Middle East Oil Tanker Surplus Declines as Sea Storage Expands

Tuesday, 07 April 2009

A surplus of supertankers competing to transport Middle East crude shrank as traders booked the ships to store cargoes and owners diverted some vessels to the Atlantic Ocean, where rents are better. There are 30 percent more very large crude carriers, or VLCCs, than there are cargoes over the next 30 days, according to the median estimate of three shipowners, five shipbrokers, and one trader surveyed by Bloomberg News yesterday. That's five percentage points lower than last week's surplus of 35 percent.

"The main reason is storage in VLCCs and extended long- voyages that keep the vessels" loaded with cargoes for longer, Ody Valatsas, an official at Athens-based shipowner Dynacom Tankers Management Ltd., said by e-mail yesterday. According to him, there is a shortage of tankers relative to likely cargoes.Vitol Group, Royal Dutch Shell Plc and Gunvor International BV between them hired five VLCCs or ultra-large crude carriers to keep oil at sea as plunging ship-rental rates made the trade potentially more profitable again after a three-month gap, Athens-based Optima Shipbrokers said April 3.

Sea storage climbed to 80 million barrels in January, the most in two decades, Frontline Ltd., the biggest supertanker company, said at the time.Asian refiners, unable to secure the cargoes they need from the Middle East as the region's producing nations cut output, are buying extra consignments from West Africa and the Mediterranean port of Ceyhan in Turkey, Valatsas said. That's employing tankers on longer-distance voyages, effectively cutting supply, he said. A "few" vessels are also sailing to West Africa from the Persian Gulf because hire rates are better in the Atlantic, he said.

Shipping CostsThe drop in supply may help stem a six-day drop in the benchmark shipping cost for crude, based on Saudi Arabian consignments to Japan, which fell 2 percent to 32.3 Worldscale points on April 3. That's the lowest in Worldscale terms since Sept. 12, 2002 and works out at $18,660 a day in rental income for owners, according to the London-based exchange.Based on Baltic Exchange rates of 45.31 Worldscale points and a formula from Oslo-based shipbroker RS Platou AS, West Africa-to-U.S. cargoes are making owners $36,849 a day.Frontline said Feb. 26 it needs $32,100 a day to break even on each of the vessels, including finance costs. It requires $11,300 a day to pay crew, insurance and other daily expenses.There are 102 VLCCs anchored around the world, according to ship-tracking data compiled by Bloomberg. That's little changed from a month ago, when there were 104.

Source: Alaric Nightingale, Bloomberg