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Middle East Supertanker Excess Expands, Curbing Gains

Dec. 7 (Bloomberg) -- A surplus of supertankers competing to collect 2 million-barrel cargoes of Middle East oil expanded, curbing the potential for rates to rally as Northern Hemisphere refineries seek more crude to meet winter demand.

There are 23 percent more very large crude carriers, or VLCCs, for hire over the next four weeks than there are cargoes, according to the median estimate of six shipowners and brokers surveyed by Bloomberg News. The surplus was 18 percent for the past two weeks.

“On paper, it does not look grand right now” because of the vessel surplus, said Halvor Ellefsen, a shipbroker at SeaLeague A/S in Oslo. While the market “may tick up a bit” between now and the end of the first quarter of 2011, “I would not call it a spike,” he said.

Rental income from the industry’s benchmark trade route for Saudi Arabian shipments to Japan fell today 8.9 percent to $14,002 a day, according to data from the London-based Baltic Exchange. That’s below the $31,300 that Frontline Ltd., the largest operator of the ships, said Nov. 24 it needs to break even on them once finance repayments are taken into account.

Freight derivatives contracts called forward freight agreements, or FFAs, show rental income from the Saudi Arabia-to-Japan route will average $26,595 a day in the first quarter of 2011, according to prices from Imarex ASA, an Oslo-based broker of the accords.

“Rates won’t be ramping up anytime soon” unless fuel costs accelerate, forcing owners to increase what they charge, Imarex Asia Pte, a Singapore based unit of Imarex, said by e-mail today.

Charter rates as measured in industry standard Worldscale terms fell 1.9 percent to 57.88 points, according to the Baltic Exchange.

The Baltic Dirty Tanker Index, a wider measure of crude oil transportation costs, gained 5.7 percent to 1,034 points, according to the bourse.

To contact the reporter on this story: Alaric Nightingale in London at anightingal1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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