Tanker Market - Jun 13

Source: OPEC_RP130609 6/11/2013, Location: Europe

Global oil fixtures increased by 14% in May to stand at 19.88 mb/d over the previous month. This growth came as a result of an increase in all fixtures, but more obviously in OPEC fixtures, which increased by 10% over April to average 14.11 mb/d.

The increase in OPEC fixtures was driven by both westbound and eastbound fixtures, mainly due to the return of refineries from maintenance.

Preliminary data showed that OPEC sailings increased in May by 0.27 mb/d to average 23.91 mb/d. OPEC sailings were 1% lower than one year earlier.

North American arrivals increased by 2.4% in May to average 8.56 mb/d, as refineries get set for the summer driving season, according to preliminary estimated data. European and Far Eastern arrivals declined in May by 1% and 2%, respectively, while West Asian arrivals increased by 4%.

Crude oil tanker market sentiment exhibited a mixed pattern in May compared to a month ago, while VLCC spot freight rates experienced a gain of 16% over the same period. Although the VLCC market as a whole saw positive performance in May on all reported routes, Middle East loading to eastern and western destinations was comparatively higher. Middle East-to-East rates were back to 40 WS points, a level not seen in the market over the past few months. The return in the East of refineries from maintenance in May led to an increase in activity and fixtures.

Suezmax and Aframax did not share the same rising trend. On the contrary, both segments saw a decline in freight rates from one month earlier by 6% and 3%, respectively. Clean spot freight rates also experienced declines on all reported routes without exception, being strongly influenced by the persistent tonnage oversupply, which continued to pressure long- and medium-range tanker spot freight rates, thus weakening the market.

VLCC spot freight rates increased on all reported routes in May from the previous month, with freight rates on Middle East-to-East and Middle East-to-West routes experiencing the largest gains of 21% and 20%, to stand at 40 WS and 24 WS points, respectively.

Spot freight rates registered on the West Africa-to-East route showed a lesser gain, increasing by 9% to average 38 WS points. This increase, which has been long-awaited by tanker owners, still remains below what they had hoped for. Nonetheless, it brought VLCC segment performance back into a corrective direction.

The general improvement seen on the VLCC market was registered mainly in the first and fourth weeks of May. Freight rate gains came as a result of higher activity in May, which is linked to the return from the refinery maintenance season in Asia. Additionally, total fixtures were found to be higher in number than one month earlier. Tanker supply remains generally more than sufficient; any lessening in vessel availability would be a payoff to the tanker market though, as it would have a direct effect on freight rates.

In May, the tonnage position list shortened as a result of the active market as well as an increase of vessels undertaking longer voyages and employing slow steaming practices. This leads to longer sailing times and therefore a reduction in the number of available vessels, as well as lower bunker consumption. Delays reported at Chinese ports were another factor that helped reduce tonnage availability. The gains achieved in the VLCC market would have been higher if charterers had not released their inquiries slowly and intermittently; a well-established tactic aimed at dampening any potential increase in freight rates.

Suezmax freight rates did not follow VLCC freight rates in May; no spillover effect was detected in the market, despite the fact that May started with a fair amount of activity for Suezmax Middle East loading. This was not reflected in any freight rates, as no increase was registered and “last done” levels were often maintained.

West Africa Suezmax loading did not see any improvement over last month, as market activity was slow and freight rates remained under pressure during the month, showing a lack of activity and no improvement, even for June fixtures. Consequentially, freight rates for tankers operating on the West Africa-to-US route fell by 9% to average WS52 points, while rates for operations on the Northwest Europe-to-US route saw less of a decline, dropping by 4% to average WS48 points.

Aframax freight rates were mixed in May; most reported routes showed a decline in freight rates from a month ago. The greatest decline was seen on the Mediterranean-to- Northwest Europe route, which suffered a loss of 20% from April to average WS66 points, while Mediterranean-to-Mediterranean rates declined by 15% to average WS72 points. The decline registered on the Indonesia-to-East route was lower at WS69 points, down by 3% from the previous month.

The decline seen on reported routes was mainly attributed to tanker oversupply, which weighed freight rates down even during active days with increased inquiries. The only positive freight rate performance in the Aframax class was registered on the Caribbean-to-US route, where freight rates increased by 25% over April to stand at WS110 points. This increase came mainly as the result of a balanced market, as activity increased while vessel supply thinned, due to an increase in lightering activities in the area, as well as some delays in the US Gulf.

Clean tanker market sentiment was weak in May; the market was quiet the entire month, with no factor found to support rates. Clean spot freight rates declined on all reported routes, without exception.

East-of-Suez average clean spot freight rates dropped by 17% in May from the previous month, while West-of-Suez clean rates saw a smaller drop of 5%. The decline in both East and West clean spot freight rates came on the back of ample tonnage availability, low tonnage demand and slow market movement. In East of Suez, clean spot freight rates for tankers operating on both the Middle East-to-East and the Singapore-to-East routes showed a drop of 17% from a month ago, to average 98 and 130 WS points, respectively. In West of Suez, clean spot freight rates experienced a decline as well, however to a lesser degree than in the East.

Mediterranean-to-Mediterranean rates declined by 7%, and Mediterranean-to- Northwest Europe rates by 6%. Improved weather conditions that reduced delays in the Turkish straits and tonnage oversupply were partially behind the decline in rates.

Freight rates for tankers operating on the Northwest Europe-to-US route were almost flat from a month earlier, despite an increase in gasoline and naphtha cargoes to the US, as tonnage availability remained ample and absorbed any increase in activity, preventing rates from achieving any gains. Severe competition between medium-range tanker owners supported the rate decline in general, as even prompt replacements received numerous offers.

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