Markets - VLCCs in declining rate levels

Mar 03 2017

Some very quiet days were noted last week with VLCC tonnage building up in the MEG, leaving multiple choices for charterers.

Inevitably, rates dropped sharply MEG/East, which also pulled WAfrica/East down accordingly, Fearnleys reported.

VLCC earnings dipped below $20,000 per day, and only a sharp increase in volumes in all areas will avoid rates remaining under pressure, as the spring months advance.

Suezmaxes in West Africa saw steady activity but most fixing was undertaken under the radar. There was an element of doubt as to the actual market direction. The position lists gradually began to tighten and as this week has progressed, we have seen sentiment building as owners sense charterers are facing a different scenario in the early third decade, Fearnleys said.

Td20 earnings were closing in on $15,000 per day at WS85 levels. The Med and Black Sea market was more transparent over the past week with a steady feel. Enquiry for longer tonne/mile voyages going east picked up but didn’t prove enough to move rates on the standard cross-Med routes.

Charterers are currently seeing owners trying to force rates up but patience will be the key to hold rates in check.

North Sea and Baltic looked tighter for Aframaxes, and owners started to hold back and push for higher rates, which was mainly caused by a huge 71 crude cargoes quoting ex Baltic in March.

In addition, several ice class vessels were repositioning to the Med and furthermore, there were a lot of East enquiry for fuel as the arb opened. In the Med and Black Sea the market was described as being in limbo.

All the fundamentals for the market to firm up were present, as the Turkish Straits were frequently closed, Black Sea programme was quite busy and the tonnage list looked thinner.

However, one factor outlined the difference between firm and soft, and that was oil company relets willing to fix at competitive rates. That being said, we do believe this market have the potential to firm in the near future as both Novo and CPC will be quite busy cargo wise, Fearnleys concluded

Meanwhile, VLCC rates on the AG/Japan route tumbled by nearly WS10 points within a day to WS60 on Tuesday of this week, after news of S-Oil placing Australis on subs for an AG/Onsan run at WS54.75, loading 13th-15th March basis 274,000 tonnes, broke, Ocean Freight Exchange (OFE) reported.

Other charterers followed, with at least four older vessels fixed within the range of WS55-WS58 for an AG/East voyage.

We believe that VLCC rates will remain depressed in the short term, due to the upcoming refinery turnaround season in Asia, diminishing floating storage inventories that will free up more tonnage, as well as OPEC production cuts,” OFE said

Upcoming Asian refinery maintenance over the next two months is unusually heavy and is expected to lower March cargo flows out of the AG, weighing on VLCC rates. At least 2 mill barrels per day of refining capacity East of Suez is expected to be offline in March, more than double that of last year.

China’s state-owned refiners account for around 50% of overall capacity closures in Asia in March, which will reduce AG-loading cargo volumes, as they form the core of Saudi Aramco’s client base.

The unwinding of storage plays has begun, as floating storage becomes less economically viable, due to the flattening Brent futures curve. According to Reuters, 12.1 mill barrels of crude (equivalent to six VLCCs) were released from floating storage in Malaysia, Singapore and Indonesia.

The influx of tonnage will further push down freight rates. Moreover, some of the vessels previously chartered for floating storage are older units, which are typically available at discounted rates, OFE said.

The overall impact of OPEC’s production cuts (~1.2 mill barrels per day) is evident from the fall in VLCC fixtures from the AG, which were estimated to have dropped by 9% month-on-month to 145 in February. According to OPEC, compliance reached over 90% in January with Saudi Arabia shouldering the bulk of the agreed cuts, OFE concluded.

As mentioned elsewhere in this news roundup, Frontline is to buy two VLCC resales from Daewoo Shipbuilding & Marine Engineering (DSME) for $77.5 mill each.

They are scheduled for delivery in September and October, 2017, respectively.

Elsewhere, Nordic American Tankers (NAT) took delivery of the newbuilding Suezmax ‘Nordic Space’ on 27th February.

She is NAT’s second Suezmax newbuilding delivered by Sungdong Shipbuilding and Marine Engineering.

This brings NAT’s fleet up to 33 Suezmaxes, which includes three newbuildings to be delivered during the second half of 2018.

KNOT Offshore Partners (KNOP) has completed the acquisition of the ownership interests in the company that owns and operates the shuttle tanker Tordis Knutsen  for an aggregate purchase price of $147 mill less $137.5 mill of outstanding debt, plus about $21.1 mill for a receivable owed by Knutsen NYK to KNOT 24 and around $0.8 mill for certain capitalised fees related to the financing of the vessel.

Tordis Knutsen is a 156,559 dwt shuttle tanker, built by Hyundai Heavy Industries and delivered in November, 2016. She is operating in Brazil under a five-year time charter with a subsidiary of Royal Dutch Shell, which will expire in the first quarter of 2022. The charterer has options to extend the charter for two further  five-year periods.

Meanwhile, the only newbuilding reported recently was Central Mare’s declaration of an option to construct a second MR at Hyundai Vinashin for a reported $32.5 mill.

In another newbuilding sale, the ‘Gener8 Nestor’ was committed to unknown interests for $80 mill subject to the signing of a five year charter to Unipec. She is due for delivery this year from HIC Philippines.

The 2006-built LR1 ‘New York Star’ was believed committed to US-based Norstar Shipping for $14.5 mill.

In the charter market, brokers reported  that the 2004-built Suezmax ‘Valtamed’ was fixed to Petraco for six, option six months at $28,000 per day.

STI was said to have taken the LR2s ‘FPMC P Ideal’ and the ‘Densa Alligator’ for six months each at $14,000 and $14,500, respectively with the latter having an option for a further six months at $15,000 per day.

In the MR segment, ATC was thought to have fixed the 2013-built ‘Nave Orion’ for 12 months at $13,250 per day and Hpel was believed to have fixed the 2000-built ‘Prem Malta’ for 12 months at $12,750 per day.  

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