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.

Freight Rates and Seasonality

From McQuilling Services report - August 15th, 2007:
Freight Rates and Seasonality


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http://www.mcquilling.com/pdfs.asp?ID=Freight%20Rates
click on link for PDF of full report

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

Frontline Downgraded by UBS

Frontline Shares Downgraded by UBS on Outlook for Rental Rates
By Alaric Nightingale
July 13 (Bloomberg)

Shares of Frontline Ltd., the world's largest oil-tanker company by capacity, were downgraded by UBS AG, which said ship-rental rates are poised to fall, cutting the shipping line's ability to pay dividends.

UBS analysts led by Dominic Eldridge in London cut their rating on the stock to ``reduce 2'' from ``neutral 2'' in a note to clients today.

The ``12-month trend'' for tanker-rental rates is ``poor'' because of the supply and demand outlook, the analysts wrote.

Frontline's dividend payout, calculated by UBS at about 11 percent for this year, is ``totally dependent on earnings, which are themselves almost totally dependent upon the level of spot tanker rates,'' they said.

Weekly Oil Tanker Rates - July 6th, 2007 (update)

weighted average of weekly oil tanker rates
chart, graph, crude oil, oil tanker, oil tankers, tanker rates, freight

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Dahlman Rose sees IPOs from 30 shippers by end '08

Dahlman Rose sees IPOs from 30 shippers by end '08
Jun 19, 2007
By Nick Carey

Within the next 18 months the maritime shipping sector could generate up to 30 initial public offerings due to global demand for everything from coal to consumer goods, an industry financier said on Tuesday.

"What's interesting in this sector is that we're seeing rising production combined with rapidly growing demand," said Simon Rose, chief executive of Dahlman Rose, a New York-based boutique investment bank for the energy supply chain sector.

He added that within a year the U.S. markets should see their first IPO from the operator of a fleet of special tankers used to store or move oil from offshore platforms.

Dahlman Rose is currently working on two other offerings that will be announced by the end of June, one in the coal industry, one in offshore drilling. Rose declined to give details.

He said the maritime shipping IPOs over the next 18 months will be primarily focused on the dry bulk sector, with a handful of container shipping companies that haul consumer goods in containers and oil tanker companies.

Dry bulk ships haul bulk commodities like coal, iron ore and agricultural products, with demand driven in part by rapidly growing Asian economies like China and India.

"We've seen a huge growth in iron ore and coal production, and ports are struggling to deal with the extra demand," Rose said. "We expect this situation will continue for some time."

Since Dahlman Rose was founded in 2004 -- Simon Rose is co-founder along with Ernest Dahlman -- the firm has lead managed or co-managed some 20 IPOs or secondary offerings worth around $3.8 billion, primarily in maritime shipping.

At the end of May, the firm opened a new group focused on exploration and production plus oilfield services, which Rose said reflected the global drive for new energy sources.

"We're going to see more deep sea drilling further offshore," Rose said. "Onshore, we're going to see opportunities for companies using different technologies to drill for oil."

Offshore platforms will require Floating Production, Storage and Offloading vessels (FPSOs) -- tankers specially designed to safely take and store oil from these platforms at sea, then transfer them to shuttle tankers to transport to shore.

Rose said there is investor interest in the United States in seeing an FPSO operator -- most operators are currently based in Norway -- either launch an IPO here or dual-list its stock on a U.S. market.

Earlier this month Dahlman Rose arranged the sale of 25.5 million shares of FPSO operator Sea Production, which were owned by Norwegian tanker company Frontline Ltd. , to institutional investors.

The investment bank is also lead manager on the sale of 2.05 million shares in a secondary offering for Tulsa, Oklahoma-based oil and gas exploration company Arena Resources Inc. , which should close Wednesday.

"Arena has done some tremendous work using new technologies in oilfields that were not worth drilling when oil was trading at far lower levels," Rose said.

Seven Changes to Tanker Company Forecasts

Overseas Shipholding Upgraded by JPMorgan on Valuation Change
By Alaric Nightingale
July 6 (Bloomberg)

Shares of Overseas Shipholding Group Inc., the largest U.S.-based oil-tanker owner, were upgraded by analysts at JPMorgan Chase & Co., who said they previously valued the company's fleet of ships incorrectly.

