Persian Gulf Tanker Rates May Extend Drop as Ship Demand Wanes

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Monday, 04 May 2009

The cost of delivering Middle East crude to Asia, the world’s busiest route for supertankers, may drop for a second session as demand slumps and an oil glut builds up in consuming regions. “Demand has tailed off as the week draws to an end, erasing most of the hope from the start of the week that we were seeing a tightening” in the supply of vessels, Halvor Ellefsen, a tanker broker at SeaLeague AS in Oslo, said by e-mail today. “The world looks brimful of oil.” U.S. crude oil supplies rose 4.05 million barrels to 374.7 million barrels last week, according to the Energy Department. The gain left inventories at the highest level since 1990 and 15 percent above the five-year average for the period. Rotterdam, Europe’s oil-refining hub, is running out of space to store inventories on land as demand drops.
The benchmark rate for shipping crude oil, based on Saudi Arabian deliveries to Japan, fell 0.3 percent to 31.63 Worldscale points yesterday, according to the London-based Baltic Exchange.
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.
A rate of 31.63 points works out at $16,148 a day, according to the Baltic Exchange. Frontline Ltd., the largest owner 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.
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 doesn’t take into account capital spending requirements, final loan repayments, or ships hired from other owners for short-term purposes.
Source: Alaric Nightingale, Bloomberg