Asia VLCC Rates Fall to Four-year Low

Freight rates for very large crude carriers (VLCCs) on Asian routes show little sign of reviving although Hurricane Harvey, which threatens to ravage the U.S. Gulf coast oil refining industry over the weekend, could provide a fillip, brokers said.

 

That came as average weighted VLCC freight rates on all routes sank to their lowest in four years this week to around $9,000 per day.

 

Rates are even lower on some routes after CPC fixed a VLCC late Thursday for a trip from the Middle East to Taiwan at 36.75 on the Worldscale measure and S-Oil fixed a VLCC to South Korea at W36.

 

That is equivalent to rates of $6,000-$7,000 per day.

 

"It's rubbish money," said a Singapore-based supertanker broker.

 

That compares with around VLCC operating expenses of about $10,000 and vessel break even levels of about $22,000 per day, brokers said.

 

"Cargo is moving - cargo demand is there, but there are just too many ships," said Ashok Sharma, managing director of BRS Baxi Far East in Singapore.

 

One glimmer of hope is an increase in cargo volumes from the Caribbean which began to oust cargoes this week from West Africa.

 

That has already been felt in freight rates this week after Indian Oil Corp (IOC) fixed a VLCC at $3.39 million for a trip from the Caribbean to the west coast of India shortly after Reliance paid $2.9 million for a similar voyage.

 

"There is a bit of tightening in tonnage to the extent interest is being shown in ballasting (sailing empty) from China to the Caribbean. Nobody has done it yet, but brokers/owners have been asked," Sharma said.

 

"There's not much interest in West Africa," he added.

 

Brokers said Caribbean cargoes have gained traction due to pricing levels of U.S. crude (West Texas Intermediate).

 

That rise could gain momentum due to the potential disruption caused by Hurricane Harvey, which packing winds of up to 125 miles per hour (201 km per hour), is the region's worst storm for 12 years and is due to make landfall late Friday or early Saturday.

 

Four oil refineries, along with 10 percent of offshore crude and 15 percent of natural gas output, were shut ahead of the storm's landfall.

 

"There will be a lot of vessel and cargo delays which might cause replacement cargoes to come from the Caribbean," said a European supertanker broker on Friday.

 

"That would suck in spare tonnage from the U.K.-continent and create something more in other markets. It doesn't take much disruption for rates to bounce," he added.

 

The possibility of U.S. sanctions on Venezuela's oil exports could also have an overall positive impact on ton-mile demand, and freight rates, said Ralph Leszczynski, head of research at ship broker Banchero Costa in Singapore.

 

If U.S. sanctions are imposed "Venezuelan production (is) expected to flow to other markets such as Asia. OPEC countries have been focusing on trimming their heaviest supplies first when enacting agreed supply cuts, thus Venezuela’s heavy crude is expected to fill the gap for Asian refiners," he said in a note published on Tuesday.

 

But there is little sign of an overall improvement in VLCC rates, brokers said.

 

With around 68 new VLCCs due to be delivered by the end of next year, including 16 by December this year, the VLCC fleet is expected to grow around 9 percent by the end of 2018 unless there is a significant increase in ships sold for scrap.

 

"It's absolute madness," Sharma said of the number of new-build ships.

 

VLCC rates on the Middle East-to-Japan route dropped to W39.50 on Thursday from W41.75 last week.

 

Rates on the West Africa-to-China route fell to W47.75 on Thursday from W48.50 last week.

 

Charter rates for an 80,000-deadweight tonnes Aframax tanker from Southeast Asia to East Coast Australia was at W87 on Thursday, compared with around W84.25 last week.


(Reporting by Keith Wallis; Editing by Sunil Nair)