Bloomberg News

Oil-Tanker Returns Reach Nine-Week Low as Charter Demand Slows

January 14, 2013

Returns for the biggest oil tankers hauling Middle East crude to Asia, the industry’s busiest trade route, reached a nine-week low as demand to charter ships slowed amid a shrinking supply of cargoes.

Daily earnings for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage slid 1.8 percent to $13,437, figures from the Baltic Exchange in London showed today. Returns remained at the lowest level since Nov. 12.

Earnings declined because of “lackluster” demand for vessels, Oslo-based investment bank Arctic Securities ASA said in an e-mailed report today. Still, demand for VLCCs will rise 6.3 percent this year, exceeding a 5.3 percent gain in the fleet’s combined carrying capacity, according to Clarkson Research Services Ltd., a unit of the biggest global shipbroker.

“Not a lot of January cargoes left,” Kevin Sy, a Singapore-based freight-derivatives broker at Marex Spectron Group, said in an e-mailed report. “As for the February program, the first few cargoes/fixtures should appear late, but it’s not expected to cause rates to suddenly rally.”

The exchange’s earnings assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. They can boost returns by slowing ships on return journeys after unloading cargoes. The price of marine fuel, or bunkers, fell 0.5 percent to $625.39 a metric ton, according to data compiled by Bloomberg from 25 ports.

Charter costs for VLCCs on the benchmark route declined 1.3 percent to 42.16 industry-standard Worldscale points, exchange data showed. That was also the lowest level since Nov. 12. Each of the tankers can hold 2 million barrels of crude.

The Worldscale system is a method for pricing oil cargoes on thousands of trade routes. Each individual voyage’s flat rate, expressed in dollars a ton, is set once a year. Today’s level means hire costs on the benchmark route are 42.16 percent of the nominal Worldscale rate for that voyage.

The Baltic Dirty Tanker Index, a broader measure of oil- shipping costs that includes vessels smaller than VLCCs, declined for a 12th session to 637, according to the exchange.

To contact the reporter on this story: Rob Sheridan in London at rsheridan6@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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