Tanker charter earnings firm up despite challenges

Economic growth and oil will play a key role in determining chartering activity. (GETTY IMAGES)

After having dipped for most parts of 2009, the spot tanker charter earnings, especially for medium range (MR) and Aframax owners, have been firming up this year.

However, economic growth and higher oil demand will have an important part to play in determining chartering activity, and what happens to floating storage will be key for the VLCC (very large crude carrier), Suezmax and LR2 (large range 2) markets, forecasts the latest report by London-based EA Gibson Shipbrokers.

There are a number of reasons why the market has picked up, including delays in the Bosporus (a strait connecting the Mediterranean and the Black Sea and separating the European and Asian parts of Turkey), weather-related disruptions elsewhere and an extreme, widespread and lengthy cold spell across the Northern hemisphere.

Added to this are the 130 tankers that are being used for crude and products storage. All this has led to stronger chartering activity and given the momentum and psychology to push the market to current levels, the report said.

There has been a welcome relief, especially for MR and Aframax owners who had suffered a four to six month period where earnings did not even cover fixed operating costs.

The second and third quarters of past year were not that good for the vast majority of owners, so these recent developments have come as extremely good news. VLCC earnings out of the Middle East to Japan rose from $11,000 (Dh40,370) a day in September to average $45,000/day in December. The rise in Suezmax earnings between September and December was $10,000/day, somewhat less than the VLCC increase, the report said.

However, events so far this year have been spectacular, with Suezmax earnings out of West Africa at close to $55,000/day and at the top of the tanker earnings tree. In fact, Suezmax earnings have not been this high for more than 12 months. The rise in the Aframax market through to December was extreme (certainly in percentage terms), with North Sea earnings up from nothing in September to $33,000/day in December.

Although earnings are currently down to about $19,000/day, they are still well above those for the last 11 months. The other market to rise from the ashes has been for Atlantic Basin MRs. Earnings here had been below $3,000/day from August to November; they are now above $17,000/day, the report said.

Crude

After a sluggish start to the New Year, VLCCs burst into life in the Middle East as charterers released a wave of pent-up January enquiry that allowed owners to push rates up from WS 50 to the East on the 2009 worldscale to WS 75, and from WS 37.5 to WS 55 to the West. Inexplicably, both sides of the equation have stubbornly postponed adopting the 2010 scale despite the FFA (forward freight agreement) market and Bitr (Baltic international tanker rate) having converted. By this time next week, however, that will be history, and rates will be fully adjusted, the report said.

T/C (time charter) earnings now show in the high 50,000s to the East, and that neatly equalises – at last – with prevailing returns in the Atlantic. Further improvement looks likely over the near term. Suezmaxes also started slowly, but have also become very tight, and active, with rates now standing at 130,000 by WS 105 to the East, WS 75 to the West on the 09 scale with the upward trend looking progressive. Aframaxes have not joined the party as yet and currently hold at 80,000 by WS 110 (09) to the East, but should start to break out soon.

West Africa proved the catalyst to get the whole market moving, with a glut of mid-holiday period suezmax fixing the instigator. Rates on that size have moved from 130,000 by WS 70 (09) US Gulf to WS 110 (09), and although the upward movement has stalled, levels should stay pretty solid for the foreseeable future.

VLCCs are now the target for charterers as the differential widened to an exceptional degree. Rates moved from 260,000 by WS 60 (09) US Gulf and WS 57.5 to the East, to WS 75 and WS 70 respectively, with more upside to come, it said.

Suezmaxes in the Mediterranean/Black Sea zone saw only moderate interest, but availability became scarce, and West African events bolstered sentiment. Rates moved to 135,000 by WS 120 (09) from the Black Sea for European options with

$4.275 million paid for a voyage from Ceyhan to Singapore. Aframaxes drifted a little aimlessly, however, with rates now at little more than 80,000 by WS 135 (10 scale) cross Mediterranean. Activity may increase, but the jury is out as to whether that will be enough to turn the tide.

The Caribbean did not burst into life either for the aframax size, despite some effort, and optimism, from owners, and rates settled at 70,000 by WS 175 (10) upcoast, though bad weather disruption is always a potential leg-up. VLCCs, on the other hand, are now very tight, and charterers will be facing no less than $6m for Singapore runs with Chinese destinations close to $7m.

The North Sea was the worst-performing area for the smaller size as aframaxes could not get any sort of grip, despite the well set wintry weather. Aframaxes slipped to 80,000 by WS 110 (10) cross UK Continent and merely 100,000 by WS 100 from the Baltic.

Suezmaxes saw only one or two deals, and have to be marked at a little South of West African levels for transatlantic movements. 'Arb' rates for VLCCs taking fuel to Singapore have opened to $5m, but tonnage is virtually non-existent, so little is expected to be concluded, the report said.

Products

A flying start for markets in the West as freight levels East of Suez experiences a mixed bag. The new year has got off to a mixed start. LR2s have seen tonnage supply increase, as the storage on the UK Continent unravels, leading to rates coming off in the Middle East. Middle East to Japan is down and with the LR2s generally under pressure. LR1s do not have any inherent strength and with not enough activity at present to sustain current levels. Japan is at WS 155 and West at $1.95m. However these prices will come under pressure in the coming weeks, it said.

MRs have been very busy, with rates firming and tonnage tightening. Middle East to Japan is the one route where rates have been stable. East and South Africa is 35x WS 270 levels and the West has firmed to $1.65m. With few ships around and plenty of enquiry there is scope for the MRs to firm further throughout the month.

The Far East is weakening after having better times over the last three weeks.

A busy period between Christmas and New Year resulted in the Continent markets hitting the ground running, and enjoying a strong start to 2010. Sheer activity and changeable arbs created the opportunity for tonnage to tighten and TC2 rates to climb to WS 215 basis 37kt, on subjects at time of writing.

Although the odd ship was left, there was not much choice of vessels, which again allowed the market to gain pace. Inter-continent movements were also plentiful, cargoes stemming in the Baltic were paying anywhere between WS 235-245 basis 30kt, as cargoes requiring ice tonnage were seen paying around WS 245 +. As a result, liftings to West Africa also increased. Approved tonnage was fixing at WS 240 basis 33kt.

The upcoast trade, whilst lagging behind its European counterpart has also felt the affects of the bullish market. Freight rates for the upcoast trade have risen to WS 150-160 (basis 38kt). It would appear that the pricing of distillates in the US has meant that the back-haul trade has been quiet.

 

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