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VLCC rates pick up as April cargoes still ongoing in the Middle East
Source: | Date:2016-04-21 | Browse number:

VLCC rates pick up as April cargoes still ongoing in the Middle East

Tanker ship owners received some positive news over the past week, as the Middle East VLCC market was more active, “on a surprisingly long number of remaining April requirements and a modest progression by charterers into May dates. The uptick of demand came against uncertainty over vessel itineraries due to Asian operational delays which made effective Middle East supply less extreme than it appeared a week ago and helped to support a rate rebound which pared the strong losses which accompanied last week’s demand lull. The Middle East markets fixture tally more than doubled on the week to a total of 23 while the West Africa market rebounded from last weeks multipleyear low of one fixture to five this week. Countering the impact of West Africas demand return, slow demand in the Caribbean market saw at least two fixtures ballast to service West Africa cargoes. Having dropped to as low as ws60 early during the week, the AGFEAST benchmark route saw rates rebound to an assessed ws70 by the close of the week, said shipbroker Charles R. Weber in its latest weekly report.

It added that the April program now stands at 130 cargoes with further two likely remaining uncovered. Against this, there are 10 units with certain availability through endApril dates, from which we expect two will be drawn to the West Africa market. This implies an endApril surplus of six units. Although more than the zero units observed at the close of the March program, the number is largely balanced and is in below the 9 units observed, on average, over the past 12 months and during 2015. On this basis, we expect that rates will likely have further upside to go as AGFEAST TCEs remain 10% below the average of the past 12 months and 7% below the 2015 average. Moreover, as VLCC rate movements are frequently guided by the immediate impact of demand levels on psychology rather than by fundamentals, the fact that demand should prove stronger during the upcoming week as charterers move more aggressively into the May program also supports our upside thesis”, said CR Weber.

According to the shipbroker though, “further forward, uncertainty remains the theme. There are 41 units available through 10 May (including the expected surplus from April). With 8 early May cargoes now covered, we expect a further 34 will materialize and draws from West Africa should account for a further six units, implying a surplus of just one unit. On paper, this supply/demand positioning should be highly supportive of rates – particularly as some of the positions included in the tally are uncertain (due to weather and operational issues). Simultaneously, a present disconnect between AIS positions and advertised positions suggests a longer number of “hidden” units. Due to internal tonnage, COA movements and other circumstances, there is little certainty as to the extent of hidden positions, which is why we are hesitant to suggest rates will remain directionally stronger past the upcoming week. Structurally, fundamentals appear strong through Q2 with operational delays likely to remain a factor on overwhelmed Asian energy infrastructure, trade issues and recent delays at Basrah which will start to have an impact on availability at historically strong end of the quarter”.

Meanwhile, in the Middle East, CR Weber noted that “rates to the Far East gained 7.5 points over the course of the week to a closing assessment of ws70. Corresponding TCEs rose 10% to ~$59,480/day. Rates to the USG via the Cape concluded at ws40, off 2.5 points. Triangulated Westbound trade earnings concluded the week at ~$71,804/day – off 2%. The West Africa market continued to trail the Middle East and after being slower to rebound due to ballasts from the USG/Caribbean area, the region retested higher towards the close of the week. The WAFRFEAST route concluded at ws70, a 5point gain from a week ago. Corresponding TCEs concluded at ~$56,714/day, a 7% weekly gain. The Caribbean market remained slow with limited cargoes being worked which saw rates on the CBSSPORE route drop $150k to an assessed $5.35m lump sum. The commencement of May stems during the upcoming week should help to stem rate erosion and, subject to the extent of correlated demand, possibly support a modest rebound.


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