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Bunker prices “eating up” tanker earnings

The rise of bunker prices has been steady during the past few months, making it even harder for tanker owners to cover their ships’ operating costs, although they have been using this variable as a means of increasing rates (which determine gross freight).

Although successful in many cases, this has merely held voyage returns stable (or at least offset the impact of bunker prices on voyage costs). From the beginning of the year, the average cost of bunker at key tanker refueling ports gained 33% to mid-week said the latest report from CR Weber. “Observed as a percentage of gross freight on the TD3 VLCC benchmark, bunker costs averaged 57% during Q1. This level jumped to 75% during April and briefly touched as high as 84% earlier this week. Following the 6% decline in bunker prices from Wednesday to Friday on the back of a massive drop in crude prices, the bunker cost relative to gross freight on TD3 retreated to 74% on Friday and the TCE gained 40% accordingly.

However, given the level of overcapacity in the VLCC markets, we note that since March even this has been insufficient to hold TCEs steady and as of earlier this week a fresh low of $8,300/day had been realized. Although above voyage costs, at this level fixed operating expenses were not covered. With little change to the overall market fundamentals the question on owners’ minds will undoubtedly now be whether they can hold rates steady now that the TD3 TCE has risen to $11,700 – a level which is close to operating costs.

      

Although recent correlations observed would imply that rates (which determine gross freights) should be under negative pressure, it is important to note already many owners had already been refusing to trade cargoes given the inherent risk associated with moving vessels at earnings below operating expenses. Accordingly, if owners maintain the same degree of resistance then rates could well hold steady going forward.

From a separate perspective, the freight cost to charterers relative to cargo value is presently quite low—even following this week’s decline in crude prices. For example, during January 2009, crude averaged $40.38/bbl and freight per barrel on TD3 averaged $1.91.

Today, crude prices are some $57/bbl higher, compared to January 2009, but freight per barrel is $0.33 lower” said the shipbroker’s analysis. Meanwhile, in the freight markets, there were a total of 15 VLCC fixtures to report, 12 for discharge in the East, two in the west and one in the Red Sea. Of the Eastbound fixtures, China lead the discharge profile with a total of four—a level well off from the thirteen reported last week. Rates on the Eastbound route averaged just over a half point higher than last week, yielding a TCE of about $8,500/day, a gain of $100/day.

The Westbound route traded down half a point w/w at ws37 and the TD1 TCE declined $600/day to -$2,400/day. The triangulated Westbound trade slipped $800/day to average $20,700/day. To date, 72 Middle East May cargoes have been covered leaving a likely 43 remaining through the end of the month. Against this, some 65 double hull units are projected to be available through the end of the month. Though activity is likely to accelerate in the week ahead, whatever gains this might otherwise translate into are offset by the number of units available off prompt dates and the likely lower cost of bunkers.

Activity in the Atlantic basin was slow with just seven fresh fixtures to report—Caribbean liftings accounting for more than half of these. Eastbound rates from the Caribbean were steady at the $3.8m level. West Africa rates were supported by a stronger Suezmax sector, allowing for an uptick in both directions; Eastbound rates concluded at ws52.5 and Westbound at ws57.5. With the Suezmaxes stronger, the differential made VLCC attractive for coloadings and we note stronger inquiry for the larger tankers.

The Atlantic Suezmax market posted a slight uptick this week to the ws90 for trans-Atlantic business on the back of a slight improvement in demand. Although activity remained at week’s end, with increased competition from the VLCC class and easing bunker prices, rates should hold steady in the week ahead. In the Caribbean Aframax market, a lengthening position list prompted a correction from ws115 to ws110 over the course of the week, whilst further prospective losses were offset by the higher cost of bunkers. With tonnage remaining in amply supply at week’s end relative to demand, the easing cost of bunkers could see the market break below the ws100 level in the week ahead.

The Caribbean Panamax market saw fundamentals increasingly favor charterers as evidenced by one private cargo earlier in the week which was met with eight offers. On this basis, rates corrected by 7.5 points to conclude at the ws152.5 level. In the week ahead rates could soften further given cheaper bunker costs and the cheaper Aframax alternative. Reports of delays due to tank space and delays in the Mississippi river due to flooding, however, could imply a quick thinning of the position list, capping potential losses. An active week in the European Panamax market saw little movement in rates due to oversupply of tonnage. Rates shed 2.5 points to the ws132.5 level though but with tonnage now thinner rates are likely to hold steady at the start of the week ahead. Source : Nikos Roussanoglou, Hellenic Shipping News Worldwide

 

 

 

 

 

 

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