Analysts in New York led by Jonathan Chappell raised their rating to ``overweight'' amid seven changes to their forecasts for tanker companies. The bank's recommendation on Overseas Shipholding had been ``neutral,'' according to data compiled by Bloomberg.

Management meetings uncovered value ``previously ignored by us'' in the vessels New York-based Overseas Shipholding has leased from other shipping lines, ``rendering the shares still inexpensive,'' the analysts wrote in a report published today.

JPMorgan's other actions were all changes to profit estimates. Frontline Ltd., the world's biggest oil-tanker company by capacity, is likely to have made more in the second quarter than the bank previously expected because of higher-than-estimated rental rates for its vessels.

JPMorgan cut its earnings estimates for General Maritime Corp., Tsakos Energy Navigation Ltd. and Top Tankers Inc., and raised the estimates for Nordic American Tanker Shipping Ltd. and Double Hull Tankers Inc.

FRO, GMR, OSG, TNP, DHT, NAT, TOPT

Frontline Shares Rise Most in a Month (FRO)

Frontline Shares Rise Most in a Month on Expected OPEC Supply
By Grant Smith
July 4 (Bloomberg)

Shares of Frontline Ltd., the world's biggest oil-tanker company by carrying capacity, rose the most in more than a month on expectations of increased OPEC supply and as futures contracts indicated freight rates will rally.

The Organization of Petroleum Exporting Countries will probably accede to calls for increased output in the second half of the year as countries in the northern hemisphere seek to bolster stockpiles in preparation for winter fuel demand, according to Anders Kirkhorn Rosenlund, an analyst at ABG Sundal Collier ASA.

``We think OPEC will increase production,'' Rosenlund, who has a ``hold'' recommendation on Frontline shares, said in a telephone interview from Oslo. The share gain was aided by trading in tanker futures contracts, which ``suggest freight rates will more than double'' over the next five months, Rosenlund said.

Futures contracts on the benchmark route between the Persian Gulf and Japan show an increase of 119.2 percent between the front and fifth months, according to data provided by Oslo-based derivatives broker Imarex NOS ASA.

Shares of Hamilton, Bermuda-based Frontline closed up 15.5 kroner, or 5.7 percent, at 287 kroner in Oslo, their biggest gain since May 31. The shares have advanced 5 percent this week, valuing the company at 21.5 billion kroner ($3.69 billion).

Frontline Is Upgraded (FRO)

Frontline Is Upgraded by Fondsfinans on OPEC Outlook
By Alaric Nightingale
June 19 (Bloomberg)

Shares of Frontline Ltd., the world's biggest oil-tanker company by carrying capacity, were upgraded by Norwegian stockbroker Fondsfinans ASA on expectations OPEC will pump more oil, boosting shipping demand.

Analysts led by Arne Roenning in Oslo raised their recommendation on Frontline's shares to ``buy'' from ``sell'' in a note to clients today.

They also increased their share-price target for the Hamilton, Bermuda-based shipping line to 350 Norwegian kroner ($58.12) from 250 kroner. The stock rose 4 kroner, or 1.5 percent, to 276 kroner in Oslo.

``We expect OPEC to open up the tap in the second half to keep crude prices at sustainable levels,'' the analysts wrote. ``The effect will be rising tanker demand and freight rates.''

The Organization of Petroleum Exporting Countries will have to produce an extra 1.7 million barrels a day next year to keep global supply and demand balanced, Fondsfinans said, citing estimates by Energy Market Consultants.

``Last time we saw an increase of this magnitude was in 2004,'' the analysts said. ``The effect was record-high tanker rates'' of $250,000 a day for the largest class of supertankers known as very large crude carriers, or VLCCs.

FRO

Worldscale VLCC Freight Rates Yearly Chart

Wordscale Chart of VLCC Freight Rates July 2006 - June 2007


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(source: Simpson, Spence & Young)

VLCC Chart of Average Earnings US$/day

VLCC Chart of Average Earnings US$/day


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(source: BRS Annual Review 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.