VLCCs’ on Slowdown Mode, as Tonnage Surplus in Middle East Almost Three Times Higher than 2015 Average

The VLCC tanker market has a long way to go, before it manages any sort of meaningful recovery. In its latest weekly report, shipbroker and tanker market specialist, Charles R. Weber said that “the VLCC market’s depressed state of affairs remained the defining characteristic of the market this week. Fresh demand in the Middle East declined modestly as the February program came to a conclusion – with the fewest spot cargoes since February 2016 – and charterers progressed slowly into the February program.   Meanwhile, demand in the West Africa market remained muted, pushing the region’s four‐week average of fixtures to a nine‐month low – and demand on the other side of the Atlantic was minimal”.

According to data compiled by CR Weber, “the February Middle East program’s concluded with 33 available units unfixed, marking a surplus 94% higher than the average observed during 2017 and 267% greater than 2015’s average.    With earnings already hovering around an effective floor, the influence of the fresh worsening of fundamentals failed to influence rates much.  What did was a further correcting of bunker prices through the first half of the week, which hampered owners’ ability to hold rates steady as TCEs improved.   Bunker costs presently make up around 80% of VLCC voyage costs (and on an AG‐ FEAST run overwhelm sunk OPEX costs by a factor of around 2:1), meaning that any substantial change thereof has strong implications for TCEs”.

CR Weber added that “since mid‐week, bunker prices have returned to strength in line with crude prices, though it remains to be seen if owners will be able to recoup lost ground on this basis. Middle East Rates on the AG‐CHINA route shed one point to conclude at ws39. Corresponding TCEs fell by 12% to ~$8,645/day w/w.    At mid‐week, before the late rebound of bunker prices, ws39 yielded a TCE of ~$9,181/day. Rates to the USG via the Cape shed 0.5 point to conclude at ws18. Triangulated Westbound trade earnings were off 15% ~$16,127/day. Atlantic Basin The West Africa market continued to lag the Middle East with the WAFR‐FEAST route shed 3.5 points to ws41 to reflect last week’s stronger losses in the latter market”.

“Corresponding TCEs were down 18% to ~$13,083/day. Rates in the Atlantic Americas turned to fresh weakness this week following two successive weeks of muted demand while a small number of ballast units speculatively ballasted to the region from Asia for the relatively better earnings of round‐trip CBS‐SPORE TCEs. The route shed $350k to conclude at $3.25m lump sum with round‐trip TCEs falling 22% to ~$14,583/day”, the shipbroker said.

Meanwhile, “Suezmax rates in the West Africa market were moderately softer this week as demand levels failed to improve as charterers progressed into the March program. The WAFR‐UKC route was off 2.5 points to ws55. The Caribbean market was also soft this week, despite strong fog delays at the Houston Ship Channel. The CBS‐USG route lost five points to conclude at 150 x ws55 and the USG‐UKC route lost 0.5 point to conclude at 130 x ws47.5. Rates on both routes remain at a $/mt premium to those on Aframaxes, despite surging rates for the smaller class” said CR Weber.

Finally, “the Caribbean Aframax market observed sharp gains late during the week on the back of a dense fog in the Houston area, which had delayed a long list of vessels and constrained tonnage availability.    As of Friday morning, some 53 inbound and 19 outbound units were queued waiting at the Houston Ship Channel.  A small number of units are understood to have been permitted to proceed outbound over the course of Friday, but the channel is expected to close again Friday evening and continue to experience closures throughout the weekend. The CBS‐USG route added 25 points to conclude at ws110 (and an Aframax cargo fixed on a Suezmax unit tested the Aframax rate higher still). Just one prompt Aframax unit remains available, which is maintaining strong positive pressure on rates.    Further rate gains could materialize early during the upcoming week, or at least hold steady, before a clearing of units ensues and rates start to correct”, said CR Weber.



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