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Mideast Crude Tanker Earnings Slip, Ukraine Watched

March 4, 2014

By Jonathan Saul, Reuters

Crude oil tanker earnings on the major Middle East route fell on Tuesday as a build up of vessels available for hire weighed on rate sentiment.

Shipping markets continued to monitor developments in Ukraine after Russia sent military forces into the Crimea region of southern Ukraine. Russian President Vladimir Putin said Moscow would only use military force in Ukraine as a last resort. A U.S. official said it was ready to impose economic sanctions on Russia.

The world's benchmark VLCC export route from the Middle East Gulf (MEG) to Japan reached W50.73 in the Worldscale measure of freight rates, or $25,765 a day when translated into average earnings.

That compared with W51.33 or $27,219 a day on Monday and W55.05 or $32,176 a day last Tuesday.

"Higher available capacity in the Middle East continues to weigh on rates out of the region to both Asia and the U.S. East Coast," said Justin Yagerman with Deutsche Bank.

"While the number of available VLCCs in the Middle East decreased by 4 last week to 83, the level remains elevated from a historical perspective."

In January, average earnings reached $61,630 a day - their highest level since February 2010, before that rally lost steam.

VLCC rates from the Gulf to the United States <DFRT-ME-USG> were at W31.63 on Tuesday versus W32.77 on Monday and W34.17 last Tuesday.

Russian navy ships have blocked off the Kerch Strait, which separates Ukraine's Crimea region and Russia, Ukraine's border guard service said on Tuesday. The border guards said the action did not affect civilian traffic through the Strait, which provides access to the Black Sea for ships carrying commodities including grain and oil from Russia.

"Given the sheer size of Russia's energy exports, we would find Western sanctions that actually bite, or Russia ceasing exports as a political tool, both somewhat far-fetched scenarios at this time," said Urs Dur of Clarkson Capital Markets.

"However, if either were to happen, the LNG (liquefied natural gas), crude and product tanker markets would likely spike, as would the price of oil and natural gas, possibly causing significant disruption to the global economy."

Black Sea and Mediterranean crude tanker rates continued to weaken after rallying in January to their highest since 2008 as weather-related disruptions in the Turkish Straits raised the cost of transporting cargoes. Brokers said slower activity had taken its toll on rates.

Rates for suezmax tankers on the Black Sea to Med route to W65.65 or $8,632 a day. That compared with W65.75 or $9,270 a day on Monday and W61.83 or $5,261 a day last Tuesday.

Cross Mediterranean aframax tanker rates were at W86.93 or $7,762 a day on Tuesday. That compared with W87.88 or $8,765 a day on Monday and W84.03 or $6,180 a day last Tuesday.

Average earnings per day are calculated after a vessel covers its voyage costs such as bunker fuel and port fees.

(Editing by David Evans)

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