Oil Traders Seek Tankers For Storage

Oil Traders Seek Another 10 Tankers, Frontline Says
By Alaric Nightingale
Bloomberg
Jan. 7

Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year.

About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

The traders would buy crude now and sell it for delivery later, profiting from a futures market situation called contango where prices are higher as the year progresses. The vessels could handle as much as 20 million barrels, or about what is produced by OPEC member Algeria in 15 days. They would add to as much as 50 million barrels already hoarded at sea, for a combined amount equal to almost five days of European Union demand.

“I’ve never before seen storage demand on this scale,” said Didier Labat, a Paris-based shipbroker at Barry Rogliano Salles who has worked in tanker markets for about 20 years.

Commodities prices fell the most in five decades last year, with crude dropping more than $100 from the peak of $147.27 a barrel in July, as simultaneous recessions hit the U.S., Europe and Japan. Oil demand in 2008 fell for the first time since 1983, according to the Paris-based International Energy Agency.

Thirty-five supertankers represent about 7 percent of the global fleet of very large crude carriers, according to data from London-based Drewry Shipping Consultants Ltd. Storing oil in tankers may buoy rental rates that fell by a record 78 percent last year as slower economic growth sapped demand for energy.

Financing Costs

Traders are seeking to lease ships for three to nine months, Jensen said. Crude oil for December delivery settled at $58.74 a barrel on the New York Mercantile Exchange today, $16.11 more than the February contract. Oil companies and traders may be able to profit from storing the oil, assuming shipping, insurance and financing costs are covered.

A supertanker would cost about 90 cents a barrel a month for storage depending on the length of the rental, according to data last month from shipbroker Galbraith’s Ltd.

Iran, the second-largest member of the Organization of Petroleum Exporting Countries after Saudi Arabia, idled as many as 15 of its biggest ships in May to store crude oil. That contributed to three consecutive months of higher rental rates for ships.

The cost of delivering Middle East oil to Asia, the world’s busiest route for supertankers, rose yesterday for the first time since Dec. 5, according to the Baltic Exchange in London.

Forward freight agreements advanced. The derivatives are used by traders to bet on the future price of hauling Saudi Arabian cargoes to Japan, an industry benchmark.

Derivatives Advance

The contracts traded at about 46 Worldscale points for the fourth quarter, according to prices from Oslo-based broker Imarex ASA as of 10:34 a.m. London time. They closed at 45 yesterday.

Worldscale points are a percentage of a nominal rate for more than 320,000 specific routes. They give owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

Frontline, based in Bermuda, has advanced 13 percent in Oslo trading this year. The five-member Bloomberg Tanker Index has gained 12 percent.

Oman to Spend $4 Billion on Shipping Fleet

Oman to spend $4bn on shipping fleet
by Luke Pachymuthu
Monday, 24 March 2008
ArabianBusiness.com

Oman's state shipping firm will spend up to $4 billion in the next three to four years to expand its fleet size, a senior company official said, part of the sultanate's efforts to upgrade its oil industry.

Oman Shipping Company (OSC) is looking to grow its fleet mainly to meet demand for energy transportation, Chief Financial Officer (CFO) Kuldeep Mathur told newswire Reuters in a recent phone interview.

"We are expanding the fleet with a view of the future demands for our export grade crudes and products," he said.


Part of OSC's multi-billion dollar expansion includes a recent order to build 10 Very Large Crude Carriers (VLCCs), Mathur said.

In February, OSC placed two separate orders with South Korea's Hyundai Heavy Industries Company, the world's largest shipbuilder, to build five supertankers, and with Daewoo Shipbuilding and Marine Engineering Company to build another five VLCC's. The deals were valued at about $770 million each.

OSC is in discussions with the National Iranian Tanker Company (NITC) on securing a long-term charter contract for at least five of the recently ordered supertankers, Mathur said.

"Yes, we are discussing the option with them, along with others, but we are not decided yet," Mathur said declining to offer details.

International pressure and the implementation of broad-based sanctions on Iran, led by the US, have made it difficult for the Islamic republic to access funding from financial institutions.

"Sleeving through Oman would make sense, because it allows for Iran to get around the issue of financing," said a Singapore-based sales and purchase shipping broker, referring to the practice when one firm with limited credit uses another with better credit to do a trade on its behalf for a fee.

NITC was not immediately available for comment.

The expansion planned by OSC, whose stakeholders are the Ministry of Finance and Oman Oil Company, is part of the sultanate's broader vision to upgrade its shipping and chartering sector and depend less on leased vessels.

Oman, like other Gulf states, is also trying to diversify its economy away from oil, which generates almost half its gross domestic product but is seeing declining production.

OSC boasts a current fleet size of seven liquefied natural gas (LNG) tankers and two clean tankers, with four oil tankers including a VLCC and Very Large Gas Carrier on the order book.

The CFO said part of the expansion plan included growing the company's clean tanker fleet, by adding between 15 and 20 refined product tankers.

"We are looking at new and considering buying second-hand clean product tankers as well... we have certain refineries in Oman and taking position on this to provide employment prospects for these vessels," Mathur said, without giving details.

Oman, which operates two refineries - Oman Refinery Company and Sohar Refinery Company with a combined capacity of more than 225,000 barrels per day (bpd) - is planning a third facility of about 300,000 bpd at the southeastern city of Al-Duqm.

The proposed refinery, part of the Duqm Refining and Petrochemical Complex and is due for completion in 2012, will have a significant refined product export slate, sources familiar with the project said.

"We should see more potential for export of light distillate products like naphtha and gasoline to support growing regional demand," Mathur said.

Financing for the company's fleet expansion could likely come via loan arrangements from the North Asian institutions, Japan Bank for International Cooperation, Korea Export Insurance Corporation (KEIC), or European banks BNP Paribas and Societe Generale, Mathur said.

"We have a very good relationship with several banks, and could look to either one to finance our expansion plans," he added.

He said the expansion would include some general cargo and multi-purpose vessels. The firm now operates two Supramax bulk vessels. (Reuters)

Persian Gulf Tanker Rates May Drop

Persian Gulf Tanker Rates May Drop as Refineries Delay Cargoes
By Alaric Nightingale
Dec. 20 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may drop as oil companies resist paying record prices to hire ships.

Very large crude carriers, or VLCCs, are making about $300,000 a day on benchmark international trade routes to Asia, according to prices compiled by Bloomberg. In 2004, the previous record year, they made $290,000 a day, according to London-based shipbroker Galbraith's Ltd.

