Tanker Market - March 15

Source: OPEC_RP150309 3/16/2015, Location: Europe

After gains over the past few months, freight rates in the tanker market declined month-on-month in February. The lowest freight rates were registered for VLCCs and Suezmax as both classes showed a similar drop of 13% m-o-m, mainly for tankers trading to the eastern destinations, which were affected by the holiday season in the East. Even with the drops in VLCC and Suezmax freight rates, dirty tanker average freight rates showed a slight WS1 point rise compared to the month before, due mainly to the enhanced performance of Aframax, which showed a freight rate increase of 11% from a month ago as a result of a firmer Caribbean market, tightening vessel availability and port delays. Despite the bearish sentiment seen in the tanker market during February, freight rates remain at healthy levels, showing increases on an annual basis for all selected classes and routes.

Spot fixtures
According to preliminary data, global fixtures increased by 6% in February compared with the previous month. OPEC spot fixtures were up by 6.3% or 0.73 mb/d to average 13.14 mb/d. Fixtures from the Middle East-to-East route averaged 6.67 mb/d in February, increasing by 0.46 mb/d from one month ago, while those from the Middle East-to-West route averaged 2.78 mb/d. Outside the Middle East, fixtures averaged 3.69 mb/d, showing a decline of 0.42 mb/d. Compared with the same period a year earlier, global fixtures indicated growth of 1.1% in February.

Sailings and arrivals
Preliminary data show that OPEC sailings increased in February by 2%, averaging 24.54 mb/d, an increase of 5% compared to the same month a year ago. Middle East sailings were up from the previous month by 2.7% and up by 3.8% from a year earlier. February arrivals were mixed, registering increases in the Far East and Europe of 3.5% and 2.6%, respectively, from one month earlier, while arrivals to North America and West Asia dropped by 3.3% and 1.8%, respectively, to average 10.2 mb/d and 4.7 mb/d.

Spot freight rates
The VLCC class saw limited activity at the beginning and end of the month with no strong flows of cargoes seen for March requirements. In February, the market was balanced, however freight rates were negatively affected by a drop in Asian requirements, due to the regional holiday season. The lack of activity seen in the month of February could have lent further support to the freight rate decline if it had not been halted by delays in the Middle East, disturbing weather conditions and port congestion. On the other hand, tanker owners tried to cap the drop in freight rates by rejecting low offers. Average spot freight rates for VLCCs declined by 12% in February from the previous month to average WS51 points. This decline was mainly the result of a drop in VLCC rates on all reported routes. Freight rates for tankers operating on the Middle East-to-East route declined by 13% to average WS60 points. Similarly, rates reported for tankers trading on the West Africa-to-East route declined by 13% to average WS58 points, while freight rates registered for tankers trading on the Middle East-to- West route saw smaller drops, declining by 8% to average WS36 points. Despite the m-o-m drop, VLCC freight rates on all reported routes were higher when compared to the same month in 2014.

In the Suezmax market, spot freight rates followed the same trend seen with the VLCCs in February, declining on average by 7% from a month before to stand at WS76 points. Although the Suezmax market witnessed upward momentum at the beginning of the month, supported by higher freight rates registered for Aframax tankers in the Mediterranean Sea, activity slowed down at a later stage, mainly for the West African market along with February programme completion. The arrival of March requirements did not grant any freight rate gains to the West African Suezmax market as the tonnage availability remained dominant.

Activity and freight rates for Suezmax in the Black Sea were generally weak in February, remaining stable at best, despite delays and bad weather in the straits. Suezmax freight rates dropped further when Aframax rates dropped, making the partial cargo business not feasible any more. Tankers operating on the West Africa-to-US route decreased by 7% to average WS82 points.

Despite the average freight rate drop in West Africa, rates would have been even lower if they had not been corrected by the increase in rates seen towards the end of the month in the Caribbean for Aframax and Suezmax. Rates on the Northwest Europe-to- US route fell by 6% in February from the previous month to average WS70 points. In an annual comparison, freight rates on both routes were higher than the same month last year by 38% and 23%, respectively.

Aframax was the only class in the dirty sector that ended February registering higher freight rates on average, increasing by 11% in February over the previous month. Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe Aframax rates each rose by 13% to average WS128 points and WS120 points, respectively. Freight rates for Ice Class Vessels continued their upward momentum as the market firmed in the Baltics and North Sea supported also by the loading requirements of Primorsk and Ust Luga. Bad weather and long transit delays at the Turkish Straits continued to support freight rates early in the month before the effect was dampened by increased vessel availability. The rates between the Caribbean and the US East Coast (USEC) were up by 20% from a month before to stand at WS 165 points, marking the highest increase of all the other reported routes. This healthy increase came on the back of a tightening positions list, bad weather and delays due to lack of ullage capacity. All factors together supported freights in the region. The Indonesia-to- East route dropped by 5% in February from the month before to average WS105 points.

Clean spot freight rates
In the clean tanker market, spot freight rates weakened on all reported routes in February. Activity in the clean tanker market was affected by the holiday season, as was the case with the dirty tanker market. In February, clean tanker average rates declined by 16% as both East and West of Suez fixtures dropped by 7% and 20%, respectively. The limited activity led to an increase in vessel surpluses, which was the main factor behind the freight rate drop. The largest decline was registered in the Mediterranean Sea, where both reported routes dropped by almost 23% for each.

In the West, freight rates showed a drop from last month as freight rates registered for tankers trading on Northwest Europe-to-US route declined by 9% to average WS128 points. Average freight rates dropped despite gasoline arbitrage and bad weather in the Atlantic, which led to freight gains at end of the month. The situation in the east did not differ much as lower product trade during the holidays was mainly seen to dampen tonnage demand. The rate for tankers trading on the Singapore-to-East route dropped by 3%, and the Middle East-to-East route rate showed a decline of 10% as both stood at WS116 points and WS108 points, respectively, partially on the back of limited naphtha shipments.

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