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Tuesday, May 19, 2009

VLCC spot market 'remains in state of collapse'

Tuesday, 19 May 2009

Although activity last week has been described as the busiest so far in three months, the VLCC market remains in a significant downturn, brokers tell Tankerworld.“Cargoes may have picked up last week, but there is still a drastic oversupply of tonnage compared to current requirements,” a Singapore-based broker told Tankerworld today.
“Maybe several VLCCs on floating storage have re-entered the spot market, or OPEC is getting closer to achieving 100% compliance with their export cuts. Whatever the case, the VLCC spot market remains in a state of collapse,” he added.
Gibson described last week as providing “more severe pain for VLCC owners in the MEG...” while “bunker prices have risen noticeably leading to a further erosion of net earnings...”
According to Bassøe however, “while rates are still extremely weak, owners have at least been able to pull them out of negative return territory for a moderate improvement.”
MEG-East routes were reported last Friday between WS 25 and WS 29, flat from the previous week, while MEG-West voyages picked up from the previous week's drastically low rate of WS 17 to a current ceiling of WS 22.
Earnings on the benchmark MEG-Korea route have been reported to be around $12,000 per day per vessel while the benchmark MEG-UKC route is now fetching close to $5,000 per day per vessel, an improvement for owners who had been running losses of between $2,000-$4,000 per day per vessel on that route a little more than a week ago.
Brokers tell Tankerworld that average cash break-even earnings for the VLCC spot market is below $25,000 per day per vessel, but break-even rates are calculated differently across the industry, with some companies like Frontline Ltd. reporting its break-even rate as high as $34,700 per VLCC.
VLCC specialist Knightsbridge Tankers Ltd. recently pegged its average cash break-even rate for its VLCCs at $19,200 per day per vessel.
The Atlantic market, which some weeks ago saw a rise in rates on the back of increasing volumes used for floating storage, lost its spark last week as the benchmark Bonny-LOOP route stayed flat at WS 32.5.
Brokers tell Tankerworld that the surge in rate levels in that market fizzled out either because owners started ballasting their tankers there, thereby diluting tonnage availability, or floating storage vessels simply came back out as traders cashed in their contango gains.
Looking ahead Bassøe said owners are hoping that “the busy end-May activity will move smoothly into an active start to June”, expected to get under-way this week.
“Tonnage is still plentiful compared to what used to be 'normal' levels, but the list has come down from last week, making owners' fight a touch easier,” Bassøe added.
Crude oil tanker markets across all sizes are getting slammed by OPEC supply cuts and weakening global oil demand, according to brokers.
OPEC oil export volumes in April fell for an eight consecutive month according to a Reuters survey of oil firms, OPEC officials and analysts. (See story link)
Total output from OPEC [not including Iraq] is said to have declined to 25.52 million barrels per day (bpd) from a revised 25.63 million bpd in March.
The International Energy Agency (IEA) meanwhile, has joined OPEC in a further downward revision of its 2009 oil demand forecast. (See story link)
World oil demand will fall at the fastest pace since 1981 this year, the Paris-based agency predicted in its monthly report released last Thursday.
Its latest forecast was for demand to drop by 2.56 million barrels per day (bpd) in 2009 to 83.2 million bpd.
On Wednesday, OPEC downgraded its demand forecast for 2009 to 84.03 million bpd, a 1.6 million barrels bpd drop compared to 2008.
The US Energy Information Administration (EIA) also downgraded its global demand forecast las week, predicting consumption would fall by 1.8 million bpd to 83.67 million in 2009.
London brokers Gibson has also pointed out that falling global oil demand and OPEC cuts are not the only reasons for slumping rates.
Gibson said growth in the world's total tanker fleet more than doubled in the first three months of this year (Q1) compared to the same period last year. (See story link)
A total of 68 VLCC newbuild deliveries is expected to take place throughout 2009, according to Knightsbridge Tankers Ltd.
Quoting data from Fearnleys, the Nasdaq-listed VLCC specialist said in its first quarter (Q1) 2009 results report that the global VLCC fleet stood at 519 at the end of Q1 with 19 deliveries already during the quarter.
According to Fearnleys, the current orderbook represents some 40% of the VLCC fleet.
Source: Tanker World