This past week’s surge in VLCC demand is thought to be a short-term fix for tanker owners, as rates are predicted to face renewed pressure in the weeks to come and at least until the start of the fourth quarter of the year, when shipbrokers expect to get a sense of the next directional shift of the market.
In its latest weekly report, shipbroker Charles R. Weber said that “the VLCC market observed a strong surge in demand this week, led by China‐bound voyages being fixed from all loading areas at a two‐year high which saw total demand in the Middle East market rise to its most active pace in six‐months. The influx of demand led to stronger sentiment that saw modest rate gains materialize— initially. As the week progressed, COAs had accounted for a large percentage of covered cargoes and those which weren’t were met with a long list of offers, prompting some rate giveback towards the close of the week. Overall, the Middle East market observed 39 cargoes, a 63% w/w gain, of which COAs accounted for 13, or a third of the total. In the West Africa market, there were six fresh fixtures, or one fewer than last week’s tally. China‐bound voyages stood at 24, which compares with a YTD average of 13.5 per week, though directional implications are tempered by the fact that the four‐week moving average is on par with the YTD average at 14. Vessel supply remains the main challenge for the market, with the end‐September Middle East surplus estimated at 24 units, which is unchanged from a month ago. Lagging sentiment, however, has seen TCEs remain in a directional decline despite the unchanged surplus with the present AG‐FEAST TCE average of ~$9,174/day comparing with an August average of ~$11,506/day”, the shipbroker said.
According to CR Weber, “we expect that Middle East demand will inch up during October as reports indicate that Saudi Arabia will cut allocations by 350,000 b/d, a lower cut than the approximately 250,000 b/d estimated during September (cuts under the OPEC agreement were for 486,000 b/d relative to an October ’16 baseline). This should help to support a progression into seasonal strength by increasing cargo availability, assuming that other regional producers make similar moves. Meanwhile, Saudi and other key regional OSPs for Asian buyers have been raised while being cut for US Crude Stocks (EIA) European buyers. This should incentivize a migrating of some Asian interest to the West Africa market, which will increase competition for the same pool of eastern ballast units which make up the Middle East position list – just as the Caribbean market has recently accounted for a number of eastern ballast units. Further forward, any associated increase in West Africa VLCC coverage bodes well for VLCC supply/demand fundamentals by consuming vessels for longer periods and thus reducing availability later during Q4. Thus, while we expect that VLCC rates will remain under modest negative pressure in the near‐term as charterers work through the remainder of the September Middle East program, directional strength will likely become apparent by the start of Q4 and remain through the remainder of the year”, the shipbroker noted.
In the Middle East, rates to the Far East gained three points to conclude at ws40 with corresponding TCEs rising by 13% to ~$9,174/day. Rates to the USG via the cape shed 0.5 point to conclude at ws21. Triangulated Westbound trade earnings eased 6% to ~$20,301/day. In the Atlantic Basin, CR Weber said that “rates in the West Africa market were stronger on the sustained tight Atlantic basin supply and as participants were resistant to long‐haul trades with earnings only just above OPEX and ahead of the traditionally stronger Q4 market. The WAFR‐FEAST route gained 4.5 points accordingly to conclude at ws50. Corresponding TCEs rose by 16% to conclude at ~$16,752/day. Finally, in the Caribbean market, having eased last week on rising inbound ballasters from Asia, rates were stronger this week after that flow abated and a replacement cargo was fixed at a premium. The CBS‐SPORE route concluded with a $50k gain to $3.5m lump sum, having declined to the $3.35m level earlier during the week”, the shipbroker concluded.