In Hellenic Shipping News 11/05/2015
Suezmax tanker owners are among the “happiest” ones when it comes to the performance of their vessels during 2014, as well as throughout this year as well. According to the latest weekly report from shipbroker Gibson, “for most of last year the Suezmax market outperformed VLCCs, with spot earnings for West Africa-UKC (TD20) regularly above VLCC returns on the benchmark TD3 trade. Firmer Suezmax earnings were aided by rising West Africa to Europe crude trade, dramatic increases in spot fixtures out of the Middle East Gulf and a more active Caribbean market. These developments offset the near disappearance of the key Suezmax trade from West Africa to the US. While demand increased, Suezmax supply remained largely flat last year, with the average fleet size expanding by just 2 units”.
The London-based shipbroker added that “this year owners of Suezmax tonnage are enjoying even better returns, with earnings on TD20 well above average levels seen in the previous six years. Owners’ sentiment is strong, with much greater resistance to downside pressure when chartering enquiry is limited. Nonetheless, Suezmax earnings started to lag notably behind VLCC returns. In April alone, average TD20 earnings were around $36,000/day compared to $62,500/day for TD3. Is this change in market dynamics between two tanker classes a temporary mismatch in the supply/demand balance or is it due to a more fundamental reason?”, Gibson asked.
It attempted to answer by noting that “supply appears to be ‘in check’. Although robust earnings are likely to lead to a slowdown in the demolition activity, the increase in the Suezmax trading fleet this year is still expected to be very limited. Net growth in supply is projected at less than 1% due to a very modest number of deliveries. Demand indicators also remain positive, although the scope for further increases is limited in the immediate future. The ongoing conflict in Libya continues to support Suezmax trade from West Africa to Europe. Given the great degree of political instability in the country, it is unlikely we will see the speedy return of Libyan barrels to the market. There are also major concerns about the infrastructure damage and how long the repairs will take should the political situation improve”, said Gibson.
It went to note that “in the East, the picture for Suezmax trade is bit more clouded. The total number of fixtures out of the ME Gulf so far this year has remained at similar levels witnessed in 2014 and well above the volumes traded back in 2013 (primarily due increases in Iraqi crude output). However, the trade pattern has changed; with less longer haul and more short haul trade. Most notably, there has been a sizable decline in spot fixtures to the West offset by increases in shorter haul fixtures to India. The prospects for further gains in Iraqi crude production in the near term are limited. Many believe that the country’s oil output will remain largely flat this year and new production targets will be very challenging to achieve in 2016, not least due to infrastructure bottlenecks and a cumbersome approval process for field development. More importantly, the collapse in oil prices from over $100/bbl significantly reduced oil sales revenues making it much more difficult for the Iraqi government to repay oil companies and to invest into further expansion”.
Gibson concluded: “on balance, we are unlikely see any major increases in Suezmax demand this year but gains in supply will also be marginal. As such, the status quo should be maintained, with the Suezmax market as usual remaining perceptive to the developments in other crude tanker segments. With VLCC and Aframax earnings currently at $57,500/day and $41,500/day respectively, the downside risk appears limited. However, how long will the current “boom” going to last?”.
Meanwhile, in the crude tanker market this week, in the Middle East, it was “a week of very mixed fortunes for VLCC Owners…the long holiday weekend had initially threatened to send the market into something close to a tailspin with rates moving into the low ws 50s East, however a concerted rush of interest turned the tide again, and rates moved smartly back into the low ws 60s with around ws 34 asked for West runs. Charterers may face higher demands before this month is out. Suezmaxes saw enough to hold position in the low ws 40s West, and high ws 80s East but only need a little extra attention to threaten higher. Aframaxes became very active with a rash of short t/c deals in the East adding to the fun. Rates moved to 80,000 by ws 115 to Singapore, and look set to find a higher ledge soon”, Gibson noted.
In the North Sea, the shipbroker said that it was “steady for Aframaxes here at 80,000 by ws 120 XUKCont and 100,000 by ws 87.5+ ex Baltic, but if the cargo flow dips even slightly, then a lower rateledge will have to be quickly found. VLCCs are very few and far between on early dates ,but it is on those dates that the fuel oil ‘Arb’ works best for traders. Theoretically $5.5 million would be asked by Owners for Singapore, but the lack of availability means that Suezmaxes have taken centre stage with rates of around $3.5 million payable”.
