Following the increase seen in the last two months, OPEC spot fixtures continued the upward movement in July, rising more than 1%. July’s OPEC spot fixtures displayed the highest level since January, but still recorded an annual decline of less than 5%. Global spot fixtures fell by around 5% in July compared to the previous month. At the same time, Middle East fixtures rose on the back of increased fixtures to the East while westward fixtures remained steady in July. Middle East fixtures to the East indicated an increase of around 7% in July. Non-OPEC spot fixtures declined by around 15% in July, hence increasing OPEC’s share of total spot chartering to 68%, the highest level so far this year.
OPEC sailings were steady in July with a minor increase of less than 1% compared to the previous month. On an annual basis, OPEC sailings showed a decline of 6%. Middle East sailings rose in July by more than 6% from the previous month, according to preliminary data. Initial estimates indicate that US and Caribbean arrivals decreased 6% in July on the back of lower US imports.
Many market participants expected crude oil spot freight rates to bottom out in June setting up the market for a rebound in July, but, to the contrary, the market halted any recovery and defined a new floor. Bearish sentiments continued to control the crude oil tanker market except for the Aframax sector that experienced some upward movement after the drop in June. Availability, driven by new deliveries and declining oil in transit, was the key to the tanker market decline in July. The VLCC market lost further ground last month as the list of available tonnage made it easy for charterers to have the upper hand. The Suezmax market followed the same trend with rates breaking the WS100 point, shaking the market’s reputation as one where freight rates do not go below WS100. The Aframax sector was mixed with rates in the east declining but steady to slightly firming in the west.
VLCC spot freight rates declined 9% on average on all reported routes in July compared to the previous month. From the Middle East, VLCC long-haul spot freight rates to eastbound/westbound destinations fell 17% and 23% respectively. While rates in West Africa to the east remained relatively steady in July, spot freight rates for VLCC transporting volumes from the Middle East to eastern destinations decreased gradually during July reaching the lowest point at the end of the month. The word “uneventful” would be an understatement to describe the level of activities at the end of July as spot freight rates had no direction to head but down. Despite the decline in vessel availability in one of the weeks in July, owners were not capable of capitalizing on the opportunity and the tonnage list continued to build. Asian refinery maintenance added to the bearish sentiment and spot freight rates declined to the lowest level since April 2006 in July with an annual decline of more than 50%. VLCC spot freight rates in West Africa remained steady throughout July. While limited activities shaped tonnage demand, reduced availability balanced the equation yet some pressure was exerted on the Suezmax sector. However, spot freight rates for VLCCs moving from West Africa to the East in July indicated a y-o-y drop of 33%.
Spot freight rates for VLCCs trading on the Middle East/westbound long-haul route encountered the biggest decline of 23% with rates gradually falling throughout July, remaining steady in the last week. July VLCC spot freight rates from the Middle East to the west marked the lowest rate since August 2003. With US crude oil stocks remaining relatively high in July, and imports lower than in the previous month, tonnage demand weakened and spot freight rates indicated an annual decline of around 50%. The surplus in tonnage created a “no resistance” attitude among owners, even though some owners tried to lift the market up a few points but to little effect as others were accepting charterers’ offers in order to secure employment.
Following the same pattern, the Suezmax sector declined in July on both reported routes. Suezmax spot freight rates on the West Africa/US Gulf route decreased 12% in July from the previous month, on the back of limited activities and relatively ample supply of tonnage. Additionally, lower US imports added to the bearish sentiment with rates breaking the WS100 mark in July with an annual decline of 38%, a low level not seen since August 2003. From North-West Europe, the situation was similar for the Suezmax, with rates dropping 9% in July from the previous month. The decline came on the back of increased tonnage availability and limited activities with an expected decrease in Russian seaborne crude oil exports. On an annual basis, Suezmax freight rates from North-West Europe declined by 35% compared to the same period last year.
The Aframax sector was mixed in July with West of Suez spot freight rates increasing and East of Suez decreasing from the previous month. Spot freight rates for Aframax moving from the Caribbean to the USA increased gradually during the first three weeks of July on limited tonnage and healthy activities. At the end of the month, rates declined as the number of fixtures dropped. However, the spot freight rates managed to close July with a positive note with a 16% increase from the previous month. In the Mediterranean, spot freight rates rose on the back of market tightness, however, tonnage availability halted the increase and rates closed July with a 9% rise. Despite the monthly increase, which did not offset the sharp decline experienced in June, spot freight rates decreased 40% on average annually. East of Suez spot freight rates on the reported route declined 9% in July from the previous month. The drop came as tonnage demand decreased and availability increased. Chinese booking for fuel oil activities declined in July as high international prices created negative import margins which in turn discouraged buyers to bring in further external volumes. When compared to the same period last year, spot freight rates on the Aframax Indonesia/ US route declined 30% in July.
The clean tanker market was mixed in July with East of Suez rates experiencing some upward movement while in the West rates came under pressure. Arbitrage economics played a major role in shaping the clean tanker market in July. In the East, clean tanker spot freight rates bounced back after the decline experienced in the previous month. Spot freight rates in July increased 8% and 9% on the routes from the Middle East and Singapore to the East, respectively. Tightening prompt tonnage availability in the Middle East facing growing demand on the back of increased naphtha activities created a bullish market in the first half of July. With the return of export facilities from maintenance in the Middle East and India’s increased tonnage demand, clean tanker spot freight rates maintained the achieved gain and closed July with an increase of 8% from the previous month. Despite the increase, on an annual basis July rates indicated a y-oy loss of 8%. From Singapore to the East, increased arbitrage to the US West Coast and healthy demand from Australia supported the market and rates increased 9% in July from the previous month. Increased jet fuel voyages from South Korea to the USA provided further support for clean spot freight rates in July which showed an annual decrease of 7%.
The closed naphtha arbitrage from the West to the East on the back of higher gasoline prices limited tonnage availability in the East. At the same time, the lack of arbitrage cargoes forced the availability list to grow in the West, bringing rates down.
West of Suez clean spot freight rates declined on all reported routes in July with rates declining 24% on average from North West Europe and the Mediterranean and by 16% from the Caribbean. In the Mediterranean, July clean tanker spot freight rates reached the lowest level so far this year. Good tonnage availability and lack of activities drove rates down with an annual decline of around 32%. From the Caribbean, clean sport freight rates declined to their lowest level since February 2007 in July on the back of limited activities. With the bulk of cargoes being cleared early in the month and some vessels remaining unemployed, clean spot freight rates declined in July with a y-o-y drop of 20%. Clean tanker spot freight rates for vessels transporting cargoes on the North West Europe/USA route declined 24% in July from the previous month, reaching the lowest level since November 2006. The decline in naphtha arbitrage cargoes to the east reduced vessel employment, while jet fuel arbitrage from the Middle East added to the list of available tonnage. Gasoline arbitrage economics to the USA fluctuated in July, but defined a floor for the clean spot freight rates from North-West Europe which showed an annual decrease of 28%.