VLCC rates fall to four-year low

Freight rates for very large crude carriers (VLCCs) on Asian routes show little sign of reviving although Hurricane Harvey, which threatens to ravage the US Gulf coast oil refining industry over the weekend, could provide a fillip, brokers said.

That came as average weighted VLCC freight rates on all routes sank to their lowest in four years this week to around $9,000 per day.

Rates are even lower on some routes after CPC fixed a VLCC late Thursday for a trip from the Middle East to Taiwan at 36.75 on the Worldscale measure and S-Oil fixed a VLCC to South Korea at W36.

That is equivalent to rates of $6,000-$7,000 per day.

"It's rubbish money," said a Singapore-based supertanker broker.

That compares with around VLCC operating expenses of about $10,000 and vessel breakeven levels of about $22,000 per day, brokers said.

"Cargo is moving – cargo demand is there, but there are just too many ships," said Ashok Sharma, managing director of BRS Baxi Far East in Singapore.

One glimmer of hope is an increase in cargo volumes from the Caribbean which began to oust cargoes this week from West Africa.

That has already been felt in freight rates this week after Indian Oil Corp (IOC) fixed a VLCC at $3.39 million for a trip from the Caribbean to the west coast of India shortly after Reliance paid $2.9 million for a similar voyage.

"There is a bit of tightening in tonnage to the extent interest is being shown in ballasting (sailing empty) from China to the Caribbean. Nobody has done it yet, but brokers/owners have been asked," Sharma said.

"There's not much interest in West Africa," he added.

Brokers said Caribbean cargoes have gained traction due to pricing levels of US crude (West Texas Intermediate).

That rise could gain momentum due to the potential disruption caused by Hurricane Harvey, which packing winds of up to 125 miles per hour (201 km per hour), is the region's worst storm for 12 years and is due to make landfall late Friday or early Saturday.

Four oil refineries, along with 10 percent of offshore crude and 15 percent of natural gas output, were shut ahead of the storm's landfall.

"There will be a lot of vessel and cargo delays which might cause replacement cargoes to come from the Caribbean," said a European supertanker broker on Friday. (Reuters)