VLCC rates to fall before rebounding on new charter fixtures

SINGAPORE (Reuters) – Freight rates for very large crude carriers (VLCCs) could slide further before finding a floor and recovering on a rebound in chartering activity, ship brokers said.

Daily earnings for a VLCC charter from the Middle East to Japan have dropped by around $13,500 since May 11 as charterers held back the release of June cargoes and VLCCs faced competition from smaller Suezmax tankers, brokers said.

"Suezmax rates are so low now we see charterers splitting VLCC cargoes," a European supertanker broker said on Friday.

"Charterers on their side are sitting patiently and watching psychology doing its work."

Charter rates for a Suezmax tanker, which can carry around 1 million barrels of oil, are down to around $15,000 per day, brokers said, compared with around $44,000 per day for a VLCC that can transport 2 million barrels of oil.

Brokers highlighted US based Valero Energy which chartered two Suezmax vessels this week rather than hire a single VLCC to transport crude from the Middle East to the US West Coast.

"When that starts happening I feel we're close to the bottom of the market," said a Singapore-based supertanker broker.

"There is still plenty of cargoes to come out. I don't think anybody needs to panic that the VLCC market is going to drop much further," the Singapore broker added.

"VLCC rates have the chance for a decent bounce, it's just a question of when it happens," the broker said.

Around 25 cargoes have so far been fixed for June loading from the Middle East, which suggested there are a further 100 cargoes for June loading based upon recent cargo counts, brokers said.

"If we see a sudden increase in activity later in the month, owners will .... try to push rates again," said a second European broker.

"For now, the VLCC market will go lower before it floors," the second European broker said.

Congestion delays at Basra and Chinese ports have eased so there are more tankers available for charter, which have further pressured freight rates, brokers said.

But the global glut of oil has also led to an increase in the number of tankers used to store oil, with around 40 supertankers currently anchored around Singapore.

VLCC rates from the Middle East to Japan fell to around 60.50 on the Worldscale measure on Thursday, down from around W71 last Thursday.

Rates for VLCCs from West Africa to China dropped to about W59.75 on Thursday against W67.50 the same day last week on a slow chartering market, the second European broker said.

Rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia snapped a month long fall this week, rising to almost W90 on Thursday from around W86.50 last week.

"The Aframax market has been incredibly painful – there have been no fuel oil moves for two months, but now we are seeing a few more Aframax cargoes. The worst is over," the Singapore broker said.