Tanker Market - Mar 14

Source: OPEC_RP140309 3/12/2014, Location: Europe

Crude oil tanker market sentiment continued to weaken in February across all vessel segments, with Suezmax and Aframax experiencing a strong decline. Dirty spot freight rates on most reported routes showed a drop in February from a month earlier, putting an end to the remarkable gains seen in the past few months. On average, very large crude carrier (VLCC) spot freight rates declined by 1%, while both Suezmax and Aframax rates dropped by 46% each. The February decline in spot freight rates came mainly as a result of slow market activity and lower tonnage demand for all tanker classes without exception. Clean tanker market sentiment followed the same bearish trend in February, as the dirty market and spot freight rates declined on all routes, except on the Middle East-to-East route, which increased by 13% to counterbalance clean tanker performance in West of Suez, which closed the month up by 3.5% from the previous month. East of Suez average clean spot freight rates edged down by 9%. A decline in West of Suez clean spot freight rates came on the back of sufficient tonnage availability.

Spot fixtures
According to preliminary data, global fixtures dropped by 3.6% in February, compared with the previous month. OPEC spot fixtures were down by 0.03 mb/d, or 0.2%, to average 12.98 mb/d. Fixtures from the Middle East-to-East route averaged 6.52 mb/d in February, increasing by 0.46 mb/d from one month ago, while those from the Middle East-to-West route averaged 2.21 mb/d. Outside the Middle East, fixtures averaged 4.31 mb/d, an increase of 1.0 mb/d. Compared with the same period a year earlier, global fixtures indicated growth of 9% in February.

Sailings and arrivals
Preliminary data shows that OPEC sailings increased in February by 0.2%, averaging 23.96 mb/d. However, compared with the same month a year ago, they increased by 2%. Middle East sailings were up from the previous month by 0.4% and up by 1.6% from a year earlier.

February arrivals were mixed; they registered an increase in the Far East and Europe of 8% and 2% from one month earlier, while arrivals in North America and West Asia dropped by 11.5% and 6% respectively, to average 9.5 mb/d and 4.2 mb/d.

Spot freight rate
VLCC spot freight rates experienced the least drop among tankers in the dirty tanker market. Average spot freight rates for VLCCs declined by 1.3% in February from the previous month to average WS49 points. The month started with the VLCC market experiencing volatility in both activities and freight rates. Freight rates fluctuated during the course of the month depending on tonnage demand and tanker availability.

However, freight rate increases remained occasional and limited on the whole. VLCC spot freight rates for the Middle East-to-West and West Africa-to-East routes dropped by 3% and 2%, respectively, from a month earlier to average WS35 and WS56 points. Meanwhile, freight rates for tankers operating in the Middle East-to-East were not much better, ending flat over the previous month to average WS57 points.

All VLCC selected routes reflected higher freight rates than seen for the same month a year earlier. February fixtures were completed earlier as a result of occasional tight availability and various holidays. Generally, February was a busy month for VLCCs with above-average fixture numbers, particularly considering the month is short. VLCC transatlantic activities remained slow, with primarily stable freight rates. However, owners occasionally considered Suezmax tankers to be a suitable alternative to VLCCs when Suezmax rates dropped.

Suezmax spot freight rates dropped at a greater rate than those for VLCCs in February. Rates for tankers operating on the West Africa-to-US route decreased by 46% to average WS59 points. Rates on the Northwest Europe-to-US route fell by 45% in February from the previous month to average WS57 points.

The Suezmax market in West Africa experienced slow activity and an obvious lack of interest from charterers, lengthening the list of available tonnage, while improved weather minimized delays at the Turkish Straits, limiting further downward pressure on freight rates. Cargoes in several regions were below available tonnage; freight rates in the Caribbean, Mediterranean and Black Sea came under pressure. Suezmax loading was considered a possible alternative to VLCC chartering in February, as charterers tried to find a more economic alternative and to grasp the opportunity of declining freight rates. The month’s end saw higher activities for Suezmax in the East, while the West remained stable. Compared with one year earlier, average Suezmax spot freight rates showed an increase of 16% in February.

The Aframax sector saw the largest decline in freight rates compared with tankers in the dirty segment. This downward trend — registered on all reported routes — reversed the bullish sentiments seen for Aframax over the past few months. The average rate fell by 46% on reported routes. East of Suez, the rate for the Indonesia-to-East route declined by 13%. West of Suez, the Caribbean-to-US rate fell by 52%, while the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe rates declined by 51% and 54%, respectively.

These declines were driven by a build-up in tonnage supply and a reduction in Turkish Straits delays as weather conditions improved. Lower freight rates dominated the Aframax market in different regions in February. Rates dropped in the North Sea and the Baltics declined mainly on the back of lower activity combined with tonnage surplus. The same market conditions prevailed for both the Black Sea and the Mediterranean. Bad weather conditions in the Caribbean, combined with prompt replacements, strengthened the region’s freight rates. However, this positive momentum was short-lived, as freight rates declined later.

Clean spot freight rates
In the clean tanker market, spot freight rates weakened on all reported routes in February with the exception of freight rates registered for tankers trading on the Middle East-to-East route. Average rates decreased by 9% West of Suez and rose by 3% East of Suez. The biggest decline was registered for the Northwest Europe-to-US route, which dropped by 13% to average WS125 points. The Middle East-to-East route rate showed the only positive performance in February, increasing by 13% from the previous month. The rate for tankers trading on the Singapore-to-East route dropped by 5%, while rates for the Mediterranean-to-Mediterranean and the Mediterranean-to- Northwest Europe dropped by 8% and 7%, respectively. A decline in the Singapore-to- East rate was driven by lower product trade, while gains achieved on the Middle Eastto- East route came on the back of a tighter position list. Adequate tonnage supply for medium-range and long-range tankers and a balanced market situation prevented rates from achieving any gain in February despite weather disruptions in Europe, which created the need for prompt replacements. Compared with the same month last year, rates for both East and West of Suez were lower.

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