Last week proved to be disappointing for those who had expected a rally and had resulted in firming rates for VLCCs when we embarked on the MEG and West Africa May programme.
Rates were at best flat as the cargo volumes which were not covered under COA’s were not sufficient, Fearnleys reported.
‘Strangled’ earnings well below opex is still the theme and this is not likely to change much until the summer is over.
However, the volume of Suezmax fixing over the past week was quite significant with a steady flow of cargoes in the 2nd decade. Owners were particularly focused on voyage destinations, with named cargoes managing to attract rates at slightly lower levels than a standard West Africa/UK-Cont-Med.
The North Sea arb showed signs of life and picked off tonnage, which will further pressurise the West Africa position list in the days ahead.
TD20 is currently at WS60 and TD6 at WS77.5 and are likely to get their subjects over the coming days Which will dictate market direction.
In the North Sea and Baltic, Aframax charterers have been sitting on their Baltic cargoes for about a week. This was done to avoid a final push from owners with Ice Class tonnage after a busy week and a WS25 point hike in rates.
Charterers took the steam out of the Baltic market, and at the time of writing (Wednesday), rates were more or less back to bottom levels, Fearnleys said.
Having loaded on the ECUK, a handful of Aframaxes are idle without any charter prospects. If this trend continues, both markets could once again be put under pressure.
In the Med and Black Sea, we finally saw some positive signs for owners. Increasing activity, particularly from Libya in the end/early window, pushed rates up to the mid-WS80s.
At time of writing, we are seeing a tonnage list that could lead to some higher rates, as long as the cargo activity in the area remains at decent levels. For the first time in a while, owners are at least there to fight for higher rates, Fearnleys concluded.
Meanwhile, interest to ship US crude into the European market has been rising in recent weeks, driven by a combination of increased demand from Europe and favourable crude pricing, McQulling Services said in a blog.
Suezmax and Aframax spot activity to load end April/early May has increased in the US Gulf with a strong preference to travel transatlantic.
European refinery runs are beginning to ramp again as the maintenance season comes to an end. JBC Energy projected around 120,000 barrels per day of offline capacity for June, compared with 900,000 barrels per day in May.
A recent increase in refinery runs is providing upward support for Brent crude pricing, consequently expanding the differential to WTI crude. This pricing spread has averaged roughly $7 per barrel this week from opening the month around $4 per barrel, prompting European refiners to source crude from across the Atlantic.
The preference for sweeter US crude is likely influenced by the expected rise in demand for gasoline and middle distillates, due to the upcoming driving season as we note that the increasing sulfur content in Urals grades is deterring interest from European refiners, McQuilling said.
Traders are likely to take advantage of competitively priced US crude sales from the strategic petroleum reserve, which will total 7 million barrels this year.
US crude production was estimated just below 10.6 mill barrels per day for the week ending 20th April, while refinery runs fell 330,000 barrels per day week-on-week, according to the US Energy Information Administration (EIA).
Looking forward, fundamentals point to lower availability of North America crude for export through June, as US refiners ramp up for the summer season; however, we envisage a more significant tightening in the European market to keep Brent crude pricing at a significant premium to WTI.
This pricing incentive could keep US exports elevated with additional support stemming from crude output gains in the US and Canada after June.
For tankers, we expect increasing demand for Aframaxes and Suezmaxes on transatlantic voyages to reduce the Caribbean/US Gulf position list and provide upward support for TD9 freight rates, McQuilling concluded.
In the charter market, brokers reported that Frontline had taken a couple of Formosa Plastics VLCCs for two years, option one year, at $21,750 per day each. Unipec was said to have fixed the 2005-built VLCC ‘Tokio’ for 12 months at $20,000 per day.
ST Shipping has also taken a Formosa Plastics LR2 for 12 months at $14,800 per day, while Koch was believed to have fixed the LR2 ‘Mare Nostrum’ for six, option six, months at $14,500 per day.
TEN has confirmed that one of its MRs has been fixed to an oil major for 12, option 12 months. The charter will generate around $10 mill gross revenue over the extended charter period, the company said.
Pemex was thought to have fixed an MR for a short period plus options at $13,800 per day.
In the newbuilding sector, brokers also said that Marinakis’ CVL Corp had ordered four, plus four optional VLCCs at Samsung at $82 mill per vessel.
It was also reported that Norwegian publicly traded investment company Hunter Group had agreed a back-to-back contract transfer agreement with Apollo Asset for the transfer of shipbuilding contracts for four VLCCs.
This decision came following Apollo’s non-binding indicative offer to Hunter Group for the transfer of ownership of up to seven VLCCs at the beginning of April. The contract included options for up to three additional newbuildings.
Apollo ordered the ships from Daewoo Shipbuilding and Marine Engineering (DSME) in February.
The VLCCs will be fitted with scrubbers and are scheduled for delivery in 2019. They reportedly cost $85.2 mill each.
Faerder has reportedly contracted four, plus four optional Suezmaxes at Dalian for $55.9 mill. However, this deal is still thought to be subject to finance being put in place.
Turkish shipowner Ciner has also ordered four Suezmaxes from a South Korean yard for $60 mill each.
The only sale of note reported was that of the 2008-built Aframax ‘BM-Breeze’ said to have been taken by Petrovietnam for $18 mill. However, brokers said that this deal was still on subjects.
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Source: Tanker Operator
