Bloomberg News

Tanker Returns Stay Near Five-Month Low as Fuel Prices Climb

February 15, 2013

Returns for the biggest oil tankers hauling Middle East crude to Asia stayed near a five-month low as demand to hire ships slumped and fuel costs gained for a ninth week in 10.

Daily losses for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage narrowed to $6,857, figures from the London-based Baltic Exchange showed today. Yesterday’s figure of $7,694 was the worst return since Aug. 24, according to data compiled by Bloomberg. The ships earned money in only four sessions in the third quarter on the journey.

Demand to charter tankers slowed this week as financial markets in China, the world’s second-biggest consumer of crude, closed for the Lunar New Year holiday. There are 25 VLCCs available for the rest of February in the Persian Gulf, according to Kevin Sy, a Singapore-based freight-derivatives broker at Marex Spectron Group.

“A grim end to a very grim week for VLCCs,” London-based shipbroker E.A. Gibson said in an e-mailed report. Ship charterers “took full advantage of the New Year holidays,” and “bunker prices also rose to increase the pain,” it said, referring to fuel costs.

Still, charter rates for VLCCs on the benchmark journey rose 1.6 percent today to 31.60 industry-standard Worldscale points, according to the exchange. Each of the ships can hold 2 million barrels of oil.

Speed Cuts

The exchange’s assessments of VLCC earnings fail to account for owners’ efforts to improve returns by reducing speed to burn less fuel, known as slow-steaming. The price of fuel, or bunkers, the industry’s main expense, gained 0.2 percent to $659.34 a metric ton today, figures compiled by Bloomberg from 25 ports showed.

Higher bunker prices in the last few weeks reflected gains by crude oil, the raw material for the fuel. Crude advanced for eight weeks in a row in New York trading through Feb. 1.

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 31.60 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, added 0.6 percent to 661, staying at the highest level since Jan. 8, 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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