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Tuesday, December 12, 2017

Lowest VLCC rates since October 2003 despite increases in U.S. and Chinese crude imports

On 19 May 2005 we recorded Worldscale (WS) 58.3 for a VLCC from Arabian Gulf to Japan, the lowest rate since 23 October 2003, when we recorded WS 51.4 for the same voyage. Since then rates have fallen to WS 58.3 19 May. We are basing the rate on the Baltic Exchange Dirty Index, and based on WS 58.3 we have calculated a time charter rate of USD 19,250 per day. The lowest rate for this voyage in 2004 was WS 75 (USD 36,116 a day t/c equivalent) on 5 May; the lowest rate for 2003 was WS 40.5 (USD 10,911 a day) on 11 August.

 Average TC equivalents calculated based on the Baltic Exchange Tanker Index:

Suezmax rates from West Africa to the U.S. Coast have been higher than VLCC rates since 22 April this year, while aframax rates in the North Sea spiked on 12 May 2005 and have since remained the best of the tanker sectors.

Normally the best indication of the VLCC rate is the fixture activity in the Middle East. The above graph shows that the fixture level in 2005 was high in January and May but lower than 2004 for the other months. 

This table shows a breakdown of the total monthly average volume of fixtures that took place within any given month.

The table shows that the peak fixture month has varied, but has on average for the five years 2001-2005 been January. The lowest month has also varied, but has on average clearly been June.

 Looking at the International Energy Agency (IEA) figures for global oil demand, demand is expected to be lowest in the 2nd quarter (83.04 mbd), it is expected to increase to 83.8 mbd in the 3rd quarter, and 86.09 mbd in the 4th quarter. The strong demand increase in the 4th quarter may mean that rates will spike in the 3rd quarter when contracting starts to meet the winter demand. 

Two of the countries exercising the most influence on the tanker market are the United States (U.S.) and China. The U.S. has increased crude oil imports by 0.443 mbd until 13 May this year. However U.S. commercial and strategic (SPR) stocks have also increased by some 60.7 m ts or 0.456 mbd over the same period. The commercial stocks on 13 May 2005 of 334 m ts were almost 12% higher than the level at the same time in 2004 and 15% above the average level over the last three years. The strategic stocks of 692 m ts were some 5% higher than the level at the same time in 2004 and 10% above the average level over the last three years. The authorities' declared aim is strategic stocks of 700 m ts. 

China's net imports were very moderate in January 2005, but according to NewsBase, by April China's crude oil imports had soared 23% from a year earlier to hit an all-time monthly high of 12.25 million ts as firms raised crude processing and cut back product imports to maximise slim domestic margins. For the first four months of the year, imports were up 4.4% from a year before at 41.89 million ts, or 2.55 million barrels per day, according to Customs data.

 It is despite these increases in U.S. and Chinese oil imports that freight rates have on average been weakening.

 Contact: Erik Ranheim