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Friday, May 22, 2009

Persian Gulf Oil-Tanker Rates End Rally as Fleet Hinders Owners

Friday, 22 May 2009

The cost of delivering Middle East crude to Asia, the world's busiest route for supertankers, snapped a six-day rally as an oversupply of ships prevented owners from negotiating better prices for their vessels. The benchmark rate for shipping Saudi Arabian oil to Japan fell 1.8 percent to 29.31 Worldscale points, according to the London-based Baltic Exchange.
The rate had gained in the six previous trading sessions as owners sought better prices to compensate them for rising ship- fuel prices, Nikos Varvaropoulos, an official at Athens-based Optima Shipbrokers said. There are about 20 percent more ships than cargoes, according to a May 18 Bloomberg News Survey.
The International Energy Agency has cut its oil-demand forecast for nine straight months, predicting consumption this year will fall the most since 1981 as global recession lingers. The world fleet of very large crude carriers, or VLCCs, has expanded by 4.2 percent to 520 vessels this year.
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 U.S. dollars a ton, 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.
Frontline Ltd., the largest operator of the vessels, said Feb. 26 it needs $32,100 a day to break even on each of its supertankers, a 7.5 percent decrease compared with Nov. 28.
Breakeven Rate
A rate of 29.31 Worldscale points works out at $6,411 in daily rental income, a drop of 18 percent from yesterday, according to the Baltic Exchange. When ship-hire rates decline, fuel prices become more important for owners.
Frontline's breakeven rate is the amount needed to cover daily running costs for each ship, interest and scheduled loan repayments, and corporate overhead costs. It excludes capital spending requirements, final loan repayments and ships hired from other owners for short-term purposes.
The company also has vessels leased on longer-term rentals earning higher rates than those in the single-voyage, or spot, market.
Source: Alaric Nightingale, Bloomberg