The glut of supertankers competing for 2 million-barrel cargoes of Persian Gulf oil expanded to the highest in more than four months, driving freight rates to this year’s lowest level as ship demand weakens.
There are 22 percent more very large crude carriers for hire over the next 30 days than cargoes, according to the median estimate of seven shipbrokers and owners in a Bloomberg News survey today. That’s 2.5 percentage points more than last week and the biggest excess since Sept. 5.
Demand is “very slow,” with only one VLCC chartered yesterday, Oslo-based investment bank RS Platou Markets AS said in an e-mailed note today. Frontline Ltd., led by billionaire John Fredriksen, said in August its supertankers need daily earnings of $23,900 to break even. Returns for the ships on the industry’s busiest route as gauged by the London-based Baltic Exchange plunged 56 percent today.
“December and January did not pick up as we thought,” Per Mansson, managing director of shipbroker Norocean Stockholm AB, who has worked in the industry for 31 years, said by phone today. “It’s going to be tough. We will work with a big overhang of vessels every month.”
$41,093 a Day
Supertankers booked two months ago are now returning to the gulf seeking employment, swelling supply, Mansson said. Returns for VLCCs on the benchmark Saudi Arabia-to-Japan voyage tumbled to $3,997 daily from $8,994 yesterday, the biggest retreat since Sept. 26, exchange figures showed. The ships were earning $41,093 a day at last year’s high in April.
The Organization of Petroleum Exporting Countries pumped at the lowest level in a year in December on reduced output from Saudi Arabia and Iraq, its two largest producers, the International Energy Agency said Jan. 18. Saudi production fell to 9.36 million barrels a day last month, the agency said today in its monthly Oil Market Report.
Rates for crude tankers “trended lower” since 2013 began, with a lull in chartering during the holiday period at the year’s start fueling ship supply, New York-based investment bank Dahlman Rose & Co. said in an e-mailed report today.
The exchange’s assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. The price of ship fuel, or bunkers, slipped 0.2 percent to $622.65 a metric ton, according to data compiled by Bloomberg.
Lowest Since November
Charter rates for VLCCs on the benchmark voyage dropped the most since Jan. 2, falling 7.2 percent to 36.81 industry-standard Worldscale points, exchange data showed. Hire costs are the lowest since November.
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 36.81 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, slid 0.2 percent to 632, according to the exchange. The measure has gained only once since Dec. 19.