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Oil-Tanker Hire Costs Fall for Second Session as Demand Weakens

Feb. 6 (Bloomberg) -- Hire costs for the largest oil tankers fell for a second session as demand slowed to charter ships to haul cargoes of Middle East crude to Asia, the industry’s busiest trade route.

Booking rates for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage slipped 0.2 percent to 31.74 industry-standard Worldscale points, figures from the London-based Baltic Exchange showed today. Rates are up 4.3 percent from this year’s low on Jan. 28.

Earnings for VLCCs bound for Asia from the Middle East continue to drop “as the market has yet to see significant activity thus far this year,” analyst Sam Margolin at investment bank Dahlman Rose & Co. in New York said in an e-mailed report. Returns slid to about $9,800 a day from about $10,200, he said. There are 111 ships available in the Persian Gulf over the next 30 days, Marex Spectron Group data showed.

“With the upcoming Chinese New Year, less activity is expected in the Middle East Gulf,” the consulting unit of Oslo-based shipping-services and investment-banking company Astrup Fearnley said in an e-mailed report. “More tonnage may be added to an already more-than-ample position list, giving no reason for owners to celebrate.”

Financial markets in China, the world’s second-biggest crude buyer after the U.S., will be closed next week for the Lunar New Year holiday.

2 Million Barrels

Daily losses for VLCCs on the benchmark voyage as determined by the exchange narrowed to $5,355 from $5,382 yesterday. The ships, each able to hold 2 million barrels of oil, earned money in only four sessions in the third quarter on the journey.

The exchange’s assessments fail to account for owners’ efforts to improve returns by securing cargoes for a voyage’s return leg or reducing speed to burn less fuel, known as slow-steaming. The price of fuel, or bunkers, the industry’s main expense, slipped 0.1 percent to $642.91 a metric ton yesterday, figures compiled by Bloomberg from 25 ports showed.

The combined carrying capacity of the world VLCC fleet will expand 5.3 percent this year, below demand growth of 5.9 percent, according to Clarkson Plc, the biggest shipbroker.

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 31.74 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 0.6 percent to 636, according to the exchange.

To contact the reporter on this story: Rob Sheridan in London at rsheridan6@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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