The Tanker Market - Aug 05

OPEC area spot fixtures remained unchanged in July at 13.93 mb/d despite a production growth of nearly 0.2 mb/d. However, compared to the same month last year, OPEC spot chartering was up 0.3 mb/d, reflecting to some extent the 0.5 mb/d growth in OPEC production. With zero-growth, OPEC’s share of total spot chartering dropped from 64% to 62%, offsetting the gain displayed in the previous month. Despite the stagnation in total OPEC spot fixtures, Middle Eastern countries saw their fixtures increase by 0.17 mb/d at the expense of other OPEC countries, with eastbound cargoes contributing almost two thirds to this growth due to the increase in crude oil production and rising deals from Asian traders following the end of the refining maintenance season. Middle East / eastbound long-haul fixtures increased by 0.11 mb/d to 5.25 mb/d, while Middle East/westbound fixtures inched up a minor 0.06 mb/d to nearly 2 mb/d. Consequently, the Middle East/eastbound and - / westbound share in OPEC fixtures moved up to 52%. Nevertheless, compared to the same month last year, Middle Eastern spot fixtures were down 0.24 mb/d, resulting in a decline in the share of spot fixtures in total Middle Eastern fixtures. According to various sources, the spot share in Middle Eastern fixtures hit a 30-month low. The growth in Middle Eastern fixtures reflects the strength in the long-haul tanker market in July. In contrast to OPEC countries, non-OPEC spot fixtures rose by 0.5 mb/d or 2.3% — the highest pace in the last three months — to 8.4 mb/d, which is almost 0.7 mb/d more than the previous year. This gain helped non-OPEC’s share in global spot chartering to rebound to 38%, the same level as in May 2005. As a result, global fixtures, combining OPEC and non-OPEC countries, moved up by 0.5 mb/d to 22.3 mb/d, corresponding to a y-o-y growth of nearly 1 mb/d. Estimated sailings from the OPEC area surged by 1 mb/d or 4.5% to 25.11 mb/d, reversing the decline of 1.3 mb/d displayed in the previous month. Consequently, at 25.11 mb/d, OPEC sailings were 1.3 mb/d higher than a year earlier. Middle Eastern sailings which represented roughly 72% of OPEC sailings lost almost 0.7 mb/d to 18 mb/d, the same level as in July 2004. Preliminary estimates show that arrivals increased in all regions, especially to the USA and the Caribbean where they soared by more than 0.8 mb/d to a record of 11.22 mb/d despite the bad weather. Compared to July 2004, arrivals in the USA and the Caribbean were 1.3 mb/d higher. Similarly, arrivals in North-West Europe and Euromed regions increased by 0.18 mb/d each to stand at 7.43 mb/d and 4.60 mb/d, respectively, while arrivals in Japan inched up a slight 0.09 mb/d or 2.4% to 4.04 mb/d.

Crude oil spot freight rates went in opposite directions, reversing the gains and losses experienced in the previous month depending on the routes. VLCC crude oil spot freight rates improved significantly in July, reversing the downward trend displayed during the four previous months mainly on the back of strong demand driven by higher refining activity in Asia. In contrast, as is usually the case in the summer season, freight rates for Suezmax and Aframax moved down due to lower seasonal demand. Freight rates for VLCCs recovered significantly from their low levels of WS50s, especially on the Middle East/eastbound long-haul route where they increased by 29 points or more than 50% to settle at a monthly average of WS85, while on the Middle East/westbound route they rose by 20 points or 38% to WS73. It is worth noting that freight rates for VLCCs moving from the Middle East have recovered steadily since the beginning of the month to almost double during the third week of July, compared to a month earlier, as a result of limited tonnage availability due to a sudden increase in activity from companies such as Aramco’s shipping arm Vela and Shell which hired more vessels after refineries were back on-stream in North America and Asia. In addition, OPEC’s decision to increase its production as of 1 July by 0.5 mb/d boosted freight rates for VLCCs. In contrast, due to a lack of activity, freight rates for Suezmax have edged down by around 23 points or 18%, hitting their lowest levels since October 2003 with the West Africa/US Gulf Coast route averaging WS111 and the North-West Europe/US East and US Gulf Coast routes settling at WS104 as a result of tonnage build-up. The Aframax sector showed mixed patterns, but in general freight rates dropped except for the Indonesia/US West Coast route. The weakness in the Aframax sector is attributed to the huge availability of tonnage compared to demand and competition from the Suezmax sector. In the Caribbean, freight rates for cargoes moving to the US East Coast lost 26 points or 10% to settle at WS242. Similarly, freight rates within the Mediterranean region lost 18 points to stand at WS213, while slumping 33 points or 20% to WS128 on the Mediterranean/North-West Europe route, the lowest level in 15 months. However, the increase of freight rates on the Indonesia/US West Coast route, which moved up a slight 7 points to WS134, can be taken as a market correction for the significant 62 points loss displayed in the previous month. Compared to July 2004, freight rates were down on all routes except for the Caribbean/US West Coast route.

The product tanker market showed varying developments, with freight rates in the East and the Caribbean reversing the downward trend of the last three months, while weakening elsewhere, reaching their lowest levels in almost 20 months. Freight rates for tankers carrying 30,000-50,000 dwt on the Middle East/East route recovered significantly by 34 points to a monthly average of WS249, while freight rates for cargoes from Singapore to the East gained 47 points to average WS300 on the back of healthy activity and tight tonnage availability. At the same time, freight rates on the Caribbean/US Gulf Coast route edged up by 15 points to average WS255. In contrast, freight rates for transatlantic cargoes moving from North-West Europe to the US East and Gulf Coasts continued to decline for the fourth consecutive month, losing 6 points to stand at WS252 amid limited trade due to closed arbitrage. However, traders in the Mediterranean faced a slower market with freight rates on the Mediterranean/North-West Europe route dropping significantly by 35 points to a monthly average of WS285 as charterers held back from hiring ships, allowing a surplus to build. The same tendency was observed within the Mediterranean region, where rates lost 17 points to settle at WS259. Compared to July 2004, freight rates for products were higher on all routes except for the transatlantic and in the Caribbean.