Freight Rates and Seasonality

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


click on images for larger view

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

Oil-Shipping Rates Fall

Oil-Shipping Rates Fall, Dry-Bulk Rises on Demand
By Todd Zeranski and Katherine Espina
Aug. 16 (Bloomberg)

Shipping rates for oil are plunging as turmoil in credit markets threatens growth, while the cost to haul bulk commodities such as coal and grain rises to a record because of increased demand in China and India.

Concern that falling stock prices may cause economic expansion to slow, reducing fuel demand, caused crude oil to fall more than $2 a barrel today. U.S. oil prices have dropped 11 percent since reaching a record $78.77 on Aug. 1.

This worry, coupled with a traditionally slow summer tanker season, has had an effect on spot oil-tanker rates. The cost of shipping Middle East crude to Asia has fallen by half since March, and rates in the Caribbean, where ships from Colombia, Venezuela and Mexico ferry oil to U.S. refineries, have fallen 41 percent since July 23.

``Dry bulk is on fire,'' Omar Nokta, a managing director at Dahlman Rose & Co. in New York, said in an interview. ``If you put a dry-bulk tanker away (on contract) for three years, you get 20 percent returns. For crude, its 12 percent.''

Rising raw material consumption led by China and India and port bottlenecks in countries including Australia and Brazil, have been pushing the overall Baltic Dry Index to records since Aug. 10. The line of ships waiting to load cargoes in Australia's Newcastle, the world's biggest export harbor for coal, rose to 55 on Aug. 13 from 51 a week earlier, Newcastle Port Corp. said.

Shipping Costs

The Baltic Dry Index, an overall measure of commodity- shipping costs on different routes and ship sizes, added 1.2 percent to a record 7,319 today, according to the Baltic Exchange.

The index has risen 66 percent this year. The rate of hiring capesize ships, the largest type of bulk carriers, rose to a record with gains trickling down to smaller vessels.

``The previous 2008 assessment for capsizes was for an average of $82,000, and now that's changed to $98,000,'' Nokta said. ``At the same time all these dry bulk stocks are down. It's running contrary to what is happening.''

The Baltic Capesize Index, a measure of rates for that class of vessel on different routes around the world, advanced 1.8 percent to a high of 10,010 today, according to the London- based Baltic Exchange. The rate to hire a capesize carrier, which typically hauls 175,000 tons of goods, increased $2,637, or 2.3 percent, to a record $118,425 a day on average, data from the Baltic Exchange showed.

The Baltic Supramax Index, made up of five time-charter routes for that type of vessel, which can haul between 50,000 tons and 59,999 tons of goods, gained 0.3 percent to 4,801. It's been setting records since July 13.

Handysize Rates

The Baltic Handysize Index, which tracks rates on six routes for that type of ship, gained 0.4 percent to a record 2,468 today, according to the Baltic Exchange. It's been closing at daily highs since July 18.

Shares of Diana Shipping Inc. shares have fallen 26 percent this month. Genco Shipping & Trading Ltd. shares have fallen 18 percent, while Eagle Bulk Shipping Inc. shares have fallen 14 percent and DryShips Inc. shares down 13 percent.

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 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).

Worldscale VLCC Freight Rates Yearly Chart

Wordscale Chart of VLCC Freight Rates July 2006 - June 2007


click on image for larger view

(source: Simpson, Spence & Young)

VLCC Chart of Average Earnings US$/day

VLCC Chart of Average Earnings US$/day


click on image for larger view

(source: BRS Annual Review 2007)

Crude Oil and Product Tanker Voyage Freight Rates

Charts from June 2007 IEA Oil Market Report