- City Fajr Shuruq Duhr Asr Magrib Isha
- Dubai 04:52 06:05 12:13 15:36 18:15 19:28
Crude tankers lying offshore to take advantage of the contango in the oil futures market will be a key factor in determining tanker freight rates this year, says the latest report by London-based EA Gibson Shipbrokers.
Contango means the distant delivery prices for futures are higher than the spot delivery prices.
"Given the support to rates in 2009, storage will be a key factor in determining the market in 2010. It may be that any downward pressure on tanker rates caused by re-delivering storage vessels and a return to steeper price contango with warmer weather or lower oil demand could recreate the conditions that encouraged floating storage in the first place. With current high freight rates and a shrunken contango, the ingredients don't mix well, but storage participants, having successfully played the game, will be ready to act quickly, if and when the right recipe redevelops," the report said.
The floating storage of crude oil and clean products has been a key feature of the tanker market since early 2009. Contango play, weakened oil demand, record levels of land-based crude and products stocks, changes in regional patterns of oil consumption and very low freight rates gave market participants a range of opportunities to play the floating storage 'game', it said.
By November 2009, 149 tankers were holding 55 million bbls of crude and 98 million bbls of clean products in floating storage, enough to satisfy global oil demand for nearly two days. This meant that between six and eight per cent of the VLCC fleet and up to 35 per cent of LR2s (Large Range) were tied up at any one time, it said.
These developments acted as a welcome prop to spot rates, and at times of market tightness, kept enough vessels off the market to really push rates up. While this support is hard to quantify, it is worth comparing the relative fortunes of the VLCC and MR (Medium Range) fleets in 2009.
VLCC earnings on the benchmark TD3 (Middle East to East) route averaged over $31,000 (Dh113,866)/day last year, well above fixed operating costs. The MRs in contrast, one of the few tanker segments not utilised for storage, averaged just over $7,000/day on the TC2 (UK continent to US) route, very close to operating costs, the report said.
This year began positively with rising spot rates, oil prices and oil demand. VLCC spot earnings trebled in little over a week to a peak of $101,000/day and WTI crude rose to a 15-month high of $82.75/bbl, partly in response to extreme cold weather in the Northern Hemisphere. This meant a narrowing in the oil price contango coinciding with higher charter rates. As a result, a number of vessels discharged storage cargoes.
However, this was partly offset by more storage tonnage being taken in the East, with the net result that the drop was less than 'feared', with the number of tankers tied up in storage down from 141 to 119 by end January, the report added.
VLCCs in the Middle East initially re-iterated the low points seen at the end of last week, but charterers could not turn the retreat into a rout, and owners managed to regroup, the report said.
The main reason was an increase in delay at some of the busier Chinese ports. With such a large percentage of tonnage now passing through that area, the effect was to compromise availability sufficiently to tighten the market and allow for owners to push Eastern rates to WS (worldscale) 120 with levels to the West holding at a minimum WS 70.
If there is more stretch next week, then further gains may be seen temporarily. Suezmaxes kept pretty solid through the week as thin early positions continued to command $130,000 by WS 140+ for doubles to the East, but later moves to forward dates found owners willing to compromise, and those positions should be called closer to WS 130. Aframaxes ticked over on modest demand, and just enough supply. Rates kept within $80,000 by WS 140/145 range as a consequence.
West Africa continued to go horribly wrong for Suezmax owners as the mere drip feed of cargoes into the marketplace coerced owners into trading hard against themselves, eventually bringing rates down to $130,000 x below WS 100. That knocks owners psychologically, but also brings the market right back to where it was before the January surge began.
A short party indeed. VLCCs stayed 'out of play' for US discharge on the lack of differential under the smaller size. Rates would have to move down to $260,000 by WS 80 to be attractive to co-loaders, but with rates to the East paying WS 90+, or equivalent on a lump sum basis, both parties will dance to their own tunes.