Charterers who hire ships for oil companies may now be ``holding back if possible for fear of paying too much,'' Charlie Fowle, a director at the company, said in an e-mailed note today.

Sinochem Corp., China's biggest chemicals trader, hired the tanker C. Champion at a rate of 285 Worldscale points, according to a report today from Oslo-based shipbroker PF Bassoe AS. That's 10 percent below the London-based Baltic Exchange's benchmark rate of 317.66 points for voyages to Asia.

Higher Rates

Flat rates for ships loading next year are higher than those in 2007 because of record refueling costs. The Baltic Exchange's assessments reflect 2007 flat rates until the end of the year.

At 317.66 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $297,0777 a day on a 39-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

That means costs for Japanese refineries fell 0.4 percent to $7.42 a barrel from $7.45 a barrel on Dec. 18.

There are 23 modern two-hulled tankers available for hire within the next 30 days, according to a report today from Paris- based Barry Rogliano Salles. There were 40 such ships competing for cargoes two months ago, according to the shipbroker.

Hebei Spirit

South Korea Battles Biggest Oil Spill in 4 1/2 Years
By Sungwoo Park and Bomi Lim
Dec. 7 (Bloomberg)

South Korea battled to contain the world's biggest oil spill in 4 1/2 years after a supertanker collided with a barge near Hyundai Oilbank Co.'s refinery on the nation's west coast.

The collision caused three holes on the ship's side and 10,500 metric tons (78,750 barrels) of crude oil was spilled, the Ministry of Maritime Affairs and Fisheries said in a statement today. The Hebei Spirit has stopped leaking and the slick is 7.4 kilometers (4.6 miles) long and 2 kilometers wide, it said.

Hebei Spirit is fitted with one hull, according to Lloyd's Register-Fairplay, which assigns ship-registration numbers. An international ban on such ships is due to start in 2010. Modern tankers are fitted with two hulls to cut the risk of an oil spill and are usually more expensive to hire.

South Korean oil companies are probably the world's ``biggest users'' of single-hull tankers, Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. ``This might change policies in Korea and that would be tremendous for the market.''

The government will form a committee comprising oil-spill experts and seek help from residents of nearby regions to contain the slick, according to the statement. The vessel held 263,000 tons of crude oil and there were no casualties, it said.

The spill is the worst in South Korea's history and the biggest anywhere since the Tasman Spirit leaked about 27,000 tons of oil at the port of Karachi in Pakistan in July 2003, Tim Wadsworth, technical support manager for the International Tanker Owners Pollution Federation Ltd. in London, said by phone.

Barge Crashes

The oil leaked after a crane on the barge crashed into the Hebei Spirit at 7:15 a.m. local time, said Jeong Seong Mun, deputy director at the ministry's safety information center. The barge, owned by Samsung Heavy Industries Co., suffered minor damage, the ministry said in an earlier statement.

The leak is almost a third of the 37,000 tons spilled into Prince William Sound, Alaska, by the Exxon Valdez in 1989, according to data on the International Tanker Owners Pollution Federation's Web site.

Today's spill surpasses a 1995 accident in South Korean waters, when 5,000 tons of oil leaked at Yeosu, 455 kilometers south of Seoul. The country mobilized 166,905 people, 8,295 boats and 45 aircraft to contain the spill, which resulted in 9.6 billion won ($104 million) of economic losses, the ministry said in a statement.

The government has sent 30 patrol boats, 4 helicopters and 10 oil-spill control vessels to the site of the latest spill and is yet to assess its economic impact, said Lee Woo Sung, an official at the ministry.

Natural Resources

The environment ministry is studying what damage the spill may have caused, Cho Gyu Won, an assistant director at the ministry's natural resources division, said from Gwacheon, near Seoul.

The tanker was carrying crude oil for Hyundai Oilbank's refinery at Daesan, Kim Sung Yong, a spokesman for the company, said by telephone. South Korea's fourth-biggest oil refiner may reduce processing at its 390,000 barrels-a-day Daesan plant following the spill, said company officials who asked not to be identified.

Hyundai Oilbank's Kim said the crude-oil processing rate at the refinery remains unchanged at about 80 percent of capacity. The company is using its stockpiles and will ask state-run Korea National Oil Corp. for an emergency supply, if needed, he said.

The very large crude carrier, or VLCC, capable of carrying more than 2 million barrels of oil, is registered to Hong Kong- based Hebei Ocean Shipping Co., according to data compiled by Bloomberg. A man who answered the phone at the company's office wouldn't comment and declined to identify himself.

Single Hull

Of the eight VLCCs listed on Hebei Ocean's Web site, at least six are fitted with a single hull, according to the Lloyd's Register-Fairplay database.

The accident led owners of double-hull tankers to raise prices for leasing the vessels by 15 percent compared with benchmark prices yesterday, Charlie Fowle, a director at London- based shipbroker Galbraith's Ltd., said by phone today.

Contracts called forward freight agreements that indicate the future cost of shipping oil jumped by as much as 8 percent, according to Ben Goggin, head of tanker FFAs at broker London- based SSY Futures Ltd.

Asian Aframax Rate Gains Most Since 2005

Asian Aframax Rate Gains Most Since Feb. 2005 on Yearend Demand
By Katherine Espina
Dec. 12 (Bloomberg)

Asian aframax rates rose the most in two years and nine months, benefiting from higher costs for chartering bigger tankers and boosted by increased shipments for January ahead of the yearend holidays.

The rate to transport 80,000 metric tons of fuel from Kuwait to Singapore jumped 12 percent yesterday to Worldscale 233.75, according to the London-based Baltic Exchange. The gain is the biggest since Feb. 23, 2005, when the rate rose 16 percent. Shipping a ton of fuel on the route costs $19.94, based on Bloomberg data.

Hiring rates of supertankers, also known as very large crude carriers or VLCCs, on the Middle East to Far East routes have risen almost four percent since November, prompting charterers to split cargoes so smaller ships like suezmaxes and aframaxes can move them. Supertanker rates may extend gains after an oil spill in South Korea last week involving a single- hull vessel increased speculation of more demand for two-hull tankers.

``There is a knock-on effect from VLCC rates rising,'' Takeshi Ando at the tanker team of shipbroker Matsui & Co. in Tokyo said. ``Aframax owners don't like to offer below VLCC rates so I expect this sector will still go up,'' Ando said by phone.

