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Wednesday, September 16, 2009

VLCC's Freight Rates Remained 48% Lower Compared to August 2008

Wednesday, 16 September 2009

VLCC market remained weak in August as oil storage on the sea weakened at a period that characterised by oversupply of vessels. As a result, according to the latest OPEC’s Monthly Oil Market Report that covers the month of August, VLCC spot freight rates were 4% higher in August compared to the previous month and 48% lower compared to the same month a year ago. This minor monthly gain did not help the general weakness in the market which continued to suffer from soft
demand coupled with an oversupply of vessels as a result of a higher-than-average expansion rate in the global VLCC fleet thus far in 2009.
Despite the number of vessels engaged in crude oil storage, operations fell by the end of August compared to the beginning of the month, but this was more than offset by additional VLCCs used to store products.EDO H TSONTAThe VLCC sector gained 4% on average in August as a result of a firmer West African and a steady Middle East market. Higher tonnage availability in the market as a result of a high rate of expansion in the VLCC fleet was the main weakening factor for freight rates on this vessel segment throughout the month and this did not change much due to the fact that more VLCCS were engaged in storage operations in August.
Volumes of crude oil stored on tankers actually went down in August with the narrowing of the contango structure in crude oil futures to about 45 mb compared to 55 mb in July, but reports indicated that there was some fuel oil storage build-up on tankers taking place in August and that about 15 mb of fuel oil was stored on at least eight VLCCs in Far East Asia. This was on top of another eight VLCCs tied up in storing middle distillates as part of the average of 50 mb of products stored on tankers in August.
By the end of August, more than 60% of crude in floating storage was in the US Gulf Coast and Northwest Europe and more than 50% of middle distillates were stored on tankers in Northwest Europe.
Most of the gains that were made in the VLCC market on the Middle East to East route during the first three weeks of the month were lost during the last week. Freight rates on this route started the month at WS34, then reached WS40 by the end of the third week before ending the month at WS31, with a monthly average of WS38 compared to WS37 in July. Freight rates for the Middle East to West route were steady throughout the month, starting at WS28 and ending the month at WS27, indicating about 4% monthly decline.
On the other hand, VLCC rates in West Africa were firmer in August compared to both July and other tanker segments. Freight rates for the West Africa to East route started the month at WS34 and ended at just below WS50 with a monthly average of WS44, indicating a monthly gain of 10% compared to July. With freight rates climbing from WS43 at the end of the first week to as high as WS68 by the end of the fourth week, the Suezmax market for voyages to the US from West Africa had the best performance compared to all crude tanker routes in August. Freight rates on this route ended the month with a 10% gain compared to the previous month.
On the Northwest Europe to the US Suezmax route, freight rates also gained 6% in August as a result of a sudden tightening of the market during the second and third week of the month. On both routes, freight rates eased towards the end of August as a result of higher tonnage availability with a good number of vessels choosing to ballast into these regions.