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Mon 29 Nov 2010 11:56 PM

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Middle East tanker returns reach one month low in soft market

Daily earnings on the industry’s benchmark Saudi Arabia to Japan voyage slid 21%

Middle East tanker returns reach one month low in soft market
The operator needs $31,300 a day to break even on each ships including financing costs(Getty Images)

Returns from delivering Middle East crude oil to Asia, the world’s busiest route for supertankers, fell to a one month low in a “soft” market.

Daily earnings for very large crude carriers, or VLCCs, on the industry’s benchmark Saudi Arabia to Japan voyage slid 21 percent to $15,358, according to the London based Baltic Exchange. That was the lowest level since October 28.

Frontline Ltd, the world’s biggest VLCC operator, needs $31,300 a day to break even on each of the ships including financing costs.

“The trend is currently soft in the MEG, but there is uncertainty on the direction,” Rikard Vabo and Lars Erich Nilsen, analysts at investment bank Fearnley Fonds ASA in Oslo, said in an emailed note before the data were released, referring to the Middle East. Owners “will wait for additional cargoes returning to the market this week post Thanksgiving.”

Returns from the benchmark route tumbled 37 percent last week. Charter rates for VLCCs making the voyage fell 6 percent to 57.78 Worldscale points today, according to the exchange, after sliding 14 percent last week.

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 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.

Daily returns from suezmax tankers that haul 1 million barrel cargoes, half as much as VLCCs, slipped 1.3 percent to $35,050, according to the exchange. Returns from aframaxes that carry 650,000 barrels gained 9.1 percent to $7,850 a day.

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