The hiring rate for a supertanker on the Middle East-Japan route rose 5.5 percent yesterday to Worldscale 227.19, advancing more than fourfold since the start of the year, according to the Baltic Exchange's data. A supertanker on the Middle East-Singapore route gained 5.6 percent to Worldscale 231.56, its fourth day of gains.

Winter Demand

Aframax rates on the Middle East-Singapore route surged 4.5 percent last week, bringing gains in the past eight weeks to 78 percent, as transport demand rose to meet fuel needs for the Northern Hemisphere winter and shipowners passed on the additional costs from higher bunker prices.

Five aframaxes, capable of moving a total of 543,920 tons of fuel, are scheduled to arrive in Singapore this week while one with 113,013-ton capacity will arrive next week, according to Bloomberg data. That compares with three last week, with the capacity to haul a total of 309,880 tons of fuel.

The collision between a barge and the single-hulled supertanker Hebei Spirit on Dec. 7 in South Korea spilt 10,500 metric tons (78,750 barrels) of oil, the worst oil spill in the world in four-and-a-half years.

The following is a table of rates to charter smaller tankers capable of carrying less than 1 million barrels of crude oil or oil products on Asian routes as of Dec. 11, according to the Baltic Exchange.

--------------------------------------------------------------
Route Tons Rate Change Carrier
--------------------------------------------------------------
Kuwait-Singapore 80,000 233.75 +11.86% Aframax
Persian Gulf-Japan 75,000 209.17 +0.40% Oil Product Tanker
Singapore-Japan 30,000 312.50 0% Oil Product Tanker
Middle East-Japan 55,000 251.73 +0.23% Oil Product Tanker
--------------------------------------------------------------

Persian Gulf Rates Surge Most in Three Years

Persian Gulf Oil-Tanker Rates Surge Most in Almost Three Years
By Alaric Nightingale
Nov. 23 (Bloomberg)

The cost of shipping Middle East crude oil to Asia, the world's busiest market for supertankers, climbed by the most in almost three years as demand eliminated a glut of ships that were competing for cargoes.

Hire rates for the key benchmark voyage to Japan climbed 29.5 percent today, the biggest one-day increase since Jan. 30, 2005, according to data from the London-based Baltic Exchange.

Supply of tankers to load in the first half of December is getting ``tighter and tighter,'' Atsuto Otani, a London-based broker at Galbraith's Ltd., said by phone today. ``Sometimes when cargoes rush into the market, charterers just panic and pay up.''

PTT Pcl, Thailand's biggest energy company, hired the vessel Asian Progress II at a rate of 134 Worldscale points, Oslo-based shipbroker PF Bassoe A/S said in a report today. The Baltic Exchange's benchmark rate for a comparable voyage to Singapore rose to 130 points.

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.

Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

At 130 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $85,498 a day on a 25- day round trip from Saudi Arabia to Singapore, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

`Plenty' of Vessels

Gains may be tempered once refineries start booking ships to load after Dec. 20 when ``plenty'' of vessels will become available, Otani said. Out of the 64 tankers so far hired to load in December, none have been arranged to load after the 20th of the month, Paris-based shipbroker Barry Rogliano said in an e- mailed report today.

There are 52 carriers available for hire up to Dec. 23, according to Barry Rogliano. That compares with 52 likely outstanding cargoes for the remainder of the month.

Demand for crude oil will rise 2.8 percent in the first quarter of 2008, the biggest year-on-year gain since the first three months of 2005, according to data from the Paris-based International Energy Agency.

Frontline Ltd., the world's biggest VLCC operator, said Nov. 15 it needs $30,000 a day to break even on each of its supertankers.

Bookings for VLCCs sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.

Asian Aframax Rates May Rise a Sixth Week on December Cargoes
By Katherine Espina
Nov. 23 (Bloomberg)

Asian aframax rates may extend gains for a sixth week on increased demand for December cargoes before the Northern Hemisphere winter.

The rate to transport 80,000 metric tons of fuel from Kuwait to Singapore, the world's fourth-busiest route for such ships, rose 0.9 percent to Worldscale 148.86 yesterday, the highest since July 3, according to the London-based Baltic Exchange. Shipping a ton of fuel on the route costs $13.96, based on Bloomberg data.

Aframax rates on the Middle East-Singapore route have gained 27 percent in the past five weeks, boosted by higher bunker prices and shipments of November cargoes. The surge in rates of supertankers, also known as very large crude carriers or VLCCs, may boost charter fees of smaller ships like aframaxes.

The hiring rate of supertankers for the benchmark voyage to Japan climbed 20 percent yesterday, the biggest one-day increase since March 11, 2005, according to data from the Baltic Exchange. A supertanker can transport 2 million barrels of oil.

``The jump in the VLCC market will initially boost sentiment,'' Channa Munasinghe, director at Singapore-based shipbroker Alliance Tanker Chartering Pte, said in a phone interview today. Cargoes for supertankers may eventually be split for transport into smaller vessels.

That ``could potentially create a jump, not immediately but in about two to three weeks,'' Munasinghe said. Rates for aframaxes may rise 5 to 10 points next week, he said.

Exxon Mobil

``The stronger VLCC market should in turn lead to an improved sentiment for smaller tanker tonnage,'' Henrik With and Glenn Lodden, analysts at Oslo-based DnB NOR Markets, said in a weekly report.

Four aframaxes, which are able to transport a combined 439,703 deadweight tons of cargo, are scheduled to arrive in Singapore this week, and one, capable of moving 98,570 tons, next week, according to Bloomberg data.

Exxon Mobil Corp. hired the tanker Aegean Harmony to transport 90,000 tons of fuel oil on Nov. 22 at the rate of Worldscale 170, Seatown Shipbroking Pte in Singapore said in a report today.

At that rate, moving 80,000 tons of fuel oil will cost Worldscale 151.10, a 1.5 percent premium to prices quoted on the Baltic Exchange for the Middle-East to Singapore route.

The double-hulled Aegean Harmony was built in 2007 by South Korea's Samsung Heavy Industries Co., according to Bloomberg data. Exxon is the world's largest oil company.

Southeast Asia is the world's busiest aframax market after the Mediterranean. The Caribbean is the third busiest.

OSG Q3 Profit Falls 71%

Overseas Shipholding Third-Quarter Profit Falls 71%
By Todd Zeranski
Oct. 29 (Bloomberg)

Overseas Shipholding Group, the largest U.S.-based oil tanker owner, said third-quarter profit fell 71 percent as the company was paid less for oil deliveries.

