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03 December 2023

Middle East VLCC rates decline as demand decreases

Slow demand combined with oversupply of tonnage led to a plunge in spot market rates for VLCCs. (GETTY IMAGES)

By Ashaba K Abdul Basti

Middle East spot market rates for VLCCs (Very Large Crude Carriers) ended the week with declining rates as demand continued to show sign of weakening in relation to available tonnage, said senior ship brokers.

But despite last week's decline, charterers and ship owners in the region remain optimistic.

According to a Paris-based shipbroker, Barry Rogliano Salles (BRS), the Chinese New Year holiday seems to have affected the shipping community. "Very slow demand, combined with an oversupply of tonnage, led naturally to a further plunge for VLCCs in the Middle East," said BRS.

Rates went down by WS (Worldscale) 15 points (WS45 for East), producing daily returns close to $30,000 (Dh110,190) for western destinations discharge. "Next week should be more active, but the rate erosion is underway and charterers will look to build on this trend further. However, at these kinds of levels, one might see owners showing some signs of resistance," added BRS.

By comparison, the Atlantic basin held on to "shining" returns of about $64,000 per day, although freight rates slid somewhat by WS7.5. This was mainly due to a thin availability of tonnage, which is not expected to long with potential East ballasters on the way.

Tankerworld data last week showed rates to ship MEG (Middle East Gulf) crude to the east have slumped some 14 Worldscale points to an average of WS 50 since January 15.

The Spartan Warrior was fixed by Bluelight at WS 47 to move 260,000 metric tonnes (mt) of MEG crude to China/Taiwan for loading on February 10, Tankerworld data showed last week.

Tankerworld's list of recent fixtures recorded another two VLCC voyages to move 265,000mt of crude to China/Taiwan for loading on February 6, fixed by Glasford at WS 52.

"The VLCC market in the MEG experienced yet another dull week of limited activity and continuing downward pressure on rates," Fearnleys told Tankerworld.

"If we consider the number of cargoes fixed so far for January (about 100) and for February (about 33), and we examine the list of available tonnage, there is little to indicate the downward trend will not continue," it added.

According to Fearnleys, voyages west of the MEG fell by more than 10 points in a few days to rest at about WS 35 this week.

Similarly, VLCCs moving West African crude to the US Gulf have been fetching around only WS 65, down about 10 points too from last week. The past week's decline in rates came amid growing anticipation among owners and brokers that weeks of surplus available tonnage might finally be coming to an end.

One broker was quoted as saying the recent spike in rates due to supertankers being snapped up for floating storage seems to have been overshadowed by forces of weak demand.

The trading arm of Royal Dutch Shell (RDSa.L) last week sold its first two cargoes of North Sea crude oil from floating storage, unwinding a trade that has involved up to 80 million barrels over the past two months.

Shell sold two cargoes each of 600,000 barrels of Forties FOT-E crude to oil trader Vitol in ship-to-ship transfers, the company said in a statement.

The cargoes were sold from a supertanker at Scapa Flow in Scotland's Orkney Islands and booked for transshipment between February 6 and 14.

Analysts said other oil traders were likely to follow suit, off-loading supply into an oil market that has rallied in recent days on winter demand for heating fuel and which has been tightened by cuts in supply by members of the Organisation of the Petroleum Exporting Countries, according to Reuters.

If much of the oil appears on the market it could have a dramatic impact on prices, analysts and traders said. Storage has become attractive due to contango in the crude oil market, with near-term futures contracts cheaper than contracts further into the future.

An oil consultant had said in December that the present contango [then] was the biggest for a 12-month span of futures since 1998.

Analysts, however, now say the price gap between near-term and future crude oil contracts is narrowing, which could signal a gradual return of VLCC tonnage to the market.