Gulf tanker rates may be bottoming out

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Mar 2009

The cost of delivering Middle East crude oil to Asia, down a quarter this month, may resist further declines as some vessel owners refuse to ship consignments at unprofitable rates. Global rental income from leasing very large crude carriers, or VLCCs, plunged 21 per cent to US$15,616 a day on March 27, the largest one-day decline in seven months, according to the Baltic Exchange, a London- based shipping bourse. That's half what Frontline Ltd, the biggest supertanker company, needs to break even on the ships.
'We are approaching levels where it almost does not make sense to trade at all,' Halvor Ellefsen, a tanker broker at SeaLeague AS in Oslo, said yesterday.
Output cuts by members of the Organization of the Petroleum Exporting Countries are depriving owners of cargoes. That has caused Frontline stock to drop 75 per cent to US$15.78 a share in New York trading since rising to a record US$72.36 in June 2008.
Formosa Petrochemical Corp, Taiwan's only publicly traded oil refiner, booked the tanker Ibukisan for 36.5 Worldscale points for a shipment to Mailiao, about 240km south-west of Taipei, Athens-based Optima Shipbrokers said yesterday. That's 4.7 per cent above the Baltic Exchange's benchmark rate, based on Saudi Arabian consignments to Japan, of 34.86 points.
Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in US dollars a tonne, are revised annually by the Worldscale Association to reflect changing fuel costs, port tariffs and exchange rates.
Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.
A rate of 34.86 points works out at US$22,458 a day, according to the Baltic Exchange.
Globally the carriers are making US$15,616 a day. Frontline said on Feb 26 it needs US$32,100 a day to break even on each of its supertankers, a 7.5 per cent decrease compared with Nov 28.
Frontline's breakeven rate is the amount needed to cover daily running costs for each ship, interest and scheduled loan repayments, and corporate overhead costs. It excludes capital spending requirements, final loan repayments and ships hired from other owners for short-term purposes.
Frontline doesn't necessarily need to earn US$32,100 from vessels competing for single-voyage cargoes to be profitable because it also has ships leased out on longer-term, fixed-rate rentals earning better returns, the company said on March 11. So far this year, hire rates have averaged US$36,447 a day globally and US$40,970 a day on the Middle East- Japan route.

Source: Bloomberg