Aframaxes in the Mediterranean spent most of the week being picked off at 'last done' numbers in the low WS 100's, but eventually most of the large excess availability was pruned, and there were signs of a very modest recovery developing over the coming period. Suezmaxes held a tougher stance than in West Africa, but owners were not immune to the pressure, and eventually succumbed to the bad news from that area, with rates falling off from a $135,000 by WS 160 start point for Mediterranean or UK Continent discharge, to WS 105 by the week's end.
There was a little excitement mid-week in the Caribbean/US Gulf as an oil spill shut an important waterway in the US Gulf. Although there were some delays, they proved insufficient to lead to a shortage of Aframax units, and rates remained unchanged at $70,000 by WS 150/155 upcoast with little early change anticipated. VLCCs stayed well spread, but enquiry was also well spread, and that together with the weaker West African market, served to soften owners ideas to around $5.3 million lump sum for Singapore discharge with more of the same in the short term.
It was a week of steady deflation for Aframax owners in the North Sea as enquiry petered out to lead rates to $80,000 by WS 120 across UK Continent and $100,000 by WS 100 from the Baltic – nearly a 30 per cent drop over the period. Now control has been re-established, charterers will be loathe to let go and an early turnaround is unlikely, the report said.
Suezmaxes saw very little and had to reduce numbers in line with West Africa. VLCC 'arb' rates to the East of about $5.25/5.5 million remained steady, so that one or two owners could eventually make sense of the number as the previously more lucrative alternatives slipped out of reach.
As regards product tanker market, the report said the Eastern markets remained flat this week, as the West saw mixed fortunes. LRs remain finely poised with just a few more cargoes required to see rates firm. LR1s remain WS 155 basis 55kt AG to Japan and going forward owners are being more bullish, with ideas rising towards WS 160. Distillate runs to the West is assessed at $2m.
The LR2s remain tight on tonnage, but there has not been the enquiry to push rates up. Presently, Middle East to Japan is fixing at WS 145 and voyages to the UK Continent are at $2.7m. The MR market has been very sideways this week with a steady level of fixing, but not enough to see any movement in rates, it said.
Middle East to Japan has been consistently fixing at WS 160 and with plentiful supply of ballasters from Singapore, there are little prospects of this firming. The arbitrage for distillate to the West is firmly shut and vessels are available at $1.35m levels. East Africa and South Africa cargoes are currently being booked at WS 240-245 levels basis 35kt. However, with some owners reluctant to fix into there, there is more of shortage of available vessels for this route, rather than the other, the report said.
Singapore has been very quiet, with front hauls fixing at WS 135 and WS 190 for Japan and Australia, respectively, but there has been little activity this week, with both routes gently softening. North Asia is also quiet, backhauls falling to $300k levels and with tonnage readily available, further softening is expected. US West Coast deliveries have also been dormant, and this run is currently assessed at $950k levels.
Though the Mediterranean markets saw less fixing this week, owners still managed to keep levels at WS 230 basis 30kt. Exports from the Black Sea were securing a premium of up to WS 250 basis 30kt. There was minimal activity for transatlantic, however the market is around WS 255-260 basis 30kt. Owners ideas on LRs for transatlantic were WS 160 level basis 60kt.
Despite a good amount of activity for longer-haul movements on the Continent, this did not stop the market falling. Some failures and a closed 'arb' for petrol to the states resulted in the TC2 market falling some 15-20 WS points basis 37kt, the report said.
The story was similar for the Continent/West Africa trade, as many ships failed, owners struggled to achieve much more than WS 220 basis 33kt for approved tonnage, as unapproved vessels were trading at WS 200 basis 33kt. Inter-continent movements were quiet this week, market seen to be WS 230 basis 30kt with ice class business demanding around a 20 point premium, however was untested.
The Caribbean markets have been fairly stagnant as far as freight rates are concerned. Fixing for upcoast movements was at WS 147.5 basis 38k and backhaul trading to UK Continent and Mediterranean ranges at WS 90 basis 38kt, however very little was seen confirmed, the report said.
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