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The
cost of delivering Middle East crude oil to
Asia, down a quarter this month, may resist
further declines as some vessel owners refuse to
ship consignments at unprofitable rates.
Global
rental income from leasing very large crude
carriers, or VLCCs, plunged 21 per cent to
US$15,616 a day on March 27, the largest one-day
decline in seven months, according to the Baltic
Exchange, a London- based shipping bourse.
That's half what Frontline Ltd, the biggest
supertanker company, needs to break even on the
ships.
'We are approaching levels where it almost does
not make sense to trade at all,' Halvor Ellefsen,
a tanker broker at SeaLeague AS in Oslo, said
yesterday.
Output cuts by members of the Organization of
the Petroleum Exporting Countries are depriving
owners of cargoes. That has caused Frontline
stock to drop 75 per cent to US$15.78 a share in
New York trading since rising to a record
US$72.36 in June 2008.
Formosa Petrochemical Corp, Taiwan's only
publicly traded oil refiner, booked the tanker
Ibukisan for 36.5 Worldscale points for a
shipment to Mailiao, about 240km south-west of
Taipei, Athens-based Optima Shipbrokers said
yesterday. That's 4.7 per cent above the Baltic
Exchange's benchmark rate, based on Saudi
Arabian consignments to Japan, of 34.86 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 US dollars a tonne, are revised
annually by the Worldscale Association 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.
A rate of 34.86 points works out at US$22,458 a
day, according to the Baltic Exchange.
Globally the carriers are making US$15,616 a
day. Frontline said on Feb 26 it needs US$32,100
a day to break even on each of its supertankers,
a 7.5 per cent decrease compared with Nov 28.
Frontline's breakeven rate is the amount needed
to cover daily running costs for each ship,
interest and scheduled loan repayments, and
corporate overhead costs. It excludes capital
spending requirements, final loan repayments and
ships hired from other owners for short-term
purposes.
Frontline doesn't necessarily need to earn
US$32,100 from vessels competing for
single-voyage cargoes to be profitable because
it also has ships leased out on longer-term,
fixed-rate rentals earning better returns, the
company said on March 11. So far this year, hire
rates have averaged US$36,447 a day globally and
US$40,970 a day on the Middle East- Japan route.
Source: Bloomberg
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