02 April 2012

Mideast crude tanker rates soft, ship surplus grows:

* Bunker fuel costs also eat into earnings
* Suezmax market tracks VLCC rates lower

LONDON, March 26 (Reuters) - Crude oil tanker earnings on the major Middle East route were weaker on Monday as a slowdown in activity and mounting vessel availability ate into gains notched up earlier this month.

The world's benchmark VLCC export route from the Middle East Gulf (MEG) to Japan DFRT-ME-JAP reached W59.00 in the worldscale measure of freight rates, or $23,081 a day when translated into average earnings, from W59.77 or $24,170 on Friday and W65.66 or $33,018 last Monday. Average earnings hit their highest in over a year on March 16.

Brokers said a rush of fixings earlier this month from Saudi Arabia to the United States, together with buoyant Asian demand, had bolstered sentiment.

"The decline in activity is to be expected, however, given how busy the market was two weeks ago," Cantor Fitzgerald said.

"We continue to believe the current positive demand dynamics could be more temporary in nature, and it could take another nine to 12 months to see a more sustainable increase in rates as we believe that more time is needed to work through the orderbook and allow scrapping to temper supply."

Average earnings per day are calculated after a vessel covers its voyage costs such as bunker fuel and port fees. VLCC operating costs, including financial costs, are estimated at around $10,000 a day.

"Brokers are reporting greater supply further out, which may place further pressure on rates as second (part of April) fixing gathers pace this week," broker SSY said.


Average VLCC earnings have been volatile in recent months, falling below the $10,000 a day level a number of times. They have stayed above $10,000 a day since Feb. 15.

VLCC rates from the Gulf to the United States DFRT-ME-USG were at W36.68 from W36.86 on Friday and W38.89 last Monday.

"We expect that the drive in long-haul activity will continue during Q2 as key Iran sanctions compliance deadlines approach and as the market rebalances accordingly. The potential remains for strong year-on-year gains," broker CR Weber said.

"However, as evidenced by the build up of tonnage (in the past week) as earlier eastbound fixtures from the Atlantic basin have recently redelivered, overcapacity does remain an issue and will weigh on earnings by quickly evaporating rate gains during periodic rallies."

Tanker players said the outlook remained challenging, with downside risks for the sector given worries about the economy and the fact that more tankers, ordered when times were good, are still to hit the global fleet.

High bunker fuel costs were also eating into earnings.

Cross-Mediterranean aframax tanker rates were at W97.82 on Monday, compared with W100.45 on Friday and W100.83 last Monday.

Rates for suezmax tankers on the Black Sea to Med route reached W91.04 or $23,839 a day from W93.69 or $26,495 a day on Friday and W97.62 or $29,175 a day last Monday. Brokers said last week positive VLCC momentum had fed into both the aframax and suezmax markets.

Brokers said the suezmax market was being weighed down by weaker VLCC rates and a mounting surplus of vessels available to trade. (editing by Jane Baird)

Source: Reuters. By Jonathan Saul. 26 March 2012

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