Net income declined to $26.6 million, or 83 cents a share, from $90.8 million, or $2.29, a year earlier, the New York-based company said in a statement today. The average estimate of 12 analysts surveyed by Bloomberg was 70 cents a share. Revenue rose 4.3 percent to $277.2 million.

Shipping rates have fallen 19 percent this year, according to the Baltic Dirty Tanker Index. The decline is due at least partly to ship supply outpacing crude-oil demand. While the size of the world fleet expanded 3.8 percent, demand increased 1.7 percent, according to the International Energy Agency.

``They're going to have a tough couple of quarters, this and next,'' Natasha Boyden, a Cantor Fitzgerald LP analyst, who has a ``buy'' rating on the stock, said. ``The rates haven't rebounded like we thought they would. Weather hasn't been helpful, and that's usually the biggest driver.''

Overseas Shipholding was unchanged at $69.21 in New York Stock Exchange composite trading. The stock has risen 23 percent this year.

Profit included a gain from sales of vessels of $1.5 million, or 5 cents a share. The year-ago quarter had a gain of $15.8 million, or 39 cents.

Oil is up 53 percent in 2007 and reached a record $93.80 a barrel in New York Mercantile Exchange trading today.

Tanker Fleet

The world fleet will increase by as much as 32 percent during the next five years, estimates Lloyd's Register-Fairplay, the company that assigns ship registration numbers.

``We hope we would see asset values come down, as rates have been depressed for several quarters,'' Boyden said. Overseas Shipholding ``would like to see that, because they would be able to buy.''

Last month, Overseas Shipping said it would add four Suezmax carriers, which can each transport 1 million barrels of oil, to its fleet. The company owned or operated 51 crude-oil tankers at the end of the quarter, including 20 very large crude carriers, or VLCCs, which can carry 2 million barrels of oil.

The company has booked 44 percent of the fourth quarter for its VLCCs at an average rate of $25,500 a day. For its Aframax tankers, which can transport 600,000 barrels of oil, it has booked 13 percent of the quarter at a spot charter rate of $17,000 a day.

VLCC Fleet

The company's VLCCs operate mainly out of the Persian Gulf on routes to Asia and the U.S. The tanker owner said it was paid an average of $34,802 a day for its VLCCs in the quarter, a 50 percent decrease. Its break-even point for VLCCs is $17,400.

Its Aframax tankers earned an average spot rate of $24,614, from $34,952 a day a year earlier, a 30 percent decline.

Overseas Shipholding's U.S.-flag fleet ships crude oil and refined products between U.S. ports under the Jones Act, a 1920 law that requires commercial vessels operated between U.S. ports to be built in the U.S., crewed by Americans and owned by an American company.

Revenue for its U.S. fleet nearly tripled to $53.8 million.

Analysts Trash Tanker Stocks

Frontline, Teekay Crash Nears Amid Tanker Glut, Crude
By Alaric Nightingale and Todd Zeranski
Oct. 22 (Bloomberg)

The record increase in oil prices and the unprecedented number of new tankers transporting crude is a stock market crash waiting to happen.

That, at least, is the growing consensus among analysts who say the widening gap between West Texas Intermediate crude and the rate for supertankers shipping Middle East oil to Asia means industry titans Frontline Ltd., Overseas Shipholding Group Inc. and Teekay Corp. have unsustainable valuations.

The Bloomberg Tanker Index has risen 44 percent in the past two years, even as freight rates sank 49 percent. The price of marine fuel, the biggest cost for shipowners, has advanced 44 percent in that time, reaching a record $446.50 a metric ton on Oct. 17. The number of ships available is close to a record.

``It doesn't look good at all,'' said Andreas Vergottis, who helps manage $1.2 billion at Isle of Man-based Tufton Oceanic Ltd., the world's biggest hedge fund dedicated to shipping. ``We've got a wall of worry and a wall of new buildings flooding the market ahead of us.'' He said the stocks are 30 percent overvalued.

Frontline, the world's biggest operator of supertankers, reached a record low of 3.80 kroner in December 1998. The stock this year has gained 30 percent and was trading 2.1 percent lower at 233 kroner as of 12:03 p.m. in Oslo. The gain has helped make Chairman John Fredriksen into Norway's richest man, with a fortune that Forbes magazine estimates at $7 billion.

Too Many Ships

The looming decline for tanker stocks is a legacy of the biggest tanker construction program in history. Teekay, Frontline and Overseas Shipholding in 2004 earned a combined $2.2 billion, triple the level of a year earlier, because of a jump in world oil demand. They used that profit to help order 522 tankers from builders including Hyundai Heavy Industries Co. and Samsung Heavy Industries Co.

The size of the oil tanker fleet expanded 3.8 percent this year, overwhelming the 1.7 percent increase in crude oil demand estimated by the International Energy Agency. The fleet will increase by as much as 32 percent during the next five years, estimates Lloyd's Register-Fairplay, the company that assigns ship registration numbers.

Tankers are being built at the fastest rate ever, according to Clarkson Plc, the world's largest shipbroker, which began collecting industry data in 1852.

Tankers capable of hauling 1.2 billion barrels of crude, equal to about two weeks of global oil consumption, will enter service in the six years that end in 2009, according to Clarkson. The total is 1 percent higher than the previous record, from the 1970s.

Straight to Scrapyards

Ship demand at that time slowed, and newly built tankers were sent straight to demolition, said Per Mansson, a shipbroker for Nor Ocean Stockholm AB, a former second mate and executive at Frontline before Fredriksen bought the company. Some tankers hauled one cargo from Asian shipyards to northwest Europe, only to be laid up in the fjords of Norway, he said.

``It got so bad that, on one voyage from Sweden to Venezuela, we turned the engine off and went with the current down to the Caribbean because fuel was so expensive,'' said Mansson, 55. ``We got a telegram from Exxon to go at 7 knots, so we just floated down.''

The Bloomberg Tanker Index has gained 32 percent this year, outpacing a 5.8 percent increase in the Standard & Poor's 500 Index, and a 6.4 percent drop in U.S. government 10-year bonds. Oil is up 41 percent and reached a record $90.07 a barrel in New York Mercantile Exchange trading on Oct. 19.

Teekay has appreciated 32 percent this year to $57.72 on the New York Stock Exchange, valuing the Bahamas-based company at $4.3 billion. Overseas Shipholding, based in New York, has advanced 27 percent to $71.56.

