The Tanker Market - Oct 05

OPEC area spot fixtures soared sharply by 2.27 mb/d or 18% to average 14.8 mb/d in September. Compared to the same period last year, OPEC fixtures were more than 1.2 mb/d higher. However, despite this substantial growth, OPEC’s share of total spot fixtures remained nearly stable at 65%, compared to the previous month. Middle Eastern countries were the main contributors to the growth in OPEC spot fixtures, with 1.9 mb/d or 84% of the growth. Middle East/eastbound long-haul fixtures increased by 0.9 mb/d or 18% to 5.85 mb/d, while westbound fixtures surged by 1 mb/d or nearly 90% to hit 2.16 mb/d, the highest growth since April 2004. The sharp increase of the westbound spot fixtures was essentially due to strong bookings ahead of Northern winter demand and increasing cargoes to the USA following hurricanes Katrina and Rita, which shut in more than 98% of US Gulf Coast crude production.

Consequently, Middle East/eastbound and –/westbound shares in OPEC fixtures moved up from less than 50% in August to 54%, which was almost the same share as in September 2004. OPEC countries outside the Middle East also saw fixtures increase but at a lower pace of 0.36 mb/d or 6% to average 6.8 mb/d, corresponding to a 46% share in total OPEC spot fixtures. Non-OPEC spot fixtures followed the same trend and moved up by 0.8 mb/d or 11% to 7.9 mb/d, keeping their share in total spot fixtures unchanged at 35% compared to the previous month and a year earlier. Both increases in OPEC and non-OPEC fixtures pushed total spot fixtures to 22.7 mb/d in September against 19.6 mb/d in the previous month.

Estimated data for sailings from the OPEC area dropped for the second consecutive month and hit 24.7 mb/d, or a drop of 0.72 mb/d from August, but were 1.7 mb/d higher than a year earlier. Middle Eastern countries, which saw their volumes reduced by 0.45 mb/d to 18.36 mb/d, contributed 60% to the decline in OPEC sailings. Preliminary estimates of arrivals at the main consuming regions displayed mixed trends. However, arrivals at the US Gulf and East Coasts and the Caribbean dropped by 0.83 mb/d to hit 10 mb/d, the lowest level in the last eight months amid disruptions to US Gulf Coast ports. At the same time arrivals at North-West Europe fell by 0.44 mb/d to average 7.7 mb/d. In contrast, arrivals at Euromed inched up a slight 0.05 mb/d to reach 4.6 mb/d, while arrivals in Japan continued their upward trend to increase by 0.18 mb/d to 4.3 mb/d. Compared to the same period of last year, arrivals were higher in all main consuming regions.

In September, crude oil spot freight rates picked up due to a surge in bookings from refiners and traders to cope with seasonal demand and increasing imports from the USA after the resumption of activities in US Gulf Coast ports following Hurricane Katrina. In addition, the congestion in US ports increased the tightness of the market by tying up more vessels. The VLCC sector experienced significant growth in terms of percentage, ranging between 29% and 32%. Freight rates on the Middle East/eastbound and –/westbound long-haul routes rose by 20 points each to average monthly levels of WS89 and WS83 respectively, the highest levels since March 2005. In the last week of the month, ship-owners of VLCCs heading from the Middle East east and west secured more than WS100. Suezmax spot freight rates behaved in the same direction thanks to lower tonnage availability and strong demand for light sweet African crude. Freight rates for tankers moving from West Africa to the US Gulf Coast increased by 20 points to settle at a monthly average of WS126 since some of the US Gulf Coast production damaged by Hurricane Katrina was replaced by long-haul imports. Similarly, on the North-West Europe/US East and Gulf Coast routes, freight rates gained 22 points to average WS123. In the Aframax sector, strong activity between the Caribbean and the US East Coast, due essentially to immediate need from US refiners and the short distance between the two regions, drove freight rates on this route down by 34 points to average WS218, reversing the downward trend of the previous three months. With an average of WS218, freight rates on this route were even higher than the September 2004 level. However, on the Indonesia/US West Coast route rates continued to increase for the fourth consecutive month, gaining 18 points or 13% in September to reach a monthly average of WS159. Freight rates for ships trading between the Mediterranean and NW Europe improved further to average WS146, which corresponds to an increase of 16 points or 12%, while within the Mediterranean rates remained nearly stable at a monthly average of WS185. Compared to the same period of last year, freight rates were lower on all routes except for the Caribbean/US East Coast route in the Aframax sector.

In the aftermath of the hurricanes Katrina and Rita, the trade of refined products to the US market surged, resulting in a shortage of tankers. This led to a spike in product tanker freight rates especially in the Atlantic Basin, where they soared by more than 80% in one month. The reduction in tanker availability was exacerbated by the fact that even some ships from Asia were fixed to the USA due to record high product prices in that market which had not been attractive in the past. Freight rates in the East continued to firm for the third consecutive month, with rates for shipments of 30,000-50,000 dwt on the Middle East/East route increasing by 30 points to settle at a monthly average of WS310, while on the Singapore/East route, they surged by 121 points or 38% to average WS440. The shortage in product supply due to refinery outages and offline US Gulf Coast natural gas production boosted US imports of products and pushed freight rates to exceptionally high levels in the Caribbean and the Atlantic Basin markets.

However, freight rates for cargoes between the Caribbean and the US West Coast as well as for cargoes moving from NW Europe to the US East and Gulf Coasts surged by 163 and 182 points respectively, to average WS366 and WS398. According to secondary sources, there were more than 80 additional ships moving products to the USA in September. With the very attractive rates, some dirty crude vessels have been cleaned and shifted to move clean products to the USA. Similarly, freight rates across the Mediterranean and from there to NW Europe experienced significant improvements corresponding to 71 points and 61 points respectively to average WS259 and WS256. Compared to the same month last year, freight rates were higher on all routes. It is worth noting that freight rates on the Singapore/East and the Caribbean/US Gulf Coast routes as well as in the Atlantic Basin reached levels not seen since late 2000.