Bloomberg News

Oil-Tanker Costs Have Second-Biggest 2013 Drop on Vessel Supply

January 17, 2013

Costs to ship Middle East oil to Asia, the tanker industry’s busiest trade route, had this year’s second-biggest drop amid a swelling supply of vessels.

Charter rates for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage fell 3.4 percent to 40.58 Worldscale points, data from the London-based Baltic Exchange showed today. That was the largest retreat since the 12 percent slump on Jan. 2 and the seventh decline in eight.

Eighty VLCCs are available for loading over the next four weeks, five more than yesterday, Marex Spectron Group said in an e-mailed note. Still, the fleet’s total carrying capacity will expand 5.3 percent this year, below demand growth of 6.3 percent, according to estimates from Clarkson Research Services Ltd., a unit of the largest global shipbroker.

“As there are more than enough ships around, rates are still not going up,” Kevin Sy, a Singapore-based freight- derivatives broker at Marex Spectron, said in the report. “There will probably be five to 10 requirements getting covered today, and with tonnage still sufficiently supplied, the resulting rates will be sideways again.”

Daily earnings for VLCCs on the benchmark journey plunged the most since Nov. 28, sliding 12 percent to $11,595, according to the exchange. Returns are down 30 percent since the start of the year and resumed a decline after gaining yesterday for the first time since Dec. 19. Each of the tankers can hold 2 million barrels of crude.

Fuel Usage

The exchange’s assessments don’t reflect speed cuts aimed at curbing use of ship fuel, or bunkers, the industry’s biggest expense. The price of fuel slipped 0.3 percent to $621.38 a metric ton, staying at the lowest level since Jan. 7, according to figures compiled by Bloomberg from 25 ports.

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 40.58 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 0.2 percent to 630, according to the exchange. That was a 15th straight drop, the longest losing streak since a run that ended April 14, 2011.

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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