In Hellenic Shipping News 01/02/2016
Nikos Roussanoglou, Hellenic Shipping News Worldwide
There’s a lot going on in the tanker market lately, but as it turns out, there are few parameters capable of altering the buoyant state of freight rates, despite recent correction. In its latest weekly report, shipbroker Charles R. Weber noted that “the VLCC market commenced with a slower pace of activity ahead of a concerted progression into the second‐decade of the February program, which was accompanied by an early lull in rates. However, as the week continued, the progressing on dates materialized and elevated the week’s Middle East fixture tally to 38 fixtures, the loftiest weekly tally since early October and a 27% w/w jump”.
CR Weber added that “meanwhile, demand in the West Africa market remained elevated despite a 36% w/w decline from last week’s three‐month high with seven fixtures reported (the four‐week moving average stands at its highest level since early December). Rate erosion continued through to mid‐week with owners noting an uncertain February Middle East program and competing aggressively for cargoes; thereafter, as the extent of this week’s demand and the market’s fundamentals positioning became better known, resistance to lower rates reappeared and facilitated a modest paring of the week’s rate losses. The AG‐China route concluded last week at ws70 and dropped to a low assessment of ws57 at midweek before rebounding to a closing assessment of ws62”.
According to CR Weber, “though the extent of Saudi and other gulf producer’s February VLCC programs is (characteristically) somewhat uncertain, we note that the Basrah program shows incremental demand gains through the month and remains expected to support balance in the market. This appears to have borne fruit this week while the surprising extent of West Africa demand which has followed a Saudi OSP hike for Asian buyers has provided a further contribution to a supply/demand rebalancing. As strong late West Africa purchases by Asian buyers developed, the region has drawn heavily on Middle East positions and maintained a low Middle East tonnage surplus. At present, 67 February Middle East fixtures have materialized including 39 during the first decade and 27 through the second‐decade (while one third‐decade cargo has been fixed further forward than usual)”.
CR Weber added that it expects “a further 12 second decade cargoes will materialize against a pool of available units which stands at 20. Additional draws from the West Africa market should consume a further seven units, which would imply one surplus unit at the end of the Middle East’s second decade. Given earlier market weakness, we expect that there remain a number of “hidden” positions which should elevate the surplus tally and thus prevent a significant spike in rates which would accompany the low surplus tally, but nevertheless we expect that the market is poised for further and more aggressive strength once participants progress into the February program’s third decade”, the shipbroker noted in its extensive and thorough analysis of the current tanker market trends.
No coordinated OPEC + Russia supply cut seen
Meanwhile, according to CR Weber, “despite market chatter Thursday indicating a possible agreement between Saudi Arabia and Russia to coordinate a 5% crude supply cut following indications by Russia’s energy minister, no firm reports from Saudi or other key OPEC members indicate such an agreement and we believe that such a development remains unlikely. On this basis, near‐term forward Middle East supply appears set to remain at least stable with fresh net gains being contributed by Iraq, where supply during February is targeting a 9% m/m gain to 3.61 Mb/d.
NITC fleet poses little near‐term risk to VLCC market
The shipbroker added that “while the issue of a full return by Iran’s NITC VLCC fleet to active trading has been raised as a potential risk to VLCC demand by preceding an accompanying Iranian supply hike, we note that the number of NITC units actively trading cargo to market has risen by just three units as compared with just prior to the Joint Comprehensive Plan of Action agreement reached by Iran and the P5+1 in July ’15, when 28 of NITC’s 41 units were so deployed. Moreover, at least one VLCC fixture this week was reported with an option for loading at Kharg Island, which would imply a positive net contribution to the VLCC market by expanding the region’s monthly cargo program above levels which would have otherwise materialized, with no immediately visible implication of displacement elsewhere”.
Large scale floating storage has not yet become a reality
CR Weber also mentioned that ‘reports indicating a recent surge in the number of units chartered on storage contracts are somewhat misleading. One charterer was reported to have taken seven units for storage: Data shows that one unit was chartered to replace via STS transfer another unit presently holding a cargo at a high demurrage rate linked to a spot voyage contract concluded during a stronger market (because the replacement unit will discharge a cargo under a present spot voyage and subsequently undertake dry dock before delivering for the STS transfer, it does seem that storage cargo could remain on the water for some time. Another unit linked to this charterer is on a spot voyage with a storage option (a routine feature of spot contracts) for the same charterer and it is unclear if this option has been exercised. Meanwhile, an additional VLCC has been holding a cargo since December for the same charterer. Thus we note that the tally of storage units attributed to this charterer is two with the possibility of a third joining; it is unclear if these storage contracts are linked to contango plays or are simply due to ullage and/or cargo distribution issues.A separate charterer has reportedly taken a new building unit for a structured 6‐month charter of gasoil (the unit is suitable for CPP storage given its lack of prior trades). No additional fresh or structured storage contracts have been observed”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
