Supertanker rates remain depressed by surplus ships

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

2 Sep 2010

A surplus of supertankers competing for two million-barrel cargoes of Middle East crude oil stayed unchanged, undermining owners who have refused charters to try to halt a collapse in rental income. There are 20 per cent more very large crude carriers, or VLCCs, seeking employment over the next 30 days than there are cargoes, according to the median estimate of six brokers and two owners surveyed by Bloomberg News. The surplus was the same last week.
Based on the number of bookings concluded so far for September loading, the excess is 'likely to persist', DnB NOR Markets analysts Henrik With and Glenn Lodden said in a report. Owners are 'now holding back vessels', meaning that there may be a 'small uptick' in charter rates this week, they said.
The carrying capacity of the VLCC fleet will expand by 4.9 per cent to 166.2 million deadweight tonnes this year, Clarkson Research Services Ltd, a unit of the world's largest shipbroker, said on Aug 26, revising a previous estimate for a contraction of the same size.
Frontline Ltd, the world's biggest operator of supertankers, said a day later that it's 'somewhat concerned' about the number of vessels due to be built over the next two years.
Rental income from VLCCs delivering Saudi Arabian crude to Japan, the industry's biggest trade route, has slumped 75 per cent this year to US$9,958 a day, according to data from the London-based Baltic Exchange. The carriers cost US$11,601 a day to operate, according to Drewry Shipping Consultants Ltd.
Frontline said earlier last month and in July that it would anchor ships and reject cargoes until the slide in charter rates was reversed. It also said that demand to store European oil may rebound in the fourth quarter. Frontline needs US$30,900 daily to break even on each of its VLCCs, including financing costs, it said.
In terms of industry-standard Worldscale points, charter rates on the Saudi Arabia-to-Japan route climbed 0.1 per cent to 48.84 points after declining 3.9 per cent last week, according to the exchange.
The Worldscale Association produces yearly dollars-per-tonne flat-rate estimates for 320,000 tanker voyages that are used as the starting point to negotiate freight rates. For example, today's rate for the journey between Saudi Arabia and Japan is 48.84 per cent of the association's yearly assessment for the route.
The Baltic Dirty Tanker Index, a wider measure of crude oil transportation costs, fell 1.2 per cent to 715 points, according to the Baltic Exchange.

Source: Bloomberg