Demolitions

Shares of Frontline are heading for an 11 percent decline, according to Henrik With, the DnB Nor Markets analyst whose advice on Frontline gave clients a 91 percent gain in the past year. Teekay may decline 26 percent, he forecasts. Among all analysts tracked by Bloomberg, at least 70 percent say the two stocks aren't worth buying.

Frontline Chief Executive Officer Bjoern Sjaastad in an interview said oil carriers will be sold and converted to haul bulk commodities, easing the ship surplus. Also, the speed of demolitions ``will go a lot faster than many people think,'' bolstering freight rates, he said.

Teekay spokeswoman Alana Duffy said the company can't comment before an earnings release at the end of the month. Overseas Shipholding spokeswoman Jen Schlueter said CEO Morten Arntzen wasn't immediately available for an interview.

Time Charters

Shipowners can protect against a drop in the single-voyage market by leasing vessels on so-called time charter contracts that can last months or years, while paying a fixed amount.

About 40 percent of Frontline's ships had such protection for 2007 and 2008, according to an Aug. 22 statement. Seventeen percent of Teekay's 111 carriers had such contracts, while none of Overseas Shipholding Group's biggest carriers had such deals.

Teekay protects itself against increases in the cost of marine fuel. Frontline and Overseas Shipholding don't. The industry's pricing mechanism, known as Worldscale, is updated once a year to reflect changing fuel prices.

Demand for single-voyage charters is ``stuck in a rut'' because the soaring price of oil is squeezing refiners and discouraging purchases, said Omar Nokta, an analyst at Dahlman Rose & Co. in New York. He advises investors hold their Frontline shares.

Losing Money

Refineries are losing 63 cents on each barrel they process in Europe, compared with a profit of $7.86 in May, because crude costs are rising faster than prices for gasoline and diesel, according to data compiled by Bloomberg.

``All this weakness is stemming from refineries not being in the market,'' said Nokta, whose call on Frontline during the past year led to a 35 percent profit for investors.

Analysts value shipping stocks in relation to the cost of second-hand tankers. From December 2003 through July 2007, those ship values more than doubled, according to data from the London- based Baltic Exchange. Since then, ship prices have dipped, exchange data show.

``Asset values will fall and dividend payments must be cut,'' said DnB Nor Markets' With. ``Too much fleet capacity coming on stream will put pressure on earnings from 2008 to 2010.''

Freight Rates

Falling freight rates and record fuel costs have given shipowners their longest string of losses in five years, according to Citigroup Inc., the third-largest lender to the shipping industry. So-called very large crude carriers, which transport about 2 million barrels, are losing more than $13,000 a day in the market for day-to-day charters. Shipowners are spending more on fuel and debt payments than they collect in rent.

Suezmax vessels, the biggest tankers that can navigate Egypt's Suez canal while full, are losing more than $10,000 a day. Owners of aframaxes, 600,000-barrel carriers that usually haul crude within the same continent, are losing about $13,000 a day, Citigroup estimates.

Thirty of the largest tankers may be sold and converted into carriers for grain, coal and iron ore, markets where freight rates are at a record high, Frontline's Sjaastad said.

``For the next 15 months, there isn't going to be substantial additions to the fleet, you'll have depletions going to dry bulk,'' said Dahlman Rose's Nokta. ``If you have the demand push, then they'll be able to absorb the vessels. Demand would keep a natural floor.''

China's economy is growing at almost 12 percent a year and India's by 9.3 percent, spurring demand for oil, steel, iron ore and coal.

No Cargoes

Some 50 supertankers have failed to find cargoes in the past month, and vessels will compete for consignments in November, extending declines for owners, forecasts Paris-based shipbroker Barry Rogliano Salles.

Relief may not come until 2010, when the United Nations' shipping agency, the International Maritime Organization, adopts a ban on single-hull tankers, those at greatest risk of spilling oil in the event of an accident. Once the policy takes full force five years later, the only tankers plying the oceans must have two steel hulls.

``Everything now is about what happens between today and 2010,'' says Ole Stenhagen, an analyst at SEB Enskilda in Oslo. ``We are in for a real dip in rates and a rough environment.''

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anj25lHh6K4E

Aframax Rates Rise

Caribbean Tanker Rate Increases on Competition From Europe
By Todd Zeranski
Oct. 18 (Bloomberg)

The rate to transport oil from the Caribbean advanced, spurred by higher prices in European shipping markets.

``Mediterranean activity has increased, so some owners are moving there,'' said Mike Jedlicke, a broker at Dietze & Associates LLC in Wilton, Connecticut. ``That's thinning out'' the number of available vessels, straining Caribbean supply.

Stronger Aframax bookings in the Mediterranean and the Black Sea forces Caribbean-area charterers to pay higher rates to keep vessels in the region.

The average Aframax rate advanced 15 points, or 11 percent, to Worldscale 155. WS 155 is equal to about $20,325 a day, after expenses such as fuel and port fees.

The rate fell to WS 92.5 on Sept. 11, the lowest since 2001, according to Bloomberg data. Rates increased 22 percent yesterday and are up 48 percent this week.

Malaysia's Eagle Anaheim Nereo is scheduled to reach its Houston destination on Oct. 21, according to Bloomberg data.

The Caribbean is the world's third-largest Aframax-tanker market after the Mediterranean and Southeast Asia. An Aframax is the most common tanker used to move oil in the region.

Persian Gulf Tanker Rates May Rise as Fuel Prices Crimp Income
By Alaric Nightingale
Oct. 18 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise for an eighth day as soaring refueling prices continue to crimp income from rentals.

Record marine fuel, or bunker, costs mean some owners, who rented extra tankers at fixed prices anticipating rising demand in the northern hemisphere winter, may be losing about $30,000 a day when they lease out those ships in the day-to-day, or spot market, Charlie Fowle, a director at London-based shipbroker Galbraith's Ltd., said by phone today.

``The bunker factor at the moment is dramatic,'' Fowle said. ``Just to get the same return, owners need 10 to 20 percent more'' from the oil companies who book their ships.

Hyundai Merchant Marine, a South Korean shipowner, hired the tanker Hebei Spirit at a rate of 59 Worldscale points, according to a report from Athens-based Optima Shipbrokers today. That's 3.5 percent above the London-based Baltic Exchange's benchmark assessment of 57.03 Worldscale points for cargoes to Asia.

