Asia Tankers-VLCC Rates Slide

Posted by Joseph Keefe February 26, 2016

VLCC rates fall $10,000 in a week on dearth of cargo; demand fundamentals still appear favourable - Teekay CEO.

Freight rates in Asian trades for very large crude carriers (VLCCs) are likely to slide further next week as charterers drip feed fixtures to dampen freight rates, ship brokers said on Friday.

"I rather think charterers will play the same game as they have the last couple of weeks - fixing older tonnage and limiting cargoes as they try to squeeze freight rates," said a European supertanker broker on Friday.

Charter rates for tankers that are 10-20 years old tend to be lower because the ships are less fuel efficient than younger vessels and owners are willing to accept a discount on the prevailing lease rate, brokers said.

"Rates are going to fall even further. They will find a bottom, but not yet," the broker said.

That came as daily revenues for a VLCC voyage from the Middle East to Japan fell by around $10,000 in the last week as charters curtailed fixing activity.

Around seven VLCC charters were fixed in the week to Thursday for loading from the Middle East in the middle of March, shipping data from Reuters showed on Friday, against 25-35 in previous months.

"The market has been a bit ugly," a Singapore VLCC broker said on Friday.

Some tanker owners remain optimistic about prospects for the rest of this year even as the volume of new vessels could outpace the increase in tanker demand, threatening freight rates.

"Overall the demand side fundamentals appear very favourable for tankers in 2016," said Kevin Mackay, chief executive of Teekay Tankers.

"The use of ships as floating storage removes vessels from the spot trading fleet, thus tightening the supply-demand balance and leading to an increase in rates," Mackay said.

That would come as the global crude oil tanker fleet is forecast to grow 8 percent, compared with 3 percent last year, according to figures from ship broker Banchero Costa (Bancosta).

"The market in 2016 could prove more challenging due to the high number of expected deliveries," said Ralph Leszczynski, head of research in Singapore for Bancosta.

Freight rates for the Middle East to Japan benchmark route fell to around 53.50 on the Worldscale measure on Thursday, against W63 last Thursday.

VLCC rates from West Africa to China dropped to around W63 on Thursday, compared with W72 the same day last week.

"Rates will snap back - I don't think they will hang around at these levels for too long," the Singapore broker said.

Rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia rose to W117.25 on Thursday, up from W112.25 a week earlier on a shortage of prompt tonnage.

Clean tanker rates from Singapore to Japan climbed to around W134.75 on Thursday from around W129.25 last week.