MEG Rates May Stay Near 3-Month Low

Persian Gulf Tanker Rates May Stay Near Three-Month Low on Glut
By Alaric Nightingale
July 18 (Bloomberg)

The cost of shipping crude from the Middle East to Asia, the world's busiest oil- tanker route, may stay near a three-month low as an oversupply of ships competing for cargoes negates a probable increase in demand.

Saudi Arabia, Kuwait and the United Arab Emirates all told oil companies this week when they must have tankers in place to collect crude from the region's ports next month, said Mathieu Philippe, a shipbroker for Paris-based Barry Rogliano Salles. Any resulting jump in demand may not be enough boost rates for the next several days because of a glut of tankers, he said.

``There's going to be more activity today and by the end of the week,'' Philippe said by telephone from Dubai, adding that Iran probably will also declare August's loading program by July 22 at the latest. ``But there will have to be 10 to 15 bookings a day before it brings the market up.''

The benchmark ship-rental rate for tankers slipped 1.1 percent yesterday, paying owners the equivalent of about $28,000 a day. At that rate, Frontline Ltd., the world's biggest supertanker operator, loses money.

The London-based Baltic Exchange, whose price assessment for shipments between the Middle East and Japan is used to settle shipping contracts between owners and oil companies, fell to 58.67 Worldscale points yesterday from 59.36 on July 16. Yesterday's rate was the lowest since April 25.

At 58.67 Worldscale points, owners of modern, very large crude carriers, or VLCCs, can earn about $27,957 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices.

Frontline said on May 30 that it needs more than $29,500 a day to be profitable on each of its VLCCs.

Bookings of supertankers sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP.