IEA Monthly Oil Market Report September

Crude tanker rates, already at multi-year lows on certain routes in early August, remained very weakthroughout the month. Low oil-in-transit volumes and the resultant vessel surplus continue to keep VLCC rates unseasonably low. An expanding tanker fleet has been a bearish influence this year and while scrapping activity has apparently remained modest, conversions to more profitable dry bulk carriers have risen.

VLCC rates from the Middle East Gulf to Japan languished just above the $7/tonne mark for the first half of August. This reflected weak tanker fundamentals, even by summer standards. A temporary $2/tonne mid-month jump to over $9/tonne resulted from greater chartering activity on the route, coinciding with reports of an upturn in September OPEC sailings, especially on eastbound routes. Rising OECD refinery throughputs from October, after autumn maintenance, also offered potential support for near-term demand for crude transportation. Still, Japan-bound rates faded to finish August at $8.50/tonne. VLCC rates from the Middle East Gulf to the US Gulf were equally weak in August, remaining flat at around $14/tonne. This compares with rates of $25/tonne at the end of August 2006; a busy period of chartering before OPEC cuts were implemented.

Crude tanker rates from West Africa fell to their lowest point for two years, in $/tonne terms, by early September. Suezmax rates to the US Atlantic finished near $7/tonne, down by $2/tonne on the month. Transatlantic VLCC rates fell by even more. Despite greater demand for eastbound voyages, regional vessel demand has otherwise been undermined by recent refinery outages and approaching maintenance. Caspian production maintenance will reduce September BTC (Baku-Tbilisi-Ceyhan) export volumes, potentially adding downside to Mediterranean Suezmax rates in the coming weeks.

Clean tanker rates broadly fell in August, with the exception of LR1 routes (75,000 tonnes) from the Middle East Gulf to Japan. Rates on this trade rose by $2/tonne on the month to end at over $21/tonne in early September. Support came from firm naphtha demand from North Asian petrochemical plants, plus reports of reduced regional vessel availability following some gasoil arbitrage trade from Asia to Europe. In Western markets, transatlantic 35,000-tonne clean rates to the US drifted from a mid-month peak of $16/tonne to around $13/tonne, despite improving arbitrage economics at the end of August.