Rate correction likely after low S-Oil charter drags market.
Freight rates for very large crude carriers (VLCCs) could see a small respite next week, building on the slight improvement seen in the last two days although sentiment is likely to remain pessimistic of any real recovery, brokers said on Friday.
"There was a large drop on Tuesday when South Korea's S-Oil fixed at 45.50 (on the Worldscale measure). But rates are now correcting," a Singapore-based supertanker broker said.
Hong Kong tanker owner Associated Maritime is thought to have fixed 10 VLCCs to Unipec for contracts of affreigtment in the middle of August.
"That might signal Unipec doesn't have any vessels and it expects rates to rise," the broker added.
"I feel we're not too far off the bottom. There is scope for an uptick next week," the broker added.
"I think rates will hit an average of W50 - modern tonnage will be at around W52.50; older and handicapped tonnage will be around W46-47," the broker said.
A lack of floating storage opportunities and arbitrage oil flows from the West, that would increase vessel utilisation, are dampening rates.
Total fuel oil flows into East Asia for July are likely to be well under the year-to-date average of about 6.7 million tonnes up till June, a Thomson Reuters Oil Research showed in a report on Wednesday.
"Lack of fuel oil movement is a sure contributor to weakness in the VLCC markets," said Ashok Sharma
, managing director of BRS Baxi Far East in Singapore.
The decline in rates this week has led to a downward assessment of forward VLCC rates.
Average forward rates for August fell to W47 on Thursday compared with W49 earlier this month. The September average is down to W49, from W52.
"Actually the market isn't that bad, there's been times this year when it's been worse," the unnamed Singapore broker said.
That came as around 15-20 Middle East cargoes have been fixed for loading in the first 10 days in August.
"We're waiting for the UAE cargo dates which is holding off a few co-loading charterers," the broker added.
Longer term there is potential for rates to see "a modest improvement in 2018 assuming the OPEC production agreement falls apart and overproduction of crude returns to the market," JP Morgan said in a report on Thursday.
VLCC rates on the Middle East-to-Japan route fell to W49.25 on Thursday compared with W53.50 last week.
Rates on the West Africa
-to-China route were W53.25 on Thursday from W55.75 last week.
Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia fell to around W87.25 on Thursday compared with around W89 last week.
Reporting by Keith Wallis