Hebei Spirit should normally cost less to hire than the benchmark because it's fitted with one steel hull separating its cargo from the ocean. The exchange's assessment also includes carriers with two steel hulls that cut the risk of an oil spill in the event of an accident and usually have better engines.

At 57.03 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $20,024 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

A week ago, the same rate of 57.03 points would have earned $3,500 a day more when the cost of bunkers was 9 percent cheaper.

Bloomberg Roundup October 11th

Asian Aframax Rate Falls on Limited Cargoes, Ship Supply Gain
By Katherine Espina
Oct. 11 (Bloomberg)

Asian rates for oil tankers that can carry 80,000 metric tons fell for a third day on limited cargoes from the Middle East, causing an oversupply of vessels.

The aframax rate for transporting oil from Kuwait to Singapore, the world's fourth-busiest route for such vessels, dropped 0.08 percent to Worldscale 115.83 yesterday, according to data from the London-based Baltic Exchange. Shipping a ton of fuel on the route costs $11.96, according to Bloomberg data.

``There could be some more room for rates to go down given there are plenty of vessels and little activity,'' Takeshi Ando, a shipbroker at Matsui & Co., said by phone from Tokyo.

Aframax rates have declined 7 percent in the past four weeks, as holidays in China slowed chartering and higher fuel oil prices in Fujairah, the Middle East's largest bunker port, discouraged shipments to the Far East.

Only two aframax tankers capable of moving 215,415 tons of fuel are scheduled to arrive in Singapore next week compared with this week's four, which are able to transport 412,305 tons, Bloomberg data showed. About five to 10 aframaxes are waiting for employment in Singapore this week, shipbrokers said.

Rising supply of new vessels may also contribute to declining rates. More than 240 aframax tankers are on order for the next five years, adding to the 728 units at the end of 2006, France-based shipbroker Barry Rogliano Salles said in its review of the tanker market.

Southeast Asia is the world's second-busiest aframax market, after the Mediterranean. The Caribbean is the third busiest.

Other freight rates. Source: Baltic Exchange:

Route               Tons    Rate   Change   Carrier
Kuwait-Singapore    80,000  115.83  -0.08%  Aframax
Indonesia-Japan     80,000  110.00  -4.35%  Aframax
Persian Gulf-Japan  75,000  113.75  +0.92%  Oil Product Tanker
Singapore-Japan     30,000  202.00  -0.04%  Oil Product Tanker
Middle East-Japan   55,000  161.73  +4.5%   Oil Product Tanker

Persian-Gulf Tanker Costs May Resume Decline on Glut of Ships
By Alaric Nightingale
Oct. 11 (Bloomberg)

The cost of shipping Middle East crude to Asia, which advanced for the first time in 10 days yesterday, may resume its decline as a glut of ships will counter increased demand for cargo from Saudi Arabia.

The London-based Baltic Exchange's key ship-rental rate rose as refinery officials said Dahran-based Saudi Aramco will supply Asian customers with full crude-oil volumes for the first time in a year from November. The company previously cut volumes by 9-10 percent. The Organization of Petroleum Exporting Countries has pledged to boost output from next month by 500,000 barrels a day.

``I don't see the market picking up,'' said Mathieu Philippe, a tanker broker in Dubai at Paris-based Barry Rogliano Salles. ``There are plenty of ships around. I don't think these announcements will have any effect for the next few days.''

Fifty-seven tankers that so far haven't been hired are able to reach ports by Oct. 31, according to a Barry Rogliano report, meaning oil-company officials will have a surplus of vessels to use when November bookings get under way.

The Baltic Exchange's rental rate, used in negotiations between shipowners and oil companies and to settle freight hedging contracts, advanced 2.3 percent to 51.64 Worldscale points yesterday, its first gain since Sept. 27.

At 51.64 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $17,662 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel oil prices.

Frontline Ltd., the world's biggest VLCC operator, said Aug. 22 it needs $30,000 a day to break even on each of its supertankers.

Caribbean Tanker Rate Rises as U.S. Crude Oil Inventory Falls
By Todd Zeranski
Oct. 11 (Bloomberg)

The rate to transport oil from the Caribbean rose as U.S. oil inventories declined and refineries increased production.

The Caribbean is the world's third-largest Aframax-tanker market after the Mediterranean and Southeast Asia. An Aframax is the most common tanker used to move oil in the region.

The average Aframax rate rose 2.5 points, or 2.5 percent, to Worldscale 102.5. WS 102.5 is equal to about $6,500 a day, after expenses such as fuel and port fees, according to Poten & Partners.

Houston-based broker Lone Star, R.S. Platou reported a rate of WS 105. Poten & Partners reported WS 100.

The rate fell to WS 92.5 on Sept. 11, the lowest since 2001, according to Bloomberg data.

General Maritime Corp., the second-largest U.S. tanker owner behind Overseas Shipholding Group Inc., said last year it had a break-even rate for its fleet of about $15,700 per day. The New York-based company operates many of its vessels in the Caribbean.

Persian Gulf Tanker Rates May Climb

Persian Gulf Tanker Rates May Climb as OPEC Boosts Crude Output
By Alaric Nightingale
Sept. 12 (Bloomberg

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise as OPEC boosts output by 500,000 barrels a day, increasing the number of cargoes.

``This is positive for tanker owners,'' London-based shipbroker Galbraith's Ltd. said in an e-mailed note today, adding that extra cargoes could ``creep'' into the market in October. OPEC members have ``historically'' pre-empted the official start of output increases, which is due to be November.

Shipping lines including Frontline Ltd., the world's biggest operator of very large crude carriers, or VLCCs, need more exports from Organization of Petroleum Exporting Countries to reverse losses from day-to-day rentals and eliminate a glut of vessels competing for cargoes.

Hyundai Merchant Marine Co., a South Korean shipping line, hired the VLCC BW Noto at a rate of 50 Worldscale points, according to a report today by Paris-based shipbroker Barry Rogliano Salles.

That's 3 percent below the London-based Baltic Exchange's benchmark assessment of 51.63 points for shipments to Asia, which has fallen for the past 11 days.

BW Noto is likely to cost less than the benchmark because it's fitted with one hull separating its cargo from the ocean. The exchange's rate also reflects rentals of two-hulled tankers that cut the risk of an oil spill and normally cost more to hire.

Bunker Prices

At 51.63 Worldscale points, owners of double hulled VLCCs, can earn about $18,620 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices.

Frontline Ltd., the world's biggest VLCC operator, said Aug. 22 it needs $30,000 a day to break even on each of its supertankers.

