Freight rates for very large crude carriers (VLCCs) are expected to slide further next week on reduced cargo demand after the New Year holiday, which could be partly due to cutbacks in oil output by major crude producers, ship brokers said.
Around 100 VLCC cargoes for loading in the Middle East in January have been fixed so far, a European supertanker broker said on Friday.
“There are still cargoes out there, but I do see a cutback in the number of cargoes coming out, which really is due to the oil cutbacks,” the broker said.
The January loading programme should be completed at the end of next week when an accurate comparison can be made with cargo volumes in previous months. The number of Middle East VLCC fixtures averaged around 125-135 a month last year, brokers said.
The VLCC market remained firm up until the Christmas and New Year holidays, with rates climbing to $69,468 per day on Dec. 20 for a VLCC voyage from the Middle East to Japan. That was the highest since March 18. But rates were down to $47,652 per day on Thursday.
“Rates are off the peak in both the Middle East and West Africa, though still yielding healthy returns but with sluggish volumes,” said Norwegian ship broker Fearnley in a note on Wednesday.
“There is a bit of a wait-and-see attitude out there, as most expect the market to come off,” the Fearnley note added.
The market expects tanker rates to come under pressure this year from a raft of new vessel deliveries and possible reductions in the number of tanker voyages due to crude oil output curbs.
Recent growth in the crude oil tanker fleet “becomes increasingly troubling and worsens the balance between supply and demand strongly if demolition does not pick up,” said Peter Sand, chief shipping analyst at shipping industry lobby group BIMCO in a recent note.
VLCCs totalling 14.8 million deadweight tonnes (DWT) are due for delivery this year. That compared with a total fleet of 214 million DWT, according to figures from shipping services firm Clarkson.
“With freight earnings in most (tanker) sectors expected to be affected by overcapacity and forecasted deliveries, rising scrap steel rates should provide owners more incentive to send their ships to the breakers,” said ship broker Banchero Costa in a report on Thursday.
The current scrap value of a VLCC is around $11 million.
VLCC rates from the Middle East to Japan fell to around 92 on the Worldscale measure on Thursday.
The Worldscale Association recalculated its rates this year to take into account lower fuel prices, which means W92 would be the equivalent of W70 last year.
Rates from West Africa to China dropped to W93.50 on Thursday.
Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia dropped to W108.75 on Thursday, equivalent to earnings of $10,464 a day.