Owners worried that OPEC compliance could tighten

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Mar 2009

Estimates that OPEC compliance with a 4.2 million barrels per day (bpd) supply cut has fallen back to 75% in March is casting a shadow over the crude oil tanker markets, with spot rates already at record lows. “It is disturbing for owners to accept the fact that so much more crude is yet to be taken out from the market, when activity is already so low,” said an industry player to Tankerworld.
“It would be much more acceptable if rates were where they are due to 90% to full compliance. But 75% means we are in for more downward pressure on rates as tonnage goes into over-supply.”
According to a Singapore-based broker, “there is no bottom in sight for VLCC spot rates currently and many owners are not breaking even.”
“OPEC is supposedly trying its best to cut 4.2 million bpd from the market. Full compliance is equivalent to at least two VLCCs out of a job everyday.”
Tankerworld reported Monday that latest data from Geneva-based oil data consultants Petro-Logistics indicates that OPEC's compliance with its own targets is weakening.
According to Petro-Logistics, OPEC output in March is expected to average around 1 million bpd above its collective target of 24.84 million bpd, which took effect from January 1, as Iran and some other members pump above agreed levels.
One billion barrels is what one suezmax can carry on average.
According to Reuters, this estimate implies the oil cartel delivered in March some 75% of the 4.2 million bpd of reductions agreed since last September, less than the 80-90% estimated by several indications for February.
Brokers tell Tankerworld that crude oil tanker markets are getting slammed by OPEC supply cuts and weakening global oil demand.
VLCC spot rates for example are continuing to slide on all routes against a background of falling activity.
“How low can you go? That's been the question in the VLCC market this week. The answer is lower than you think,” said Bassøe last Friday.
MEG-East voyages are being fixed around WS 35 at present while the benchmark MEG-UKC route for MEG-West voyages sunk to a new low of WS 22.5.
The rate of WS 35 for MEG-East voyages is at a seven-year low.
Suezmax rates meanwhile, for West African crude, has reportedly sunk to a 10-year low of around WS 57 on the back of little to no cargo requirements.
Very limited activity has also been reported in the Mediterranean and Black Sea spot suezmax markets, and some brokers were even quoted claiming that there were no suezmax fixtures in the region at all last week.
The benchmark Novorossiysk-Augusta route lost some 15 Worldscale points last week to hover around WS 70 at present.
According to Gibson, rates could be expected to dip even further as there are “no positive indicators on the horizon.”

Source: TankerWorld