Poten & Partners: VLCC rates skyrocket in fourth quarter

By OGJ editors

HOUSTON, Oct. 21 -- Rates for chartering very large crude carriers have skyrocketed within the past few months as a result of dwindling vessel availability and increased transportation activity, said analysts Poten & Partners Inc., New York.

Earnings topped $50,000/day in October, up from $7,500/day in August when the market was much quieter, the company said, "This is only the fourth time since 1990 that rates have climbed to these levels."

Several fundamentals created this shift in market direction. The large crude carrier fleet is significantly smaller—by 14 vessels or about 5 million dwt—than it was in January because of heavy ULCC scrapping, the analyst said.

At the same time, charter activity for the past 30 days has nearly doubled, Poten said. "Charterers are now fixing out 30-33 days compared with 21-24 days just a month ago to make sure they have a ship. Saudi Arabia and Iraq are cooperating by supplying crude for these shipments," Poten said.

The early November dates on the Persian Gulf position lists were thin to begin with as two recent storms in the Gulf of Mexico delayed vessel lighterings and closed the Louisiana Offshore Oil Port, pushing back vessel return dates, Poten said. Combined with increased activity off West Africa, the availability of suitable tonnage in early November became even thinner, it said.

In addition, a heightened state of uncertainty engendered by the attack on the Limburg tanker, the bombing on the island of Bali, and sniper attacks in the northeastern US has fostered a sense that "it is better to cover requirements now than to wait," said Poten.

Temporary situation?
The threat of war should also cause rates to rise, Poten postulated, as the market emulates that of 1990. "This upsurge in LCC rates and fixture activity (not yet shared by smaller tankers) may be temporary if there is some sort of resolution to the Iraqi situation," the analyst said. "If history is a judge, this does not seem likely. Thus we feel that the return to the rate doldrums that prevailed just a few weeks ago will take a while to occur."

Nevertheless, Poten said, there are 20 newbuilds scheduled for delivery by yearend, which should balance the fleet and allow vessels to return at full speed. This will temporarily increase supply and dissuade charterers from fixing further out in time.

"If fixtures average 100/month, the present 'borrowing' of future fixtures for 9 days ahead in time is equivalent to about 30 spot fixtures. At some point, this will lead to more subdued fixture activity when the 'borrowed' fixtures are 'repaid,' bringing about a return to historical average rates," Poten said.

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