Tanker Market - October 14

Source: OPEC_RP141009 10/10/2014, Location: Europe

The dirty spot tanker market continued to be under pressure in September for vessels of all sizes. Dirty spot market activity was at very low levels, especially in the Middle East. A drop in chartering activities resulted in a drop in freight rates, with daily earnings falling to the lowest levels in several months. VLCC spot freight rates fell by 17%, Suezmax rates decreased by 11% and Aframax freight rates fell by 17% over the previous month. The tanker market was dominated by a significant surplus of vessels combined with low activity, creating huge tonnage built up and rendering the market incapable of reacting positively even to occasional mishaps which should have otherwise supported freight rates to some extent. Positively, freight rates for the same segments still showed an improvement from the previous year by 13%, 24% and 6%, respectively. September was a rewarding month in the products market, as clean tanker freight rates saw gains in all classes, mainly on the back of an active market. East of Suez increased by a slight 1%, while West of Suez increased by 9% from the month before.

Spot fixtures
Chartering activity declined during September in all regions; total spot fixtures dropped by 4.8% m-o-m, while estimated OPEC spot fixtures fell by 6.6% compared with a month earlier to average 11.21 mb/d. Losses in fixtures were seen in all reported regions, as fixtures from the Middle East-to-West and those outside the Middle East dropped by 31.1% and 3.5%, respectively, while fixtures from the Middle East-to-East stayed flat from the previous month to average 5.79 mb/d.

Sailings and arrivals
OPEC sailings dropped by 0.09 mb/d in September from the previous month to stand at 23.29 mb/d. Similarly, sailings from the Middle East dropped by 0.07 mb/d. In addition, arrivals showed a drop in September at all ports, with the exception of West Asian ports, which showed higher arrivals from one month earlier by 0.15 mb/d. Arrivals from North America, Europe and the Far East registered declines of 0.3 mb/d, 0.5 mb/d and 0.17 mb/d, respectively.

Spot freight rates
In the VLCC sector, spot freight rates remained at low levels under the generally negative sentiment that has been dominating the tanker market. VLCC freight rates averaged WS36 points in September, down by 17% compared with one month ago.

Middle East-to-East and Middle East-to-West spot freight rates decreased by 19% and 24%, respectively, to average WS40 and WS23 points. The VLCC market was under the control of charterers in September, mainly due to the limited number of deals fixed in the market. Each inquiry attracted a large number of offers, an obvious sign of tanker oversupply. Occasional gains were seen in the Middle East, however these were shortlived.

Markets in the East were quiet, partially due to a holiday, while the Caribbean-to- East tonnage market was firm on several occasions. VLCC freight rates in West Africa dropped as they were influenced by freight rate movements in the Middle East, despite steady tonnage demand seen at the beginning of the month on the West Africa-to-East route. Freight rates for tankers operating on West Africa-to-East routes stood at WS45 points in September, down by 12% from the previous month, though 25% higher than the same month one year ago.

Following the same pattern, the Suezmax sector declined in September on both reported routes. Suezmax spot freight rates on the West Africa-to-East and West Africa-to-US Gulf routes decreased by 12% each compared with the previous month to average WS45 points and WS56 points, respectively. Limited activities and surplus tonnage supply kept freight rates subdued. In West Africa, the tonnage market started the month with a sufficient level of activity, however tonnage availability absorbed tonnage demand, leading to no increase in freight rates in that sector.

Suezmax freight rates were also influenced by VLCC freight rates in West Africa. Depressed freight rates in the East discouraged ship owners from getting engaged in long voyages in that region; being positioned in the West is currently found to be a better option in anticipation of winter season demand. Freight rates declined in September despite open arbitrage for fuel oil from the West to the East. Rates for Mediterranean and Black Sea routes were reported to be steady for a time before being affected by increased vessel availability in the area. The situation in the Atlantic has been similar, with vessels piling up as owners prepare for the long-awaited winter season.

Aframax rates were no exception in September, following the pattern of the larger tankers. The Aframax dirty market segment followed the same path as VLCC and Suezmax markets. Average Aframax spot freight rates lost 17% in September compared with the previous month, despite being 6% higher compared with the same month one year earlier.

Aframax Indonesia-to-East spot freight rates declined by 15% to average WS94 points. The decline was driven by limited requirements and increased tonnage availability. Caribbean-to-US East Coast (USEC) spot freight rates showed the highest decline among all routes, dropping by 26% compared with one month earlier and 21% compared with one year earlier, reaching their lowest level in several months and leading to very low daily returns. The Aframax market in the North Sea and the Baltics has seen fewer cargoes as a result of maintenance taking place in Primorsk.

Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe Aframax spot freight rates dropped by 12% and 13%, respectively. The Mediterranean market decline was mainly attributed to low trade in North Africa and the Mediterranean, as tonnage requirements remained low versus increased vessel availability in the region. Freight rates dropped in the Mediterranean despite delays at Trieste.

Clean spot freight rates
Clean tanker market sentiment saw a general improvement in September in both Suez directions, and all reported routes showed higher freight rates with an exception of tankers trading on the Middle East-to-East route, which experienced a slight decline of 1% from the month before. On average, East of Suez rates gained 1% and West of Suez rates edged up by 9% compared with last month. The month was active for all clean tanker classes, particularly long-range 1 (LR1) and long-range 2 (LR2) vessels. The LR1 vessel market in the East was reported to have reached its highest level this year so far, while medium-range (MR) vessels operating on the Middle East-to-East route showed a slight decline of 1% from the previous month and MR back haul voyages from the US Gulf Coast (USGC) remained at suitable levels.

MR vessels also reported higher rates in the Mediterranean clean spot freight rate market for Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes, both of which increased by 5% from the month before to average WS123 and WS133 points, respectively. The increase in Mediterranean freight rates was driven by a tight position list and an active market. Freight rates for tankers operating on the Northwest Europe-to-USEC increased by a notable 18% to average WS107 points on the back of active trading. Meanwhile, MR vessel trading on the Singapore-to-East route showed a smaller increase of 4%.

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