Bunker prices have a prominent influence on the whole of the shipping industry but none more
so than VLCCs, due to the larger tankers spending more time at sea and consuming more fuel
oil. Although current lower bunker prices have the potential to boost earnings significantly for
the owner, spot worldscale rates are falling even faster and so time-charter equivalent (TCE)
earnings have dropped sharply in recent weeks.
Bunker prices have been steadily falling since February this year, but more dramtically in the last
month, with the downwards pressure on oil prices. Since the start of March 2012, the average
weekly price of 380 cst fuel oil in Fujairah has decreased by $129/tonne (-17%), reaching an
average $617/tonne this week. Oil prices are down and Brent is at its lowest since January 2011,
after falling below $100/bbl to just over $97 yesterday. The fall comes as a result of a weak
economic outlook, a worsening debt crisis in Europe and a steady rise in global crude stocks.
The average TCE earnings on the TD3 route (based on slow steaming) have dropped 73% from
their recent high of $47,500/day at the start of April to only $13,000/day currently; the lowest
level since October 2011 and near VLCC operating costs. In a stronger market, the relative
reduction of an additional $100/tonne in bunker costs would bring significant value to owners,
however in a falling market, it can only bring them frustration. The case is similar for Suezmaxes,
but not as extreme, with Suezmax earnings down 43% from their May 2012 high of $36,500/day,
to $20,750/day currently.
This downwards trend in oil prices could extend through the short-term, riding on the back of
continued economic concerns, high crude production levels and record stock levels in the
West. It then remains to be seen if owners can hang on to or even push up current spot rates to
reverse the decline in earnings. However, the fundamentals of the market are at present
relatively weak and the outcome of this week’s OPEC meeting to maintain production limits is
neutral (as opposed to the potential positive developments from the Saudi proposal to raise
output and the negative implications of other OPEC members’ call to cut output). This leaves
the potential reprocussions from Iranian sanctions as the likely key market driver for higher VLCC
earnings in the next few months.
Lower bunker cost savings were again handed straight
over to VLCC Charterers, and the market compressed into
a new, lower, worldscale rate-range with numbers down
to WS 38.5 East and WS 30 West paid. The July
programme has only been scratched, and will be fully
available for Charterers to fix from next week. They don’t
have to of course, and plentiful availability won’t pressure
them into taking rash action, though volumes should
prove sufficient to prevent further erosion. Suezmaxes
started relatively brightly, and held the small gain into the
slower second half of the week. Rates settle at around
130,000 by WS 85 East and WS 47.5 West for now.
Aframaxes merely ticked over on limited demand, and
that meant rates staying at no better than 80,000 by WS 90
for Singapore runs.
VLCCs here inevitably began to equalise with the lower
numbers seen in the Middle East so that rates to the East
sunk to 260,000 by WS 41.5 with a much lower USD 3.6 m
seen for East Coast India. Inter Atlantic economics should
make more sense now for Charterers at the 260,000 by WS
47.5 asked for, but for now there is limited interest.
Suezmaxes moved through an active mid-week patch
that eventually dragged the market a few worldscale
points higher to 130,000 by WS 70 US Gulf, WS 75 U.K.
Continent Mediterranean and even as high as WS 90 was
paid on an early 'caught' position. Owners will hope for
another round of attention early next week, but Charterers
will be less ready to oblige.
Aframax Charterers embarked upon a concentrated
bargain hunt from the 'off', and created a mini firestorm
that sucked rates up by 30 worldscale points to a peak
80,000 by WS 122.5 cross-Mediterranean but once less fuel
was added, rates began to spiral down again to an
80,000 by WS 105 midpoint by the weeks' end with further
slippage likely. Suezmaxes found enough friends to
rebuild their foundations and rates moved up a little to
140,000 by WS 70+ for Black Sea/Europe movements with
USD 3.1 m seen for Singapore discharge, and things should
stay reasonably solid for the time being.
Aframaxes initially continued their upward climb to 70,000
by WS 120 upcoast, but eased somewhat as fresh enquiry
thinned. There are delays in the US Gulf, however, and
that may keep the market from falling quickly below the
WS 110 mark. VLCCs saw very little as Charterers held
back to allow for the 'bad news' in the East and West
Africa to work upon Owners sentiment. Next deals to the
East are expected to move at around USD 3.5 m to
Singapore, and under USD 3 m for West Coast India.
Unlike the Mediterranean, it was a much quieter aframax
pond here. Just not enough volume to allow for Owners
to push rates much above 80,000 by WS 97.5 cross U.K.
Continent and 100,000 by WS 77.5 from the Baltic with little
change anticipated over the coming week. Suezmaxes
drew a blank, but should be marked as about 135,000 by
WS 65 for the States. VLCCs did get the occasional tickle
however, but rates moved lower to USD 4.875 for South
Korea discharge, and well under USD 4 m needed to
move fuel to Singapore.
A flat week both East and West of Suez.
LR1s and LR2s have had a contrasting week. LR1s saw
activity levels drop after a relatively busy previous week
and rates have bottomed out. 55,000 mt Naphtha
AG/Japan is stuck around WS 100 with the odd eastern
vessel willing to break that. 65,000 mt Jet AG/U.K.
