VLCC Ovatella shell supertanker

VLCC Ovatella, managed by Shell, owned by Frontline Tankers, image courtesy Frontline

Jan. 23 (Bloomberg) — Earnings for the largest oil tankers plying the industry’s busiest trade route plunged 76 percent, nearing a reversion to negative returns, as the supply of vessels overwhelmed demand to charter the ships.

Daily earnings for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage fell to $962 from $3,997 yesterday, figures from the London-based Baltic Exchange showed. The drop was the biggest since Sept. 26.

VLCCs making the benchmark journey earned money in only four sessions in the third quarter. Ships for hire over the next 30 days outnumber cargoes by 22 percent, the biggest excess since Sept. 5, according to the median estimate of seven shipbrokers and owners in a Bloomberg News survey yesterday.

“Charterers are in total control due to the overwhelming amount of tonnage in position within the month,” the consulting unit of Oslo-based shipping-services and investment-banking company Astrup Fearnley said in an e-mailed note today.

Charter rates for VLCCs on the benchmark voyage slid 5.7 percent to 34.72 Worldscale points, the exchange’s figures showed. That was an 11th decline in 12 sessions. Each of the tankers can hold 2 million barrels of crude.

Still, the combined carrying capacity of the world’s VLCCs will expand 5.3 percent this year, below demand growth of 6.3 percent, according to estimates from Clarkson Research Services Ltd., a unit of the largest global shipbroker.

25 Ports

The exchange’s assessments don’t reflect speed cuts aimed at curbing use of ship fuel, or bunkers, the industry’s biggest expense. The price of fuel lost 0.2 percent to $621.38 a metric ton, according to figures compiled by Bloomberg from 25 ports.

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 34.72 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, gained 0.6 percent to 636, according to the exchange. That was the highest level for the gauge since Jan. 14.

- Rob Sheridan, Copyright 2013 Bloomberg.

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