Tanker Market - July 2016

Source: OPEC_RP160709 7/12/2016, Location: Europe

Dirty tanker spot freight rates were diverse in June, although they mostly reflected negative developments during the month before, as the tanker market heads towards the summer months. On average, dirty tanker freight rates were down by 2% in June from the previous month. This was mainly on the back of lower rates registered by VLCC class ships, which continued the drop seen in the past few months and showed no recovery in June amid falling rates on all reported routes.

VLCC rates dropped by 12% as the market in Middle East and West Africa was weak, affected mostly by a lengthy tonnage list. Suexmax spot freight rates went up on average by 5% supported by a strengthening market in West Africa as vessel availability encountered occasional tightness. On the other hand, Aframax freight rates were flat from the month before, suffering from limited activities and maintenance work at some ports.

The clean tanker market showed a weak sentiment on both directions of Suez as thin tonnage demand prevented rates from moving upwards. Clean tanker rates dropped by 4% on average from the previous month.

Spot fixtures
In June, OPEC spot fixtures increased by 0.18 mb/d, or 1.5%, compared with the previous month to stand at 11.68 mb/d. Global chartering activities worldwide showed an increase from the month before, mainly as fixtures from the Middle East-to-East increased by 9.9% while Middle East-to-West fixtures and out of Middle East fixtures were down from last month by 4.2% and 6.8%, respectively. Generally, global oil spot fixtures were up in June by 0.06 mb/d to average 16.68 mb/d compared with the previous month.

Sailings and arrivals
OPEC sailings increased by 0.01 mb/d, or 0.1%, in June from a month ago and by 0.16 mb/d from a year before. Sailings from the Middle East also went up from last month by 0.02 mb/d. According to preliminary data, arrivals at main importing regions in North America and West Asian ports showed a drop from a month earlier and were down by 1.8% and 9.4%, respectively, from last month. In contrast, vessel arrivals in Europe and the Far East showed an increase from last month by 1% and 5%, respectively.

Spot freight rates
The VLCC market witnessed a climb in rates at the beginning of June, despite limited market activity. VLCC freight rates to eastern destinations were initially supported by delays in Chinese ports where rates strengthened. However, gains were limited as vessel supply remains high. VLCC rates dropped in the second half of June, mainly in the Middle East and West African markets, as the tonnage list accumulated a huge buildup. VLCC rates in the Atlantic were mostly depressed as market activities remained mostly flat, despite some co-loading opportunities which came as Suezmax rates were increasing. Chartering activities increased towards the end of the month in the Atlantic as a high number of deals were concluded for loading in West Africa. However, the firm sentiment did not last for long.

In general, VLCC average spot freight rates declined on several routes despite the resistance of tanker owners to low rates. The average spot freight rates for VLCCs declined by 12% in June from the previous month to average WS47 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 15% to average WS54 points. Also, rates reported for tankers trading on the Middle East-toWest route declined by 18% to average WS32 points, while freight rates registered for tankers trading on the West Africa-to-East route showed smaller drops, declining by 7% to average WS58 points. Furthermore, VLCC freight rates on all reported routes were lower when compared to the same month in 2015.

In the Suezmax market, spot freight rates developed positively, unlike what was seen with VLCC freight rates in June, showing a modest increase on average by 5% from a month before to stand at WS66 points. The increase in freight rates came on the back of higher rates registered for loadings in West Africa as the tonnage supply tightened due to uncertain vessel loadings and port congestion in France. The firming trend was short-lived as rates in West Africa dropped afterwards as the activity level thinned. This, combined with higher vessel supply when the situation eased, added downward pressure on rates.

Consequently, freight rates for tankers operating on the West Africa-to-US route went up by 15% to average WS72 points. These gains were offset by rates for operations on the Northwest Europe-to-US route which dropped by 4% to average WS61 points.

Aframax freight rates were mixed in June, despite rates on some reported routes showing an increase in rates from a month before. The average Aframax spot freight rates remained flat from those seen in May. Generally, Aframax rates fluctuated in June, but they did not show a great swing as the changes mostly responded to the amount of tonnage available in the market at the time of the deal.

In the Mediterranean, freight rates registered on both reported routes showed different directions. Although these were limited to a few WS points, freight rates for tankers operating on the Mediterranean-to-Northwest Europe route dropped slightly, on average by WS1 point, to stand at WS102 points, while spot freight rates for tankers operating on the Mediterranean-to-Mediterranean routes rose by a slight WS2 points from May to average WS111 points. A lack of activity seen in the beginning of the month put downward pressure on rates before they picked up following the holidays, reflecting firmer sentiment. Aframax rates were partially supported by some cargo replacements while maintenance works at some ports supported the limited requirements on that class.

Rates in the North Sea and the Baltic also fluctuated as they increased for the third decade requirements which proved to be busy. The balanced situation in both markets, however, prevented rates from undergoing any dramatic changes.

Aframax rates on the Indonesia-to-East route went up by 7% from the previous month to average WS97 points, while Aframax freight rates registered on the Caribbean-to-US route dropped by 11% from the previous month to stand at WS93 points. This occurred given that the market was affected by increased tonnage availability, which led to lower rates, despite tonnage demand occasionally increasing. However, the overpopulated tonnage list prevented rates from moving up.

Clean spot freight rates
The clean tanker market sentiment saw diverging trends on different routes in June, though mostly remaining weak. On average, clean spot tanker freight rates dropped by 4% from the month before to stand at WS120 points as average freight rates on both directions of Suez declined by 5% and 4%, respectively. High tonnage availability across different clean tanker segments of the market gave no signs of improving. The market was quiet for long-range vessels, reflecting slow activity and softening rates. A lack of tonnage demand for naphtha loading also pressured the market.

Medium-range tankers also saw falling rates, mainly to the West of Suez, where Northwest Europe-to-USEC/USGC spot freight rates dropped by 16% in June compared with a month earlier to average WS100 points. The rates for the Mediterranean-to-Mediterranean and the Mediterranean-to- Northwest Europe routes were almost stable as each went up by a slight WS1 point to stand at WS133 points and WS143 points, respectively.

In East of Suez, Middle East-to-East spot freight rates dropped 6% in June over a month earlier to average WS96 points and the rate for tankers trading on the Singapore-to-East route went down by 4% to average WS126 points.

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