Asia Tankers-VLCC Rates Uncertain on Tonnage Woes

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Posted by Joseph Keefe

MidEast tanker rates fall to $22,000 a day, below
breakeven; 52 VLCCs to be delivered this year, highest since
2011.

Freight rates for very large crude carriers (VLCCs), which fell
to four-month lows this week, face an uncertain direction next
week as refinery maintenance and excess tonnage pressure rates
even as owners resist moves by charterers to push rates lower,
brokers said.

Meanwhile, rates on routes from the Middle East and West Africa
to China rose slightly this week after falling since Feb. 10.

"I think there will be a shallow recovery over the next two-three
weeks," said Ashok Sharma, managing director of BRS Baxi in
Singapore.

Supertanker rates from the Middle East to China are down to
around $22,000 per day, below or about the same level as
breakeven costs, Sharma and tanker owner Frontline said.

Owners could start sailing at reduced speed to save fuel and
costs, a move that would reduce the number of ships available for
charter that would support freight rates, Sharma added.

"Charterers, wanting to charter vessels quickly, can lose more
than owners idling ships for a few days," he said.

But a raft of new vessels hitting the water, coupled with a heavy
refinery maintenance season in Asia, oil producer output cuts and
vessels released from floating storage will put pressure on
freight rates.

"The short-term tonnage supply in Middle East has increased to
levels not seen since mid-2016," said Georgi Slavov, global head
of energy, ferrous metals and shipping research, at consultancy
Marex Spectron.

Around 52 VLCCs are due to be delivered this year, the highest
annual number of deliveries since 2011, Frontline said in an
fourth quarter earnings briefing on Feb. 28.

"At least 2 million barrels per day of refining capacity in the
East of Suez is expected to be offline in March, more than double
that of last year," said Rachel Yew, Ocean Freight Exchange
commodity and freight analyst, in a note on March 1.

"We believe that VLCC rates will remain depressed in the short
term," Yew said.

VLCC rates on the Middle-East-to-Japan route dropped to around
58.75 on the Worldscale measure on Thursday, the lowest since
Oct. 27, 2016, from W69.75 a week earlier.

Rates on the West Africa-to-China route fell to W62.50 on
Thursday, the lowest since Oct. 7, 2016, from W69.25 a week
earlier.

Charter rates for an 80,000-dwt Aframax tanker from Southeast
Asia to East Coast Australia climbed to about W107.75 on Thursday
against W107 the same day last week.

Reporting by Keith Wallis

Mar 3, 2017

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