East of Suez VLCC rates hit more than 9-month high on surge in demand

Worldscale rates for VLCCs on the East of Suez routes have reached more than nine-month highs, on strong demand to move crude in the winter season, tight supply as charterers combine smaller cargoes and bullish owner sentiment, market participants said Thursday, November 27.

The key Persian Gulf-to-Japan route was assessed w3 points higher day on day Wednesday at w61.

The rate was last assessed any higher on February 19 at w66, data showed.

This is also the first time in over nine months that rates have crossed the key w60 mark, data showed, with rates last assessed at the w61 level on February 21.

Higher freight rates and decline in bunker fuel prices have given a significant boost to owners’ earnings.

Daily earnings on the Persian Gulf to East route are now more than $52,000, up from around $5,800 in end-September, basis 270,000-mt cargoes, according to brokers’ estimates.

“The VLCC market has just got the spark it was looking for,” said a Singapore-based broker.

There was a lull last week as cargo stem nominations were delayed and several market participants were away for an annual gathering organized by Vela in Dubai, the broker said.

This had briefly dragged down rates below the w50 mark, but following a flurry of activity, rates have rebounded, rising day on day for the last four successive trading days.

“There has been a crowding of fixtures because several charterers are seeking ships for the same laycan,” said a chartering source with a Japanese refiner.

Seven ships were placed on subjects overnight, another three were taken privately and at least five to eight cargoes are actively seeking tonnage, the same broker in Singapore said.

Even dry docking ships, that are chartered a few notches below the prevailing market rates, have been fixed at w60-61, brokers said.

“There is a further upside potential in rates as demand for covering cargoes for loading in December is far from over,” said a source with a VLCC owner.

It is typical for refiners to stock more oil for winter and loadings in December are expected to be higher month-on-month, the source said. OWNERS CAPITALIZE ON HIGHER DEMAND

Owners want to capitalize on this higher demand as ships loading in the Persian Gulf in early December will be back only by end-January, and by then the winter season would have peaked and rates will likely subside.

Due to this reason, to boost daily earnings, ships are not keen to do shorter voyages such as Persian Gulf to India, and if they do agree they are seeking higher premiums for the routes, owners, brokers and charterers said.

Even old ships are commanding attractive rates.

For example, the 1999-built, GC Guangzhou was placed on subjects by IOC at w99 for December 10 loading on the Basrah to West Coast India route, basis 267,000-mt, brokers said.

So far, more than 56 VLCC fixtures for Persian Gulf and Red Sea loading were heard done for December, indicating higher demand compared with the previous month, according to industry estimates.

In comparison, the total number of fixtures for Persian Gulf and Red Sea loading were estimated at 123 for November, 118 for October, 113 for September, 123 for August, 122 in July and 107 in June, brokers said.

Meanwhile, another factor pushing up the VLCC rates was the combination of 1 million-barrel cargoes to VLCC sizes.

The recent spurt in Suezmax rates on the Western routes has seen charterers combine the smaller parcels to fix cheaper VLCCs instead, particularly in West Africa, thereby reducing supply.

The four-week supply of ships has decreased by 11 from Wednesday to 81 as of Thursday, said a freight derivatives broker tracking the VLCC markets. There are only 13 ships available until the end of the first decade of December and another 39 for the second decade, the broker said.

“Looking at the demand, it doesn’t look like the [flurry of] fixtures will slow down anytime soon and with tonnage list not getting longer, rates will likely continue their upward trend,” the broker said.
Source: Platts