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Wed 9 Dec 2009 11:27 PM

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Supertanker hiring costs fall after record high

Owners expect fall to be temporary, say they are 'setting their sights higher' for January.

The cost of hiring supertankers to ship Saudi Arabian crude oil to Japan, the industry’s benchmark route, slipped from the highest in almost 11 months as demand waned.

Lease rates for very large crude carriers, or VLCCs, fell 0.4 percent to 56.97 Worldscale points after rising yesterday to the highest since Jan 21, according to the London based Baltic Exchange today. The rate yields owners $36,436 a day once they’ve paid to refuel their vessels.

While demand slowed today, owners are “setting their sights higher” for rentals to be charged on January cargoes, Oslo based Fearnley Consultants A/S said in an emailed report today. There is “momentum” for rates to gain, it said.

Saudi Arabia, the world’s biggest oil supplier, is pumping 8 million to 8.5 million barrels a day, Khaled al Buraik, executive director of state oil company Saudi Aramco, said today. Daily output was about 8.19 million barrels last month after falling as low as 7.86 million barrels in February, according to data compiled by Bloomberg.

“Most demand for oil is coming from the Far East,” al Buraik told reporters in Kuwait, adding that consumption growth was “much slower than anticipated.”

There are about 5 percent more VLCCs for hire over the next 30 days than there are cargoes, according to a Dec 7 Bloomberg News survey. The average since March has been a 21 percent surplus.

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.

US bound shipments from the Persian Gulf are earning $11,696 a day, according to the Baltic Exchange. That rental income, or time-charter equivalent, assessment is the figure owners theoretically receive after paying for fuel. From that, they then need to pay crew, insurance, repairs and other operating expenses.

Those costs are about $11,603 a day for a VLCC, according to estimates from London based Drewry Shipping Consultants Ltd.

Frontline Ltd., the biggest operator of VLCCs, said Nov 29 it needed $32,900 a day to break even on each of its supertankers once loan repayments were taken into account.

Returns from suezmax tankers that haul 1 million-barrel cargoes, half as much as a VLCC, fell 9.3 percent to $28,991 a day, according to the exchange. Aframaxes that transport 650,000 barrels added 5.7 percent to $18,835 daily.

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