Tanker Market - September 2015

Source: OPEC_RP150909 9/15/2015, Location: Europe

Bearish sentiment dominated the crude oil tanker market in August, with VLCCs registering the highest rate drop in the dirty segment, down by 40% from the previous month. Freight rates remained largely under pressure mainly due to high tonnage availability and limited demand, as is usual during the summer season. Suezmax and Aframax freight rates were also lower in August due to a lack of tonnage demand. Generally, ship owners preferred to fix short-haul voyages in anticipation that the downward trend will be corrected ahead of winter season demand. Clean tanker rates were mostly under pressure as a result of lower freight rates seen in the West of Suez. An inactive market and low product trade affected clean tankers in several classes. In August, bunker prices reached their lowest level in multiple years, which – despite weak sentiment that affected both crude oil and product tanker markets – helped to balance voyage costs and maintained ship owners’ earnings.

Spot fixtures
According to preliminary data, OPEC spot fixtures rose in August over the previous month. Middle East-to-East fixtures increased by 0.24 mb/d to stand at 5.74 mb/d, while Middle East-to-West fixtures declined by 0.15 mb/d to stand at 2.77 mb/d. As a result, global fixtures slightly increased by 0.02 mb/d or 0.1% compared with a month earlier to stand at 16.72 mb/d. Compared with a year ago, global fixtures were lower by 1.6% while OPEC fixtures were 1.7% higher.

Sailings and arrivals
Preliminary data also showed that OPEC sailings increased in August by 0.21 mb/d to average 24.11 mb/d, 3.2% higher than a year ago. Arrivals in North American and West Asian ports showed a decline from the previous month of 1.4% and 4% to average 9.97 mb/d and 4.64 mb/d, respectively. European and Far Eastern arrivals increased by 1% and 5.3%, respectively, from the previous month.

Spot freight rates
The month of August started with a very quiet VLCC market, with a noticeable lack of requirements from both the Middle East and West Africa; total fixtures for the month were lower than average. The chartering market was particularly inactive for VLCC loadings in August and the slow pace continued with the arrival of September requirements.

The bearish trend continued as rates came under pressure on all selected routes, with the highest decline seen in the Middle East, as an ample tonnage list supported a drop in VLCC freight rates in August, giving charterers the upper hand in a market with an abundant supply of vessels at all times. Freight rates dropped on all major trading routes in August as a declining trend dominated the dirty tanker market on the whole. Middle East-to-East and Middle East-to-West spot freight rates decreased by 47% and 38%, respectively, from the previous month, while spot freight rates on the West Africato- East route declined by 33%. In an annual comparison, VLCC freight rates on reported routes were lower by 21%, 15% and 9%, respectively.

Similar to the VLCC market, Suezmax freight rates came under pressure in August. The Suezmax class had a slow start in all areas. Low August requirements led to tonnage buildups and rates started to drop gradually. Suezmax inquiries and fixtures were softer in the Middle East, the Caribbean and many other key trading routes.

The market got relatively busier by the middle of the month, in particular for West African loadings, as a flow of cargoes entered the market, mainly for the first decade of September. However, average freight rates remained subdued, partially as a result of increased numbers of ballasting ships from the East, which created a surplus in tanker supply and prevented freight rates from achieving any gains. The occasional increase in activities seen in the Mediterranean market was not sufficient to support freight rates or even prevent them from dropping further.

Tanker supply in the Mediterranean and Black Sea remained more than sufficient, even for prompt requirements, and freight rates were often reported softer. In the East,freight rates for tankers operating on the West Africa-to-US Gulf Coast (USGC) route dropped by 17% from the previous month to average WS 66 points, while in the West, freight rates on the Northwest Europe (NWE)-to-USGC route declined by 20% to average WS 50 points.

Aframax freight rates dropped on all reported routes in August, with no exception. On average, Aframax freight rates were 15% lower than a month earlier.

Aframax activities remained limited in the North Sea and the Baltics, while freight rates fluctuated, experiencing occasional gains when vessel supply tightened relatively, as a result of scheduled dry docking before being corrected down as tanker supply came into balance.

In the Mediterranean, the Aframax market witnessed a lack of cargoes and a decline in activity, and freight rates dropped slightly despite delays and ullage problems in the ports of Trieste and Augusta. Constant tonnage availability dampened the chance of any premiums that may have resulted from delays, but offset market losses. As a result, freight rates for tankers trading on both the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes declined by a slight WS 1 point in August compared with the previous month, to stand at WS 94 and WS 89 points, respectively.

The Aframax market in the Caribbean was inactive, lacking cargoes, as was seen with other routes. Aframax freight rates dropped in August despite some reported delays in Caribbean ports and some prompt requirements for lighterage ships, which only offset the general drop. Average monthly freight rates for tankers operating on the Caribbeanto- US East Coast (USEC) route dropped by 26% over the previous month to average WS 90 points.

Similarly, average freight rates for tankers trading on the Indonesia-to-East route dropped by 25% to average WS 97 points.

Clean spot freight rates
Clean tanker market sentiment was mostly under pressure in August, as rates in the West of Suez were weak. The clean tanker market was quiet and general sentiment weak, thus rates remained flat, at best. Medium range (MR) tanker trade was found to be thin.

Limited cargo requirements in West Africa and limited cross-Atlantic trade added to weakening freight rates in the West. On average, clean freight rates in the West of Suez edged down by 35%, compared with last month. However, on an annual scale they still showed an improvement from the previous year by 16%. The monthly drop in West of Suez freight rates came as the result of a drop registered on all trading routes in the West.

Freight rates on the NWE-to-US, Mediterranean-to- Mediterranean and Mediterraneanto- NWE routes declined by 27%, 39% and 37%, respectively.

Freight rates in East of Suez were in a better position than those of the West, as the market was firmer, making it much preferred by ship owners. However, favourable rates in the East led to an increase in vessels ballasting in the region and increased tonnage availability there. On average, East of Suez fixtures were stable from the previous month, with the Middle East-to- East route registering a 9% drop from a month ago to average WS 150 points. Rates for tankers operating on the Singapore-to-East route increased by 13% from July, marking the only route which preformed positively in August.

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