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.

IEA July 2007 Report On Tanker Rates

Freight Rates

VLCC rates from the Middle East Gulf drifted below seasonal averages in June, falling most notably on westbound trades. Global volumes of oil at sea are now unseasonably low. The upside potential for rates in the summer, prompted by a decline in Asian refinery maintenance, is diluted by ongoing limits on OPEC exports. Interest in crudes from the Atlantic Basin and Mediterranean pushed rates from these regions slightly higher in June. Ample tonnage eroded clean tanker rates in the Atlantic Basin in June, despite high US gasoline imports.

Tanker trackers report that volumes of oil in transit remain well below seasonal norms, apparently confirming low vessel employment for this time of year. Growing VLCC availability was boosted further in the second half of June by the discharge from several of these two-million barrel vessels which had been storing crude temporarily in the US Gulf. VLCC rates from the Middle East Gulf to US Gulf fell from $20/tonne[$2.73/barrel] at the start of June to around $15/tonne[$2.05/b] in early July.

OPEC cargo reductions continue to undermine any potential for a seasonal rebound in vessel demand as Asian refineries return from maintenance. In line with recent months, Saudi Arabia announced that it will supply 9-10% less crude to refineries in the Far East than contracted volumes in August. VLCC rates from the Middle East Gulf to Japan, now booking for loading in August, are currently around $9/tonne[$1.23/b], down by over $3/tonne from early June. However, eastbound rates have shown signs of rebounding in early July.

Suezmax rates from West Africa to the US Atlantic rose by over $1/tonne, to reach $11.50/tonne[$1.57/b] in the second half of June. Corresponding VLCC rates rose by a similar amount in early July. While these increases coincided with a temporary halt in hostilities from a major rebel group in Nigeria and delays at Nigerian ports, higher Mediterranean chartering was probably more supportive. Black Sea to Med million-barrel rates jumped by $4/tonne in the middle week of June, peaking at almost $12/tonne[$1.64]. There were also reports of improved economics for spot exports of African or FSU grades to the US. Increased interest in Aframax vessels in the Caribbean lent support to late-June rates for the sector and reduced broader vessel availability. Brisk chartering elsewhere contributed to firmness in Aframax rates in the North Sea in June, despite maintenance at production facilities.

Clean product tanker rates fell in June, especially in Western markets. Clean rates for 30,000-tonne trades from Northern Europe to the US Atlantic Coast dropped below $20/tonne[$2.73] at the end of June having started the month near $26/tonne[$3.55]. US gasoline imports remain but increased supply of product tankers in the Atlantic and Mediterranean have had an offsetting effect on spot charter rates. By contrast, limited tanker availability may have bolstered Singapore to Japan clean rates in late June following a quiet month of chartering activity, when refineries increasingly returned to operations.

IEA Oil Market Report July 2007

Crude Oil and Product Tanker Voyage Freight Rates

Charts from June 2007 IEA Oil Market Report

IEA June 2007 Report on Tanker Rates

Crude freight rates gradually eased from near the top of five-year ranges in early May to finish the month below seasonal averages. Floating storage charters in the US Gulf and some increased long-haul trading restrained crude tanker supply. This prevented a dramatic slide in dirty rates, despite Nigerian outages and muted OPEC exports continuing to undermine vessel demand. Refinery maintenance in Asia supported product trade and demand for clean tankers. Low stocks and refinery outages maintained the need for gasoline imports into the US in May.

Trade data reveal that Nigeria was the third-largest provider of crude to the US in March, above Saudi Arabia for the first time. However, extensive outages have now reduced Nigerian export cargoes. OPEC cuts remain in place and Vela spot charters for June are reportedly near three-year lows. Furthermore, refinery maintenance, now focussed on Asia, usually undermines vessel demand in May. Despite these factors, VLCC freight rates had fallen only slightly below five-year averages by the end of May. Middle East Gulf rates to Japan and the US Gulf in early May were well above average, reaching around $13/tonne and $22/tonne respectively. One month later, rates for both routes had only dropped by around $2/tonne. They remain higher, on a $/tonne basis, than almost all rates seen between mid-October and February.

One factor supporting rates has been the reductions to vessel supply caused by the increased use of VLCCs as floating storage in the US Gulf. The prevailing wide contango in WTI has made it economic to charter VLCCs specifically for floating storage. Some VLCCs arriving in the US Gulf with valuable African crude have also invoked a clause to store offshore before discharging.

Vessel supply has been further reduced by incremental long-haul chartering. Asian purchases of West African crude reportedly hit 14-month highs for June on increased buying from China and evidence of the first cargoes for Indonesia in more than a year. Clearly Nigerian exports may be disrupted, but Angolan loading schedules suggest exports there will increase. Furthermore, Indian refiners have been increasingly looking to Mediterranean crude markets and there has even been a recent Chinese purchase of Canadian crude.

Elsewhere in the dirty sector, Nigerian outages caused westbound Atlantic Suezmax rates to weaken by $2-3/tonne in May. Cross-Mediterranean Aframax rates showed their volatility again by falling from sixmonth highs of $21/tonne in early May to 18-month lows of $7/tonne in early June. Aframax demand in June has been dented by a rise in Russian export duties and North Sea maintenance.

Clean product tanker rates rose in May. Asian clean rates were supported by increased trade of productsduring refinery maintenance. Rising Asian petrochemical capacity continues to boost demand for naphtha imports from Saudi Arabia and India. In the Atlantic basin, discharging delays caused an unusually large vessel backlog at Lagos port in late May, temporarily reducing vessel supply. Transatlantic clean rates were further boosted by the continued need for gasoline imports in the US, where stocks remain historically low. UK continent to US Atlantic Coast rates for 33,000-tonne clean cargoes rose by $4/tonne from the start of May to reach $28/tonne in early June.