rate improvement.

As seen in previous months, the Aframax market in September continued to be oversupplied, with ships remaining idle due to a lack of cargoes and an increase in bunker prices, and this resulted in daily earnings reaching zero in some cases. Aframax saw the weakest performance this month among the dirty sectors. Aframax spot freight rates declined on all reported routes in September, with the exception of the Indonesia-to- East route, which increased by 12.2% from August to average WS101 points, offsetting the drops seen on other routes. Annually, this reflected an increase of 10%.

The Caribbean-to-US East Coast fell by 4.3% in September to average WS89 points, despite a fair amount of activity and a reasonable number of inquiries. However, freight rates did not improve, even though the ship list was shorter by the end of September as some vessels were cleared, in addition to the fact that the influence of the hurricane season had been totally absorbed. Rates seen for Aframax in the Caribbean have reached their lowest level in 2012 so far. The Mediterranean to Mediterranean route saw limited inquiries and weak Aframax demand in general. Even the increase in activity in the third week of September had no real tangible effect on rates in the Mediterranean area. Aframax saw less demand to load from Primorsk, due to scheduled maintenance in mid-September.

The clean tanker market increased by 3.9% on average in September. This was due to an increase in freight rates seen in August on all reported routes, excluding the Middle East-to East route, which declined by 5% in September to average WS115. Freight rates for the Singapore-to-East route increased by 2.5% from the previous month to average WS124 points. While both Mediterranean routes saw close increases in freight rates of 5.1% and 5%, annual freight rates on all reported routes dropped by a percentage ranging from 1% to 19%. Following the ambiguity that surrounded the clean tanker market after the Amuay refinery explosion at the beginning of September, it became clear that the incident would have no real impact on rates. On the contrary, the freight rate dropped further in the first week of September after the effects of the Venezuelan refinery fire had been evaluated. Following the second half of the month, medium range (MR) freight rates firmed on the back of tightness in available vessels and higher tonnage demand, and prompt requirements were secured with difficulty as tightness prevailed for some days.

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