oscilla frontline vlcc

Bunker Prices are Still Crushing Shipowners as Asian VLCCs Post Huge Net Losses

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July 30, 2012

Oscilla, a 303k DWT supertanker, image courtesy Frontline

(Bloomberg) — Losses widened for oil tankers hauling 2 million-barrel crude cargoes on the industry’s benchmark route to Asia from the Persian Gulf as the number of bookings slumped.

Very large crude carriers on the Saudi Arabia-to-Japan voyage are losing $5,529 a day, according to data today from the Baltic Exchange in London. Returns have been negative for 18 sessions in a row and were at minus $5,130 on July 27. The ships were earning $41,093 on April 2, the highest level this year.

Earnings fell as the number of vessels hired declined and ship-fuel prices advanced, Omar Nokta, a New York-based analyst at investment bank Dahlman Rose & Co., said today in a report. The cost of fuel rose 11 percent in July, according to figures compiled by Bloomberg from 25 ports worldwide. The VLCC fleet is set to expand 6.9 percent this year, exceeding 4.7 percent demand growth, according to data from the research unit of Clarkson Plc, the world’s largest shipbroker.

“The crude tanker market remains under severe pressure,” Morgan Stanley analyst Fotis Giannakoulis in New York said in an e-mailed report today. Charters to Asia declined to 82 this month compared with 107 in May, he said.

The Baltic Exchange’s assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. VLCC rates to Asia from the Middle East are about $8,000 a day, Nokta said. The price of ship fuel, or bunkers, advanced 1 percent to $625.39 a metric ton, according to data compiled by Bloomberg.

Charter costs for VLCCs on the benchmark voyage rose 0.6 percent to 34.34 industry-standard Worldscale points, exchange figures showed. They reached this year’s low on July 19.

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 34.34 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, added 0.3 percent to 645, according to the exchange.

Rob Sheridan, Copyright 2012 Bloomberg
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