Continent is also flat at USD 1.775 m although prompter
dates might be a touch more. But LR2s have seen lists
tighten and rates bounce back slightly. 75,000 mt
Naphtha AG/Japan rose to WS 92.5 and 90,000 mt Jet
AG/U.K. Continent back up to USD 2.30 m, and looked at
in isolation rates should move further but unfortunately for
owners the slow LR1 market will restrict that movement.
It’s been an odd week with the MR's. As a whole things are
largely as they were 7 days ago with rates virtually the
same. On closer inspection there has been a decent
undercurrent of fixing but a large proportion of this is
confined to the local X AG short hauls which will lead to
the inevitable opening up of the same tonnage in and
around the load area. South and East African business has
been consistently busy with short haul
requirements/tenders keeping tonnage busy. The long
haul East and South African requirements are remaining
busy and levels are crept up to WS 172.5 and WS 165
respectively for 35kt. Other long haul requirements remain
flat with WS 119-120 being the level for 35kt AG-West
Coast India/Japan and the rate for 40kt Jet slipping back
down to USD 1.3m. The Outlook for next week remains flat.
The Far Eastern markets have had a fairly uneventful
week; backhaul cargoes from Korea to Singapore -
Indonesia range are hovering at USD 430-440 k level for
both MRs and LR1s with a premium being paid for
tonnage under 46k dwt. The fixing window for these types
of cargoes has moved up to end of June dates. The short
haul market around Singapore region has got a little more
active but this has not really been reflected in rates thus
far. Market cargoes for Singapore/Australia have been
few and far between with most of these movements
being covered under COAs, theoretically freight levels
remain at 30 x WS 165-170 but it is largely untested.
Activity has steadied in the Mediterranean Handy market
this week as ready tonnage has seen resistance ebb and
flow. Something of a spread for cross-Mediterranean trade
with rates reported fixing consistently around the WS 140-
142.5 level basis 30KT but also WS 137.5 has been reported.
Black Sea exports have come off a touch and are trading
at cross Mediterranean levels with WS 140 last reported
fixing. There have also been some Long Haul options
providing some relief with Naphtha stems for Brazil
confirmed fixing around WS 170 levels basis 30KT. MRs in
the Mediterranean remains at the mercy of the TC2 trade
with rates slumping to around WS 120 levels. UMS for South
Africa has confirmed fixing at USD 1.4 m lumpsum for
South Africa basis 37KT whilst a few MR stems for East
bound discharge have reported fixing into Red Sea/AG at
USD 800k/900k respectively.
A flat week on the Continent as sufficient tonnage satisfies
what little cargo enquiry there is. TC2 hovers around WS
120-122.5 for transatlantic runs of mogas basis 37kt ums.
Dribbles of enquiry to West Africa with smaller clips of UMS
and gasoil confirmed around WS 150-155 basis 30,000 mts.
North West Europe remains slow with handies slipping to
WS 122.5 basis 30kt loading ex Baltics. The Flexi market has
been capped by the weakness of the handies, therefore
market deemed 22x167.5 at time of writing. LR's in the
West remain quiet with options for West Africa and
transatlantic arranged around WS 105 basis 60kt and WS
80 basis 90kt CPP on LR2's.
The Caribbean market has seen steady fixing throughout
the week. We saw the first Caribbean upcoast fixture for
weeks at WS 115 basis 38kt. Backhaul movements ex US
Gulf were trading at WS 75-77.5 basis 38kt. Liftings for U.K.
Continent-Mediterranean from US Atlantic Coast were
fixed at 38 x WS 70. LR1's backhaul ex US Gulf traded at WS
60 basis 60kt.
A consistent rather than spectacular week for Handys
down in the Mediterranean. The market has scrapped
along off last done with an ample tonnage list
undermining an Owners bargaining power. WS 120 is the
number in fashion and proving the basis for negotiation;
this is unlikely to change due to the number of ex
Mediterranean voyages this week equalling a quick
turnover of vessels which ensures the tonnage list remains
consistent. Up in the Continent things have been quieter,
despite a late week rally, as cargos have favoured MR's.
Despite this, fixtures have been completed in the range of
WS 117.5 - 122.5 depending on discharge location. Similar
to the above, negation is based off last done with little
surprises; rates remain low and tonnage consistent.
A good week for MRs in the Continent as a number of
fixtures have parted the clouds and let a bit of sunshine
into Owners lives. Remaining vessels can certainly aim for
rise in their quotations but must keep a close eye on
handy and panamax rates as too aggressive can lead to
cargos changing size and vanishing before their eyes.
Contrasting fortunes down in the Mediterranean, with
Handys the favoured vessel of choice and MRs not invited
to the party.
With a couple of vessels going on subs in the
Mediterranean, Owners will be relieved of the change in
fortune. For their Northern neighbours in the Continent
however, frustration surrounds many where those lucky
enough to see a cargo eventually only saw the enquiry
fizzle out. Owners were desperate to hold on to last done
figures of 55x132.5 at the beginning of the week, but with
WS130 confirmed and a growing tonnage list things look
difficult. That said, market whisperings of an active end
week stateside has the potential to knock off ballasters
thus tightening the market as a whole. Charterers would
be advised to approach the market early to avoid being
Source: EA Gibson