Friday, December 7, 2007

Well, it finally happened

A single-hull tanker spilled.

Freight Derivatives Surge After South Korea Oil Spill
By Alaric Nightingale
Dec. 7 (Bloomberg)

Forward freight agreements, contracts that traders buy and sell to bet on the future cost of shipping crude oil, surged after a single-hull tanker was involved in the worst spill in South Korea's history.

Contracts for January climbed as much as 8 percent while those for the first the three months of next year advanced 7 percent, according to Ben Goggin, head of tanker FFAs at SSY Futures Ltd. in London.

``All my sellers from yesterday have turned buyers this morning,'' he said by telephone today. ``This could push rates much higher.''

The Hebei Spirit spilt 10,500 metric tons of crude oil about 5 kilometers (3.1 miles) off the coast of South Korea after it was struck by a crane on a barge. Should South Korea respond by banning such single-hull ships from its waters, it would be ``tremendous'' for the tanker market, Per Mansson, a shipbroker at Nor Ocean Stockholm AB, said in an e-mailed note today.

Modern tankers are fitted with two hulls to cut the risk of an oil spill and usually cost more to hire.

Contracts that indicate the cost of shipping crude in January climbed to 140 Worldscale points, from 130 yesterday, Goggin said. FFAs for the first quarter of next year rose to 120 Worldscale points from 112 points.

$108,000 a Day

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Based on 2007 flat rates, owners of very large crude carriers, or VLCCs, would earn about $108,000 a day for leasing out vessels at a rate of 140 Worldscale points, a formula from Oslo-based shipbroker RS Platou AS and marine-fuel prices compiled by Bloomberg showed. Earnings will turn out to be higher than that because 2008's flat rates will be raised to reflect this year's record refueling costs.

``If it's proved that a double hull would have avoided the spill, then I think it will have huge ramifications,'' Charlie Fowle, a director at Galbraith's Ltd., a London-based shipbroker, said in an interview. ``Everybody will be clamoring for double- hulls.''

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