Oil-Tanker Returns Turn Negative as Vessel Supply Builds

Returns for the biggest oil tankers plying the industry’s busiest trade route turned negative as the supply of vessels in the Middle East headed for a five-year high.

Very large crude carriers are losing $3,468 a day on the benchmark Saudi Arabia-to-Japan voyage, figures from the London-based Baltic Exchange showed. That compared with earnings of $962 yesterday and almost $18,000 as of last year’s final session. Charter rates for the tankers plunged to the lowest level in more than three years.

VLCCs earned money in only four sessions in the third quarter on the benchmark journey. As many as 120 of the ships are expected to enter the Persian Gulf over the next 30 days, according to FearnTank, the shipbroking arm of Oslo-based shipping-services and investment-banking company Astrup Fearnley. That would be the most since the 121 tankers tallied in the last week of January 2008, the company said.

“With tonnage still well supplied, rates are unlikely to rally for now,” Kevin Sy, a Singapore-based freight-derivatives broker at Marex Spectron Group, said in an e-mailed report today. “The four-week supply count didn’t budge from 97.”

2 Million Barrels

Charter rates for VLCCs on the benchmark voyage slid 7.7 percent to 32.04 Worldscale points, the lowest reading since September 2009, the exchange’s figures showed. The decline was the ninth in a row and the biggest since Jan. 2. Each of the ships can hold 2 million barrels of crude.

The exchange’s earnings assessments fail to account for owners’ efforts to improve returns by securing cargoes for a voyage’s return leg or by reducing speed to burn less fuel, known as slow-steaming. The price of fuel, or bunkers, the industry’s biggest expense, rose 1.1 percent to $628.04 a metric ton, figures compiled by Bloomberg from 25 ports showed.

Average monthly earnings for VLCCs are on course for the lowest level since October, according to estimates from Clarkson Research Services Ltd., a unit of the largest global shipbroker. Still, the combined carrying capacity of the world fleet will expand 5.3 percent this year, below demand growth of 6.3 percent, Clarkson data showed.

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 32.04 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, gained 1.7 percent to 647, according to the exchange. The climb was the largest since Dec. 18 and lifted the gauge to the highest level since Jan. 9.

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