VLCC rates have started to correct downwards on news of Asian oil firms cutting spot crude purchases amid a collapse in refining margins.
According to market sources, Koch Industries provisionally chartered the 320,100-dwt Eagle Verona (built 2013) to Total’s chartering arm CSSA for a West Africa-China shipment at Worldscale 205, with a loading period between 15 and 18 November.
On a time charter equivalent basis, the VLCC – chartered by shipowner AET to Koch on a one-year charter – would earn $206,237 per day when idle days are excluded, based on VLCC Fixtures’ calculation.
On Friday, the 320,500-dwt Maran Capricorn (built 2008) was reportedly chartered to ST Shipping at WS240 on the same trade, equivalent to TCE earnings of $237,228 per day.
“Maybe the madness is cooling down,” said a London-based broker this week.
Several VLCC fixtures fetched during the second half of last week, when earnings were spiking to a historically high level, have reportedly failed to materialise as market players seek for a new direction.
Those include ExxonMobil’s charter for the Ardeche (built 2017) at WS325, Shell’s for the Front Endurance (built 2009) at WS178, BP’s for the Evgenia 1 (built 2011) at WS240, and Bharat Oman Refineries’ for the Great Lady (built 2005) at WS270. Those were voyage charters from the Middle East.
“The market is lower now,” said a tanker player. “The charterers will look to replace at lower levels in most cases for the failed deals.”
In one case, the fixture of Shipping Corp of India’s 316,400-dwt Desh Vaibhav with Koch at WS142.5 for a Middle East-South Korea shipment, equivalent to TCE of $171,441 per day when idle days are included, did not go through.
The VLCC was then booked by Mangalore Refinery and Petrochemicals Ltd on the Middle East-West India route at WS294, equivalent to TCE of $157,849 per day, according to VLCC Fixtures.
On the Baltic Exchange, the benchmark Middle East-China VLCC TCE was assessed at $201,493 per day as of Tuesday afternoon, down $87,096 from Monday.
Pressured refining margins
The rate falls have come on news that Sinopec, Indian Oil Corp and some Northeast Asian refiners cut back on oversea buying of crude.
With expensive Saudi crude following the country’s production outage, Singapore complex refining margins for processing Dubai crude – a benchmark indicator for profits of Asian refineries – were assessed by Bloomberg at $2.91 per barrel as of Friday, the lowest since 21 June.
Their margins are further squeezed by the spike in tanker rates last week, and some refineries may be forced to reduce their throughput, according to a research note from BloombergNEF.
For a charterer, the cost of freight would account for more than 12% of the cargo value with spot TCE of VLCCs at $300,000 per day as recorded by the Baltic Exchange on Friday, much higher than the usual level of 1.5% to 2%, according to IHS Markit’ shipping research head Rahul Kapoor.
Such a rate level is not sustainable for a prolonged period, Kapoor said.
“Once we start observing a lack of new cargoes, which could start happening this week, sentiment will inevitably change,” Kapoor said.
“We are aware of almost 30 cargoes that have been fixed already for November loadings. Activity will have to slow down at some point.”
