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Bearish global oil demand forecasts are casting
a shadow on the VLCC spot market, which
continues to weaken on little activity.
“Activity has picked up a touch... (but) has not
been enough to snap the downward slide in rates
and benchmark levels are down again this week,”
said Bassøe last Friday. Brokers told
Tankerworld that activity levels were low
primarily because cargo requirements were not
increasing.
Many blamed the reduced oil output from OPEC
countries.
Benchmark MEG-East double hull voyages fetched
about WS 37 last week, down from the WS 42.5
average achieved in the previous week.
Rates for spot double hull MEG-West voyages also
sank about 5 Worldscale points, averaging WS 32
compared to WS 37.5 in the previous week.
Earnings on both routes averaged around $34,000
per day per vessel according to brokers'
estimates.
Brokers tell Tankerworld that average cash
break-even earnings for the VLCC spot market is
below $25,000 per day per vessel, but break-even
rates are calculated differently across the
industry, with some companies like Frontline
Ltd. reporting its break-even rate to be as high
as $34,700 per VLCC.
Looking ahead, the VLCC spot market seems
unlikely to see a significant spike in rates.
According to Bassøe, “the March cargo programme
appears close to being complete and will in that
case be the smallest one in many years.”
“This is leaving surplus tonnage being carried
into the April programme, likely to begin next
week, and will continue to make life difficult
for owners,” Bassøe said last Friday.
And the latest report from the Energy
Information Administration (EIA) of the US
Department of Energy revised its global oil
demand forecast downwards again.
The EIA’s projection for 2009 global oil
consumption is now 3 million bpd lower than it
was in its September 2008 Outlook.
Aside from revising its demand forecast
downwards, the EIA is also now more cautious
about its estimates for recovery.
Exacerbating the situation are separate reports
that the volume of crude oil being kept in
floating storage is likely to shrink because
global crude inventories may have peaked.
Analysts have been quoted saying that the US
inventory situation has stabilised over the past
four weeks, providing an early indication of a
more global trend.
Barclays Capital expects “floating storage to
continue to be reduced, with the new initiative
to hold such storage being curtailed.”
These latest forecasts came just as a senior
Frontline Ltd. official confirmed in late
February that at least 80 million barrels of
crude oil are being stored aboard VLCCs
worldwide, despite OPEC's supply cuts.
Given that a VLCC on average carries about 1.8
million barrels, there could be 45 VLCCs
currently employed for floating storage
purposes.
Reports of less need for floating storage, if
proven right, could bring added worries for
owners who have been counting on an increasing
number of VLCCs being fixed for floating storage
to act as a 'safety valve' against drastic falls
in rates.
The return of 45 VLCCs back into availability on
the spot market "would be disastrous for rates,"
according to one broker.
Source: TankerWorld
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