Markets - Forecast - steady to soft

Jul 28 2017

After a slow finish to last week and a slow start at the beginning of this week, VLCC activity picked up.

Rates ex MEG have been under constant pressure, as ships remain in good supply. However, many charterers have chosen younger tankers in the past few days,  Fearnleys said in the weekly report. Rates found support in the low WS50s.

West Africa/East saw a similar pattern where WS50 was done but this level has since found some increased resistance.

Sparse activity hit Suezmax owners in the West in the past week with MEG dominating the action east of Suez. This did, however, result in a thinning of the eastern ballasters for West Africa.

During the latter part of last week, owners sentiment developed into a cautiously bullish tone with expectations of a busier week ahead, as TD20 peaked at WS67.5, albeit briefly.

However, the expected action on 2nd decade dates earlier this week failed to materialise and the view is that rates will fall back towards WS60 before the week is out.

TD6 also saw a very quiet period with 1st decade August dates being slowly worked west while east destinations were being fixed but there was not enough impetus.

The outlook for the week ahead is steady to soft with owners looking to keep tonnage moving and fixing closest to their dates.

After a short lived Aframax rate spike trading in the N Sea and Baltic areas, charterers were back in the driving seat. Entering the next fixing window, we will most likely see a downward correction on rates, as there are not enough cargoes to absorb the abundance of available tonnage building up in the area, Fearnleys said.

The Med and Black Sea have been stable for the past few weeks as owners fought their way back to low WS90 only for Petrogal to come in and force the level back down again.

This time, it was an ex drydocking ship that took the hit by accepting WS75 for one of the Mediterranean’s longest trips. However, even if this voyage might look okay for this particular owner, for the rest, mid WS80s is the new number for cross-Med and Black Sea voyages.

Expect this situation to continue this week and into the next, Fearnleys predicted.

Elsewhere, during Monday’s OPEC’s St Petersburg meeting, Saudi Arabia said it would cap crude exports at 6.6 mill barrels per day in August, marking a six-year low, according to JODI data, Ocean Freight Exchange (OFE) reported.

This is about 1 mill barrels per day lower than 12 months ago, as well as 566,000 barrels per day lower than the first five months of this year.

The UAE also pledged to reduce September exports of Murban, Upper Zakum and Das Blend by 10%.

This may lead to a month-on-month fall of 6-7% of MEG VLCC fixtures, OFE said.

While Nigeria was previously exempt from any production cuts, the country voluntarily agreed to limit or even cut the output from 1.8 mill barrels per day.

As reported by Reuters, Nigerian crude production averaged 1.7 mill barrels per day recently. While the bulk of crude exports are shipped on Suezmaxes and VLCCs, the production cap might not have much of an impact on the tanker market, as volumes often fluctuate due to unforeseen outages.

Shell lifted its force majeure on Bonny Light crude exports on 28th June only to re-instate it two weeks later following pipeline attacks. Nigerian loading programmes for September currently total 1.7 mill barrels per day, which is flat month-on-month.

Assuming the Saudis continue their strategy of cutting medium/heavy crude production, Asian refiners are expected to continue importing similar grade crudes from the US and Latin America to meet their demands, OFE said.

China has been importing US medium/heavy crudes, such as Mars and Southern Green Canyon, while Indian refiners IOC and BPCL bought their first Mars cargoes earlier this month. 

Steady growth in long-haul trades from the Americas is expected to lend support to tonne/mile demand, helping to offset some of the negative impact from the OPEC production cuts, OFE concluded. 

Turning the the demolition market, following the recent glut of tanker deals (including two NITC VLCCs), this week proved to be a far more moderate affair (in terms of sales) despite local prices improving even further.

At present, it seems to be a fight between Pakistan and Bangladesh for the top spot in the market rankings. The Bangladesh market remains distracted, taking in most of the wet units on offer of late, while Pakistan took most of the dry vessels on offer, GMS said in its weekly report

News of several Aframaxes in various cash buyer hands being onward committed to Chittagong end users (even those located in the Middle East and far better positioned for an India delivery) surfaced this week, continuing the rally seen in Bangladesh, since the budget was reversed a couple of weeks back.

It may well be that the supply of tonnage starts to slow as the traditional holiday month of August approaches, which may also be another reason for some of the stronger levels being witnessed of late.

Many have forecast that the supply of tonnage will pick up going into the fourth quarter of this year and it will be interesting to see if prices do hit the $400 per ldt mark, as levels have once again commenced on an upward trajectory, GMS said.

Meanwhile, broking sources have indeed reported a couple more tankers leaving the fleet. These were the 1997-built Suezmax ‘Ambassador’ believed sold to Bangladesh breakers for $375 per ldt and the 1993-built Aframax ‘Genie’ thought committed to Bangladesh interests for $388 per ldt.

Apart from the TORM deal mentioned separately in this news bulletin, in the S&P sector, undisclosed interests were said to have bought the 1999-built Suezmax ‘Gener8 Horn’ for $10.5 mill, while another unnamed interests was thought to have purchased the 2004-built MR ‘Resolve’ for $11 mill.

Ship Finance was reported to have disposed of the 1997-built Suezmax ‘Front Ardenne’ on the back of a storage project for $8.5 mill. She is due a SS drydocking in September.

In the charter market, Navig8 was reported to have taken the 2006-built Aframax ‘Ambrosia’ for six, option six months at $14,000 per day.

The recently reported massive Trafigura lease/purchase order has moved on a bit, as the finance house BCom FL has declared options on four MRs at Hyundai Mipo for 2018-2019 deliveries. They will be bareboat chartered to the trading house.

Elsewhere, the Maran Tanker VLCC quartet ordered recently were thought to be backed by a long term bareboat charter to Chevron Shipping at $23,000 per day.

Overall newbuildings of all types more than halved during the first half of this year, compared to 2015, VesselsValue said.

However, orders for bulkers and tankers actually increased in 1H17.

Looking at the tanker sector, there were 181 orders in 2015, 118 last year and thus far this year to the end of June, 145 tanker orders, VesselsValue said.   

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