There are probably about 16 outstanding bookings to be made in September and 104 in October, based on average monthly loadings from Middle East ports this year, according to a report today from Barry Rogliano Salles. One hundred and eight VLCCs will be available for hire in the region by Oct. 12.

Bookings for VLCCs sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.

Persian Gulf Tanker Rates May Rise, Capital Shipbrokers Says
By Alaric Nightingale
Sept. 11 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise as demand for the raw material increases before winter in the northern hemisphere, according to Capital Shipbrokers LP.

``Heating oil production reduces inventory,'' Tim Coffin, head of research for the London-based company said in an e-mailed note published today. Refinery demand will lead to an ``autumn bounce'' in the cost of renting ships, he said.

Rental rates have declined 22 percent since Aug. 24 because of a glut of tankers.

China International United Petroleum & Chemical Corp., or Unipec, hired the tanker La Madrina at 55 Worldscale points, a measure of the cost of renting ships, according to a report today from Athens-based Optima Shipbrokers.

The rate is 6.5 percent above the London-based Baltic Exchange's benchmark assessment of 51.66 points for a similar voyage. La Madrina is fitted with two steel hulls separating its cargo from the ocean and the exchange benchmark includes single- hull tankers that are cheaper to rent.

At 51.66 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $18,653 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices.

Bookings for VLCCs sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP.

Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.

Persian Gulf Tanker Rates Rise Most in 20 Months

Persian Gulf Tanker Rates Rise Most in 20 Months; Demand Jumps
By Alaric Nightingale
Aug. 23 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, climbed the most in 20 months and may extend its rally as cargo demand strengthens.

September demand is outpacing that of August ``by a long way,'' Tim Coffin, an analyst at London-based Capital Shipbrokers LP, said in an e-mailed note today. Tanker-hire prices are ``firming fast,'' he said, ``we didn't expect it.''

Some cargo loadings may have been delayed from August to September, he said, reducing tanker demand.

Sinochem Corp., China's biggest petrochemicals trader, hired the tanker Iran Nesa at a rate of 72.5 Worldscale points, according to a report from Oslo-based PF Bassoe AS today. That's 16 percent above the London-based Baltic Exchange's benchmark rate of 62.7 points for cargoes to Asia.

The exchange's rate climbed 20 percent yesterday, the biggest one-day gain since Jan. 22 last year.

At 62.7 Worldscale points, owners of double-hulled VLCCs can earn about $33,030 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices. Yesterday, they were making $19,881 a day, based on the same calculations.

Frontline Ltd., the world's biggest VLCC operator, said today it needs $30,000 a day to break even on each of the supertankers.

Too Many Ships

Still, there are too many ships for hire, according to a report from Paris-based shipbroker Barry Rogliano Salles today. There are likely to be about 70 more cargoes loaded in September, based on average monthly demand. By contrast, 100 vessels can reach the Middle East by Sept. 23, the broker said.

Bookings for supertankers sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.

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

VLCC at Ras Tanura

yellow line is 325 meters

VLCC in Suez Canal

Satellite photo of VLCC in Suez Canal
30°13'21"
32°33'10"
340 meters by 55 meters

Persian Gulf Oil-Tanker Rates May Rise

Persian Gulf Oil-Tanker Rates May Rise on Weather, OPEC Cargoes
By Alaric Nightingale
Aug. 17 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise today as the Organization of Petroleum Exporting Countries pumps more oil and two storms threaten to disrupt shipping.

OPEC, supplier of 40 percent of the world's crude, has increased shipments by 1 million barrels a day since July ``without saying anything,'' Jennifer Gordon, a New York-based trading analyst at Deutsche Bank Securities said in an e-mailed note yesterday. A supertyphoon approaching Taiwan and a hurricane off the Lesser Antilles in the Caribbean may delay vessels.

``Weather is always a factor for market movement,'' Nikos Varvaropoulos, a tanker broker for Athens-based Optima Shipbrokers, said in an e-mailed note today.

The benchmark rental rate for shipments to Asia, used to settle freight contracts between owners and oil companies, climbed 1.2 percent to 50.44 Worldscale points yesterday, its biggest one-day gain in six weeks. The rate was previously at its lowest since October 2003.

At 50.44 Worldscale points, owners of double-hulled VLCCs can earn about $19,191 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices.

Frontline Ltd., the world's biggest VLCC operator, said May 30 it needs $29,500 a day to break even on each of its supertankers.

Bookings for supertankers sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.

Knightsbridge Q2 Profit Falls

HAMILTON, Bermuda, Aug. 13, 2007 (PRIME NEWSWIRE) -- Knightsbridge Tankers Limited (Nasdaq:VLCCF) (the "Company") reports net income of $7.2 million and earnings per share of $0.42 for the second quarter of 2007. The average daily time charter equivalents ("TCEs") earned by the Company's five VLCCs was $36,800 compared with $43,800 in the preceding quarter. The second quarter earnings reflect a weakening of the market as well as a fall in earnings for one vessel resulting from a change in employment. Net interest expense for the quarter was $1.4 million (2006 comparable quarter: $1.3 million) and at June 30, 2007, all of the Company's debt is floating rate debt.

The net increase in cash and cash equivalents in the quarter was $3.8 million. The Company generated cash from operating activities of $15.8 million, obtained a further $33.6 million to fund new buildings, used $2.8 million to repay the Company's loan and credit facilities and distributed $10.3 million in dividend payments. As of August 6, 2007, the Company has an average cash breakeven rate for its vessels of $18,400 per vessel per day compared to $19,200 on August 7, 2006.

For the six months ended June 30, 2007 the Company reports net income of $16.9 million and earnings per share of $0.99. The average daily TCEs for the six months ended June 30, 2007 was $40,300. Net interest expense for the period was $2.8 million (2006 comparable six months: $2.6 million).

On August 13, 2007, the Board declared a dividend of $0.60 per share. The record date for the dividend is August 23, 2007, ex dividend date is August 21, 2007 and the dividend will be paid on or approximately September 7, 2007.

Persian Gulf Tanker Rates Little Changed

Persian Gulf Tanker Rates Little Changed as Owners Fight Losses
By Alaric Nightingale
Aug. 10 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may be little changed as owners continue to resist leasing out their carriers at unprofitable levels.

``The shipping market is cyclical and owners are awaiting an upturn,'' Nikos Varvaropoulos, a tanker broker for Optima Shipbrokers in Athens, said today in an e-mailed note.

