Charter rates for very large crude carriers (VLCCs), which fell below break-even levels on routes from the Middle East this week, are expected to remain under pressure as too many ships chase too few cargoes, brokers said.
“This is the worst in terms of earnings sentiment for winter. Wake me up when December ends,” said a Singapore-based supertanker broker on Friday.
That came as major oil producers agreed on Thursday to extend oil output cuts until the end of 2018 in a move that is expected to open the market to increased crude volumes from the United States and other exporters.
Increased exports from the United States could potentially support VLCC rates because longer voyage distances to Asia would cut the number of vessels available for charter.
“The effect (of the output cuts) we have found neutral as the reduction in Middle East export volumes was replaced by increased volumes from Atlantic Basin,” said Robert Hvide Macleod, chief executive of leading tanker owner Frontline Management.
Macleod told Reuters that as a result of the continued cap “we believe the ‘new trades’ will develop further – long-term positive for shipping”.
Unipec, the trading arm of Asia’s largest oil refiner Sinopec, signalled last week its intention to double the volume of U.S. oil it will import next year from 6 million tonnes this year.
There are around 24-30 VLCC cargoes a month from the U.S.-Caribbean region, brokers said.
“With crude from the Caribbean-U.S. Gulf area being heavy sour crude it will only find a home – China and India – which have the refineries that can process them,” said Ashok Sharma, managing director of Singapore shipbroker BRS Baxi Far East.
“There is not going to be an instant reflex in the tanker markets to the oil producers’ decision on Thursday. But shale oil producers will increase production,” Sharma said.
Brokers estimated there were an average of around 15 fewer VLCC cargoes per month from the Middle East since the cuts were implemented in January.
That, together with the delivery of around 52 new VLCCs this year, has increased the number of ships available for charter, putting pressure on freight rates.
Supertanker earnings for a voyage from the Middle East to Japan dropped to around $18,200 per day on Thursday, compared with $32,600 per day at the fourth quarter peak on Oct. 17, data on the Reuters Eikon terminal showed.
That compared with daily break-even costs of $20,000-$22,000, brokers said.
“Rates of under $20,000 a day for December loading have not been seen for a long time,” Sharma added.
VLCC rates on the Middle East-to-Japan route dropped to 56.50 on the Worldscale measure on Thursday, the lowest since Sept. 29, from W63.50 last week.
Rates on the West Africa-to-China route fell to around W64 on Thursday, against W66.50 the same day last week.
Charter rates for an 80,000-deadweight-tonne Aframax tanker from Southeast Asia to East Coast Australia slipped to W109.25 on Thursday from W112.50 last week.
Source: Hellenic Shipping News.