Asia Tankers-VLCC Rates to Climb on More MidEast, West Africa Liftings

Posted by Joseph Keefe September 16, 2016

VLCC rates from MidEast have reached a floor at W33; surging Suezmax rates could make VLCCs more attractive.

Freight rates for very large crude carriers (VLCCs) are set to climb next week as charterers ramp up tanker fixing activity from the Middle East while increased oil volumes from West Africa provided further support, ship brokers said.

"Basra and Saudi Arabia cargoes are already starting to come out. Wednesday should see United Arab Emirates cargoes start, followed by Kuwait cargoes," said a Singapore-based VLCC broker on Friday.

That came as rates from the Middle East to Japan slipped this week.

"We've reached a floor in rates from the Middle East," the broker added.

Rates are down to 33 on the Worldscale measure, equivalent to earnings of $14,000-16,000 per day.

They are higher than the operating costs of around $10,500 per day, but lower than the average daily cash breakeven cost, which leading tanker owner Frontline estimated at about $21,200 per day.

"VLCCs in the West are keeping very busy; there's quite a large list of cargoes from the Caribbean and West Africa," the broker said.

With supertanker rates from West Africa to China at their highest since July 28, owners "will point their prow to Africa rather than the Middle East," the broker said.

"The knock-on effect will be felt in higher rates from the Middle East next week."

Rates for smaller Suezmax tankers, which can carry about 1 million barrels, half that of VLCCs, soared by 17 points on the Worldscale measure this week for cargoes from West Africa, chartering data on the Reuters Eikon terminal showed.

"At these rates cheaper VLCCs may end up looking more attractive," the Singapore broker said.

There were around 65 VLCC fixtures in the week to Thursday, data on the Reuters terminal showed.

That has tightened the number of ships available for charter, while vessels could also be delayed by bad weather in Asia, Norwegian ship broker Fearnley said.

"The tonnage list has seemingly become tighter due to steady activity in all areas. On the back of this, owners' bullish sentiment has grown and expectations are for higher rates for the first decade (10 days) of October fixing," Fearnley said in a note on Wednesday.

That came as Iran crude exports to Japan and South Korea climbed to around pre-sanctions levels in August, rising to more than 2 million barrels per day (bpd) to Japan and 1.1 million tonnes to South Korea.

VLCC rates from the Middle East to Japan fell to around W33.75 on Thursday from W34 a week earlier.

Rates for VLCCs from West Africa to China surged to W43 on Thursday from around W37.50 the same day last week.

Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia were flat at W60 on Thursday, compared with W60.25 last week, equivalent to daily earnings of $6,227.