The Tanker Market - Nov 05

OPEC spot fixtures continued to increase in October for the second consecutive month to average 15.82 mb/d, which corresponds to growth of 1.35 mb/d or 9% from September and 0.7 mb/d from a year earlier. In the last two months, OPEC spot fixtures have displayed a substantial cumulative growth of nearly 3.3 mb/d. Despite the increase, OPEC’s share of total spot fixtures stood at 64% compared to 66% in the previous month and 68% the year before. Contrary to September, Member Countries outside the Middle East were the main contributors to the growth in OPEC spot fixtures, adding 1.26 mb/d, while Middle Eastern countries contributed only 0.1 mb/d. In the Middle East, eastbound long-haul fixtures increased by 0.12 mb/d to 5.89 mb/d, while westbound fixtures showed a minor decline of 1% to average 2.14 mb/d. Total Middle Eastern east-/westbound fixtures averaged 8 mb/d, almost 0.5 mb/d lower than a year earlier, compared to 7.8 mb/d from the rest of OPEC, the highest level since December 2004. The significant growth in non-Middle East fixtures reflects the increasing trade of light and sweet crudes, especially from Africa. It also indicates that the share of spot fixtures is lower in Middle Eastern global fixtures. This leaves the Middle East east- and westbound share of OPEC fixtures at 51% in October compared to 55% in the previous month and a year earlier. However, non-OPEC spot fixtures increased more rapidly, showing a growth of 1.46 mb/d or 19% to average 9 mb/d, which corresponds to 1.8 mb/d more than a year earlier.

Following this significant growth, non-OPEC share in total spot chartering moved up to 36% against 34% in the previous month and 32% a year earlier. Consequently, total OPEC and non- OPEC spot fixtures displayed a combined increase of 2.81 mb/d, the highest growth in the last nine months, to average 24.87 mb/d. Compared to the same month last year, total spot fixtures were almost 2.5 mb/d higher. Estimated sailings from OPEC countries showed a slight increase of 0.09 mb/d, reversing the drop of the two previous months, to settle at 25.32 mb/d, which was 2.4 mb/d higher than a year earlier. Sailings from Middle Eastern countries increased sharply by 0.71 mb/d to reach a high level of 19.28 mb/d, which was almost 2 mb/d higher than the October 2004 level, reflecting to some extent the spike in Middle Eastern fixtures during the previous month. Preliminary data of arrivals at the main consuming regions displayed a significant increase to the US Gulf and Euro Mediterranean region. Arrivals at the US Gulf and US East Coasts as well as the Caribbean surged by 0.95 mb/d, the highest level since February, to average 10.71 mb/d. The large growth in this region was spurred by high imports from the USA, especially of products in the aftermath of the hurricanes that hit the US Gulf Coast, in order to compensate for the loss in the refining capacity. It is estimated that product imports doubled to 1.8 mb/d in October, with gasoline imports averaging 0.4 mb/d against 0.1 mb/d in August. Similarly, arrivals in the Euromed soared by 0.83 mb/d or 20% to average 5.27 mb/d, the highest level since March 2003. However, arrivals in North-West Europe remained almost stable at 8.34 mb/d, while arrivals in Japan fell by 0.57 mb/d to average 3.88 mb/d. Arrivals in the main consuming regions were all higher, except for Japan where they dropped 0.22 mb/d, compared to a year earlier.

The strong upward trend in the crude oil tanker market continued, driven by the lack of tonnage availability, especially in the Suezmax and Aframax sectors, which saw spot freight rates almost double between August and October. The limited number of available vessels was largely due to a brisk surge in US imports following the hurricanes in the US Gulf Coast. In addition, congestion in US ports and imports from far away sources put more pressure on the availability of tonnage by tying-up vessels for longer voyages. In the VLCC sector, freight rates on the Middle East eastbound and westbound long-haul routes gained 18 and 16 points or 20% to reach monthly averages of WS107 and WS99 respectively. Except for 2004, October freight rates were the highest for the month since 2000. Consequently, modern VLCC owners enjoyed spot rates of more than $60,000 per day on average in October against $41,000 per day in the previous month and $29,000 per day in August 2005. Freight rates for VLCCs moving from the Middle East continued to increase in the beginning of November and approached the extremely high level of WS180 on the eastbound route and WS160 for cargoes moving to the US West Coast, reflecting the strong activity of trade from Asian countries to the USA. The Suezmax sector displayed higher gains compared to the VLCC sector in October, with spot rates jumping by almost 60%. Both routes, West Africa/US Gulf Coast and NW Europe/US East and Gulf Coasts, improved by more than 70 points to average WS198 and WS193, respectively, their highest levels so far this year. This significant increase is due to high US imports of light sweet crude from Africa and North-West Europe to compensate for the loss of US Gulf of Mexico output following the hurricanes. In term of dollars per day, modern Suezmax spot rates averaged more than $61,000 per day in October, compared to $32,000 per day in September and $24,000 in August. Similarly, in the Aframax sector, freight rates firmed further, especially for tankers moving from the Mediterranean to North-West Europe and from the Caribbean to the US West Coast, where they surged by more than 75% or 173 and 109 points respectively to settle at monthly averages of WS391 and WS255, their highest levels so far this year. In the Caribbean, freight rates were even higher, gaining 54 points or 16% over the previous October, which reflects the substantial increase in activity ahead of the winter season in the Northern hemisphere. On the Indonesia/US West Coast route freight rates saw the fourth consecutive steady gain surging sharply by 62 points or 40% to settle at a monthly average of WS221. On the routes within the Mediterranean, freight rates recovered from their previous low levels by gaining 48 points to settle at an average of WS233, the highest level since January. The surge on the routes within the Mediterranean was spurred by the short strike in the port of Lavera in France and delays in the Dardanelles/Bosporus straits due to bad weather.

The product tanker market remained very bullish with freight rates rising significantly to reach extremely high levels on the back of healthy activity spurred by strong US imports as more than 800,000 b/d of refining capacity remaining shut in the Gulf Coast due to hurricane damage. In addition, growing demand from Asia also has helped freight rates to move up rapidly. Freight rates for shipments of 30,000-50,000 dwt on the Middle East/East route rose by 180 points or 60% to average WS490 due to large naphtha cargoes moving from the Middle East to the East. Similarly, in the Far East, the Singapore/East route saw freight rates gaining 119 points to settle at a monthly average of WS559, while freight rates for cargoes trading in the Caribbean and in the Atlantic Basin displayed moderate increases of around 10% after having increased by more than 80% in the previous month. Rates on the Caribbean/US Gulf Coast route gained 37 points to average WS403, whilst on the NW Europe/US East and US Gulf Coasts routes, rates increased by 30 points to a monthly average of WS428. However, freight rates within the Mediterranean and from there to NW Europe moved further upward gaining 118 and 129 points to average WS377 and 385 respectively, due to a shortage of tonnage which was exacerbated by the strike in Lavera. With these significant increases, freight rates were between 33% and 68% higher than the previous October levels, depending on the route.