Supertanker Rates May Fall This Quarter

Supertanker Rates May Fall This Quarter on OPEC Supply Squeeze
By Alaric Nightingale
July 9 (Bloomberg)

The cost of hiring supertankers on the world's busiest shipping lanes may slump this quarter as OPEC, supplier of 40 percent of the world's crude, works to reduce a glut of crude in the U.S.

Daily earnings for carriers able to haul 2 million-barrel cargoes of Middle East crude on the main supertanker route to Asia will drop 42 percent to $47,500 a day, according to the median estimate of seven analysts polled by Bloomberg News July 5 and 6. They were about $82,000 in the same quarter last year.

Crude stockpiles in the U.S., the world's biggest oil- consumer, have soared to a nine-year high. The glut may prompt the Organization of Petroleum Exporting Countries to curb shipments, swelling the number of supertankers available to transport loads and hurting earnings at owners such as Frontline Ltd., according to Finn Engelsen of Laurentzen & Stemoco A/S.

``As far as OPEC are concerned, there's only one choice and that's to work for a reduction of stocks in the U.S.,'' said Engelsen, managing director at the Oslo-based shipping consultant, who correctly predicted tanker-rental rates would halve at the end of last year when other analysts forecast smaller declines and even gains.

U.S. refineries account for about a quarter of demand for the world's largest crude carriers, according to data from New York-based McQuilling Brokerage Services LLP. When shipments to the U.S. decline, it frees up tankers for other routes, reducing hire rates globally.

Below-normal refinery processing, caused by fires and extended maintenance programs, left U.S. oil companies with about 300,000 barrels a day of crude they didn't need in the second quarter, according to Ole-Rikard Hammer, senior analyst at Oslo-based PF Bassoe AS, who has tracked tanker markets for 20 years.

`Extraordinary Situation'

``The problem is the extraordinary U.S. refinery situation,'' said Hammer. ``Inventories are high and they don't need to bring in more crude for the moment.''

OPEC began trimming production in October last year, pushing average tanker-rental rates down to 39 percent less than their year-earlier levels. U.S. crude-oil inventories climbed to 354 million barrels in the second quarter, the most since 1998, according to the Energy Department in Washington.

A growing global fleet of tankers is stoking declines in rates. So far this year, the number of vessels has expanded by about 4.5 percent to 495, according to data from London-based shipbroker Galbraith's Ltd.

At the same time, OPEC's cutbacks have helped to trim the volume of crude carried by tankers by 5.2 percent to 466 million barrels, according to estimates from Halifax, England-based consultant Oil Movements Ltd.

``That's simply because of OPEC cut production,'' said Oil Movements founder Roy Mason. ``OPEC produces less oil, so there are fewer shipments.''