Gulf oil tanker rates may drop as supply exceeds demand

The cost of delivering Middle East crude to Asia, the world's busiest route for supertankers, may drop further as demand slows, increasing the number of vessels available for hire.

The number of very large crude carriers (VLCCs), which can reach the Gulf by December 31 is 65 per cent more than the likely remaining cargoes up to the same date, according to calculations of data from Paris-based shipbroker Barry Rogliano Salles.

"Demand is going down and there are too many ships," Halvor Ellefsen, a tanker broker at SeaLeague AS in Oslo, said.

A global recession will cause the US oil futures to decline by more than a third to $30 a barrel in the first quarter of 2009 as energy demand wanes, Goldman Sachs Group analysts said in a report this week.

Glasford Shipping, a Chinese shipper, hired tanker Layla for 83 Worldscale points, according to Barry Rogliano. That's little-changed from the Baltic Exchange's benchmark rate, based on Saudi Arabian cargoes to Japan, which slipped 2.5 per cent to 82.81 points yesterday, its fourth straight decline.

So far there are 87 VLCCs booked to load cargoes in December, meaning there would be 17 more consignments based on an average of about 104 a month this year, according to Barry Rogliano data.

There are 28 VLCCs that are available and able to reach the Persian Gulf by end-December, according to the shipbroker's report.

This month's loadings may be lower than normal because the Organisation of Petroleum Exporting Countries (Opec) has cut output.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in US dollars a tonne, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

A rate of 82.81 points works out at $60,198 a day, according to the Baltic Exchange. Globally the carriers are making $47,681 a day. Frontline Ltd, the largest owner of the vessels, said last month it needs $34,700 a day to break even on each of its supertankers, a 10.2 per cent increase compared with the rates in August.

However, according to Tankerworld, spot rates for VLCC voyages east from the Middle East Gulf (MEG) look set to surge in the coming days. A Singapore-based broker said markets west of the MEG are currently offering more attractive rates, and "owners will ballast their vessels there for better freight" terms.

That will result in less tonnage availability in the east, he said.

Last week VLCC markets around the world were already firming, led by a 38-point climb in rates for voyages from West Africa (WAF) to the US Gulf.

According to Fearnleys, WAF-US Gulf rates "shot up in the wake of a strong suezmax market and limited VLCCs in the area."

"The number of VLCCs being booked for storage purposes has been steadily increasing, and this could help cut tonnage availability and boost spot rates."

Fearnleys said WAF-US Gulf voyages moved from WS 72.5 last week to WS 110 this week, while MEG-East voyages picked up close to 10 Worldscale points to remain at around WS 70 for double hull fixtures.

One broker said MEG-East rates "are already hitting WS 75" for some fixtures.

There are even rumours of an MEG-China voyage being fixed at WS 87 for late December loading. And aside from owners' preference for western markets, another factor, which could boost MEG-East rates is a steep increase in VLCCs fixed for storage.

Players say the number of VLCCs being booked for storage purposes has been steadily increasing and this could help cut tonnage availability and boost spot rates. (With inputs from agencies)