In Hellenic Shipping News 28/04/2015
The tanker market keeps on rising with the VLCCs experiencing strong gains through much of the past week, as a result of an increase in demand in both the Middle East and West Africa. According to the latest weekly report from shipbroker Charles R. Weber, “in the Middle East, charterers progressed more aggressively into the May program following last week’s pause between programs and drove demand there up by 30% w/w to 26 fixtures”.
The shipbroker added that at the same time, “stronger purchases by Far East buyers for West Africa cargoes past the May program’s first decade (with delivery times coinciding with an anticipated paring of refinery turnarounds during June) drove a 33% rise in regional fixtures to a weekly total of eight. With inquiry heavily oriented to the first half of the week, the seemingly frenzied pace led to strong competition for Far East ballasters (from which both markets source tonnage) and a fresh rallying of rates. Having concluded last week at the ws62.5 level, benchmark rates to the Far East rallied to as high as ws70 by mid-week”.
CR Weber also noted that “thereafter, however, demand levels softened and market participants became more cognizant of the fact that fundamentals remain largely unchanged from a week ago, when we noted that the surplus of units carrying over from April to May dates stood at a five-month high. The pullback saw one cargo fixed at ws60 and in the absence of any trading disadvantages associated with the performing unit, rates immediately returned to a negative trend. Though the low rate was not repeated, rates were incrementally softer thereafter with the market concluding assessed at ws62.5″.
The shipbroker stated that “many uncertainties over the Middle East VLCC program remain due to the recent disconnect between cargo volumes and stated production rates (specifically Saudi’s near-record production). Simultaneously, the number of 1.0 Mbbl Suezmax-sized stems for May loading at Iraq’s Basra terminal have more than doubled from April levels, which negates any positive impact on the VLCC market which may have resulted from a 9% increase of total crude supply from that terminal by yielding 14% fewer 2.0 Mbbl VLCC-sized stems there. Through the first decade of the Middle East program, we note that 35 cargoes have been covered, leaving an estimated 4 remaining. Against this, there are 16 units available. With hidden units expected to be offset by further Middle East tonnage draws to cover West Africa requirements, the implied surplus is 11 units. While still relatively balanced, the positioning represents a further (if modest) supply/demand disjointing. On this basis, and in light of the forward demand uncertainty, rates are likely to post further modest losses through at least the start of the upcoming week before charterers progress into second?decade dates when the fresh demand will likely limit further near-term downside” it said.
Similarly, CR Weber’s report noted that “the West Africa market continued to trade largely in tandem to the Middle East market. The WAFR-FEAST route added 2.9 points w/w to average ws63.9 with corresponding TCEs rising by 6% to an average of ~$60,977/day. The Caribbean market was quieter while demand gains in the Brazil market helped to offset any negative impact on rates. The CBS-SPORE route was unchanged throughout the week at the $5.70m lump sum level. With the regional supply/demand ratio largley unchanged, rates should remain steady at this level; however, failing any rate downside in the West Africa market, prospects for USG positions to ballast to West Africa could see owners seek modest gains during the current week”.
In other markets, “demand for Suezmaxes in the West Africa market was unchanged from last week’s tally of 16. Prospects for stronger demand to emerge on late purchases of regional cargos in the first decade were uninspiring and combined VLCC and Suezmax spot cargoes in the window were off by 7%, in line with an oversupplied European market and weak worldwide demand as non?US refineries move towards peak planned turnarounds during May. Elsewhere, Suezmaxes were in strong demand in the Middle East market, where 18 units were fixed, marking the loftiest weekly tally since late June ’14. The surge was largely driven by a demand strength for voyages to India and points in the Far East – as well as a rebound of Suezmax stems at Basrah for May loading to more than double the April number. Though Middle East Suezmax demand is largely secured on ballasters from points in the East (a pool of units which relatively infrequently vie for West Africa cargoes) the impact of the demand gains there had carryover effects on rate sentiment in the West Africa market. Moreover, with both the bulk of West Africa and Middle East inquiry occurring on Tuesday and Wednesday, the hectic pace of the market contributed heavily to positive rate development. Rates on the WAFR-UKC and WAFR-USAC route added 5 points from last week’s close by Wednesday to ws80 and ws77.5, respectively. Though inquiry levels were markedly lower thereafter, owners remained bullish which has kept rate assessments unchanged. With the second decade of the May program in West Africa, which fixes further forward than Suezmaxes, having concluded at levels on par with the YTD average, Suezmaxes will likely struggle to find sufficient demand to extend gains. Instead, owners are eyeing the third decade for positivity and while VLCCs continue to work those dates, the level of demand which is ultimately covered on the larger class will likely dictate the direction of rate progression for Suezmaxes past the upcoming week. Simultaneously, despite strong demand for Suezmaxes in the Caribbean market over the past two weeks, collapsing regional Aframax rates should have an adverse impact on Suezmax rates and potentially push some units into the West Africa market as ballasters. Thus, while demand gains during the upcoming week could be sufficient to keep West Africa rates steady, downside risks remain evident thereafter”, the shipbroker concluded.
