Cantor Fitzgerald

Cantor Fitzgerald Comments: Mideast Crude Tanker Rates Weak, Supply Weighs

August 9, 2010, Reuters

* Falling floating storage volumes hitting VLCC market

*Hopes owners keeping tankers at anchorage may help market

Crude oil freight rates on major routes were mixed on Monday, with growing vessel availability continuing to weigh on the Middle East market.

The world's benchmark Very Large Crude Carrier (VLCC) export route from the Middle East Gulf to Japan DFRT-ME-JAP was at W47.14 or $6,185 a day, down from W49.00 or $9,871 a day last week and at its lowest since November last year.

"The culprit continues to be an acute oversupply of vessels, as demand is still relatively brisk after a record number of vessels were fixed in July," Cantor Fitzgerald said.

"Still, an estimated 75 VLCCs were set to arrive in the Middle East Gulf in the next four weeks seeking spot employment, which is overwhelming the demand and putting charterers in the driver's seat."

Middle East VLCC rates rallied in early June, helped by tighter tanker availability and strong demand. But in recent weeks they have fallen due to softer enquiry and a growing build-up of vessels.

"The market simply faces too many vessels for the current level of enquiry," broker SSY said.

Maersk Tankers told Reuters last week it would its keep vessels docked if it could not cover costs. The world's biggest independent oil tanker operator, Frontline told Reuters separately it had put some of its VLCCs at anchorage due to sliding freight rates.

VLCC rates from the Gulf to the United States DFRT-ME-USG were at W39.25 from W40.63.

"Owners withholding ships is likely to draw down supply, implying an upward movement in rates," Arctic Securities said.

Analysts said the demand outlook was expected to remain subdued in the coming weeks, while a decline in floating storage volumes meant more tankers were available.

Rates for smaller aframax tankers from the Caribbean to the U.S. Gulf coast were at W117.27 from W116.59 last week. There has been little impact from the oil spill in the Gulf of Mexico.

VLCC rates from West Africa to the U.S. Gulf were down at W56.73 from W57.12 last week.

Baltic Exchange figures showed crude oil tanker rates from the Black Sea to the Mediterranean were at W91.46 from W89.83 last week.

Cross Mediterranean tanker rates were at W102.05 from W99.32.