After falling for the second consecutive month to hit a 24-month low in December, OPEC spot fixtures picked up sharply in the third week of January to touch a three-year high. Reported OPEC spot fixtures increased from an average of 12 mb/d in the first half to more than 22 mb/d in the second, resulting in a monthly average of 17.5 mb/d, almost 6 mb/d or 52% higher than the previous month. The significant jump in OPEC spot fixtures in the third week contributed largely to the tightness of the tanker market. Almost 80% or 4.6 mb/d of the growth in OPEC spot fixtures was driven by the Middle East with eastbound leading the growth with 3.3 mb/d to average 7.2 mb/d and westbound doubling to 2.6 mb/d. The surge in eastbound fixtures is attributed essentially to Japan, which experienced a severe winter, and to increasing purchases from China. Consequently, OPEC’s share of global spot fixtures moved from 60% in November-December to 72% in January. In contrast, Non-OPEC spot fixtures showed a decline of 0.7 mb/d or 9% to stand at nearly 6.9 mb/d, the lowest level in the last two years. Following the significant spike in the OPEC area, global OPEC and non-OPEC spot fixtures increased by 5.3 mb/d or 28% to average 24.5 mb/d, the highest level since March 2005. Preliminary estimates show that sailings from the OPEC area increased by 1.1 mb/d or 5% to 24.16 mb/d with the Middle East accounting for 17.9 mb/d, which corresponds to a growth of 0.4 mb/d or 2% over the previous month. Compared to the corresponding month of last year, sailings from the Middle East were unchanged. Arrivals in the US Gulf and US East Coasts and the Caribbean as well as in North-West Europe inched up by 0.3 mb/d or 3% to average 10.9 mb/d and 8.2 mb/d, respectively. However, arrivals at the Euro-Mediterranean region and Japan continued to fall for the second consecutive month to stand at around 4 mb/d each, which corresponds to a drop of 0.4 mb/d and 0.2, respectively. In the case of North-West Europe, the size of the decline was almost equivalent to the increase of the previous month.
The tanker market weakened significantly in the first half of the month due to negligible activity since many charterers were still out of the market after the New Year holidays. As a result, there was a plentiful supply, with the 30-day availability of VLCCs in the Middle East reaching 85 units in the first two weeks. Freight rates for cargoes moving from the Middle East plummeted to WS90s for eastbound and westbound long-haul voyages. Nevertheless, an exceptionally active market in the third week saw freight rates surge, especially for tankers moving from the Middle East to the east, to double by the end of the month from the four-month low hit on 12 January, following a brisk surge in bookings before the Chinese New Year as charterers began to cover early February stems. Westbound VLCC freight rates also improved but at a lower pace compared to eastbound. On a monthly basis, VLCC rates on both routes averaged WS132 and WS98 respectively, which corresponds to a drop of 25 and 28 points compared to December 2005 levels. The fall in the VLCC sector led to reduced profits of Suezmax and Aframax owners, with Suezmax rates following the same movement and declining by 30% to stand at WS170 for tankers trading between West Africa and the US Gulf Coast and WS164 for transatlantic cargoes. Contrary to VLCCs, Suezmax rates began to firm almost one week later as many charterers started to switch to Suezmax due to the high rates for VLCCs.
However, despite the drop in the VLCC and Suezmax sector, freight rates remained higher than the January 2005 levels, especially in the VLCCs which rose 86% on the Middle East/eastbound route and 40% on the Middle East/westbound route. Similarly, the Aframax sector softened with rates losing 34% in the Mediterranean Basin and from there to North-West Europe to average WS187 and WS184 respectively, as Bosporus Strait delays began to ease. Due to limited activity, the Caribbean and Indonesia/US West Coast routes saw rates slide by nearly 80 and 28 points to hit respectively WS271 and WS242 respectively. In contrast to the VLCC and Suezmax sectors, the sharp decline in Aframax rates made January 2006 averages lower than those of the previous year, except for the Indonesia/US East Coast route.
Contrary to crude oil, the tanker market for products was very active with rates supported by cold winter weather rebounding in January 2006. Rates for cargoes of 30,000-50,000 dwt on the Middle East/east route increased by 26 points to average WS363, while on the Singapore/east route, rates gained 3 points to reach an all-time high of WS394, driven by high demand,
especially from Japan, which experienced very low temperatures. The strong demand for electricity substantially increased fuel oil demand in Asia-Pacific and led to a growth in imports following a severe winter in North-East Asia. Tankers moving from the Caribbean and North-West Europe to the USA enjoyed gains of 67 and 24 points respectively to average WS375 and WS336, thanks to strong imports from the USA, especially for distillates, which reached a five-year record of 0.7 mb/d. The highest increase in freight rates was displayed across the Mediterranean and from there to North-West Europe on the back of the tightness in tonnage supply as a result of high demand in combination with bad weather in the Baltic and delays in the Bosporus Strait. Rates on both routes increased by around 100 points to hit all-time high averages of WS410 and WS420 respectively. Compared to January 2005, freight rates for products were higher, except for tankers trading between North-West Europe and US East and Gulf Coasts.