Bloomberg News

Crude Oil Tanker Rates Extend Slump as Owners Contend With Glut

June 24, 2013

Charter costs for the biggest crude tankers hauling Middle East oil to Asia extended a slump as owners contend with the biggest vessel glut in decades.

Rates for very large crude carriers hauling 2 million-barrel cargoes on the benchmark Saudi Arabia-to-Japan voyage slid 0.7 percent to 40.63 industry-standard Worldscale points, the sixth straight decline, figures from the London-based Baltic Exchange showed today. The vessels are earning $13,750 a day.

The VLCC market has about 20 percent surplus capacity, the biggest glut since about 1985, Fearnley Consultants A/S, an Oslo-based research company, estimated June 13. Supply and demand for the carriers will both expand by about 5 percent this year, according to Clarkson Plc (CKN), the world’s largest shipbroker.

“Massive oversupply is still looming,” Fotis Giannakoulis, a New York-based analyst at Morgan Stanley (MS:US), said in an e-mailed report today. “The current fleet of more than 600 vessels seems to be too large to allow any meaningful improvement in charter rates above the levels that can provide positive economic returns.”

The Baltic Exchange’s assessments don’t account for owners’ cutting speed to burn less fuel, the industry’s biggest expense. VLCCs need about $10,800 a day to cover running costs including crew and repairs, according to Moore Stephens LLP, a U.K.-based accountant. The figure excludes fuel.

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 40.63 percent of the nominal Worldscale rate for that voyage.

The biggest one-day change in rates for ships hauling crude was for tankers shipping 80,000 metric-ton cargoes to Europe from loading ports in the North Sea, which lost 2.4 percent to 86.75 Worldscale points. For vessels shipping refined fuels, the largest move was for tankers hauling cargoes across the Mediterranean, which slid 2.7 percent to 121.33 points, 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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