Falling freight rates, fueled by OPEC's crude-oil export cuts last year and growth in the world fleet of tankers, have pushed rates down to levels where owners are starting to refuse to transport the cargoes. Owners of more-modern ships may also be declining cargoes because they have to include finance costs when calculating their break-even figures, Varvaropoulos said.

GS Galtex Corp., South Korea's second-biggest oil refiner, hired the La Prudencia at a rate of 54 Worldscale points, according to a report today from Oslo-based shipbrokers PF Bassoe A/S. That's 6.8 percent above the London-based Baltic Exchange's benchmark assessment of 50.54 points for similar voyages.

La Prudencia is fitted with two hulls to cut the risk of an oil spill in an accident. The exchange assessment also takes into account single-hull tanker-rental rates, which are normally lower.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates, 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.

At 50.54 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, with a carrying capacity of 270,000 tons can earn about $21,105 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices. Frontline Ltd., the world's biggest VLCC operator, said May 30 it needs $29,500 to break even on each of its supertankers. Frontline has to pay financing costs for its carriers.

Bookings of supertankers sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. U.S. and Caribbean cargoes account for 14 percent and are the world's second-busiest market for supertankers.

VLCC Availability vs. Rates Chart

VLCC Availability vs. Rates Chart 1997 - 2007



click on image for larger view
source: Citigroup report(click for PDF of full report)

Suez Canal Allows VLCCs

November 28th, 2006

Egypt to Spend $5 Billion on Suez, Allow Supertankers (Update1)
By Abeer Allam
(Bloomberg)

Egypt plans to spend at least $5 billion over five years to expand the Suez Canal, speeding up Middle East oil shipments to Europe and the U.S. and increasing revenue from the world's longest man-made waterway.

The canal will be deepened by 10 feet and widened by 17 percent to an average of 365 meters (1,198 feet), Admiral Ahmed Fadel, chairman of the Suez Canal Authority, said in an interview in Ismailia. The Egyptian government will spend at least $1 billion a year from 2010 through 2015 on the project.

``We want to get the biggest possible share of future world trade,'' said Fadel in an interview yesterday. ``We want to create more bypasses to handle future huge tankers.''

The expansion will let vessels use the canal without emptying half their cargoes into the adjacent Sumed pipeline first, stoking demand for very large crude carriers, or VLCCs, operated by Frontline Ltd. and Euronav NV. The largest vessels that can use the link without stopping are suezmaxes. About 7 percent of the world's seaborne trade transits through the canal. The waterway earned Egypt $3.6 billion in the past year.

``It will create stronger demand for VLCCs,'' James Davis, an analyst for Lloyd's Marine Intelligence Unit, said by phone from London. Demand for suezmaxes and so-called aframaxes, which haul 650,000-barrel cargoes, may fall, he said.

Previous Expansion

The canal, through which 18,000 ships passed in 2005, has spent about $800 million on expansion projects since 1980 to accommodate growing traffic. Global trade will grow 8.9 percent this year and 7.6 percent in 2007, according to the International Monetary Fund.

As many as 220 VLCCs, each able to transport 2 million- barrel consignments, transited the canal in the past 12 months, according to Lloyd's MIU. A further 264 elected to take the longer journey around South Africa.

Some oil companies discharge their entire 2 million-barrel cargoes into the pipeline that runs by the 166-kilometer (103- mile) waterway from the Red Sea terminal of Ain Sukhna to storage tanks at Sidi Kerir on Egypt's Mediterranean coast. They then return to the Persian Gulf for new cargoes and the oil they discharge is collected by smaller vessels in the Mediterranean.

Quicker transits through the canal may encourage some oil- tanker operators to take cargoes directly to where they are needed, curtailing demand for smaller vessels operating in the Mediterranean Sea, according to Lloyd's MIU.

Suez Crisis

The waterway, built by Ferdinand de Lesseps in 1869, was nationalized in 1956 by President Gamal Abdel Nasser after the U.S. and the U.K. withdrew financial support for the Aswan High Dam project. The move prompted an Anglo-French-Israeli invasion of Egypt in what is known as the ``Suez Crisis'' or ``the Tripartite Aggression'' in Egypt. International pressure forced the troops to withdraw and Egypt retained control of the canal.

The waterway is one of Egypt's largest foreign-currency earners, together with tourism, oil and gas exports and remittances from Egyptian workers abroad.

Suez Canal revenue rose 8 percent in the fiscal year that ended June 30 because of growing trade between Europe and Asia, the surge in oil prices and the 3 percent increase in Suez Canal transit fees. In the first 10 months of this year, revenue rose 10 percent to $3.2 billion from a year earlier.

The expansion will enable tankers carrying 350,000 metric tons of cargo, equivalent to more than 2 million barrels, to pass through the canal. Ships carrying a maximum of 200,000 tons are currently able to use the waterway.

Sumed Capacity

The Sumed oil pipeline has a capacity of 2.5 million barrels of oil a day. Egypt and Persian Gulf monarchies, including Saudi Arabia, Kuwait and Qatar, own the pipeline, which mainly carries Saudi oil. The pipeline opened in 1977.

``We agreed with Sumed officials in 1997 that we should be complementing each other and we should offer transit service as a package,'' Fadel said. ``We would do anything to keep Suez Canal's route the most economically competitive and that is why we are conducting current expansions.''

The project also will speed up shipments of oil from Europe to Asia, according to Lloyd's MIU. A BP Plc-led pipeline will pump up to 1 million barrels of Azeri crude oil to the Turkish port of Ceyhan. Fuel oil that's used to power ships is also transported from Russian exporters in the Baltic Sea to Singapore and China.

The Suez Canal has gone through several expansion stages. Following nationalization, it was deepened 4 feet to handle ships with a 38-foot draft. It then closed for eight years after Israel occupied the Sinai Peninsula, east of Suez.

Five-Year Plan

When the canal was opened for international trade in June 1975, the authority began a five-year plan to build three bypasses near Port Said, Timsah Lake and Deversoir along the canal coastline to allow transit of ships in both directions. The bypasses' combined length reached 69 kilometers.

From 1980 through July 2001 the canal was deepened in two stages to allow passage of ships with a 62-foot draft, and 200,000 tons capacity. By the end of 2007, it will be able to handle 66 foot-draft ships, with 220,000 tons capacity.

``With every stage we make sure the return will be higher than the spending and we keep adjusting our plans to cater for a changing world,'' Fadel said.