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Wed 10 Nov 2010 12:03 AM

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Supertanker supply swings to excess in Arabian Gulf

7% more VLCCs for hire over the next 30 days than there are cargoes

Supertanker supply swings to excess in Arabian Gulf
The Baltic Dirty Tanker Index added 1 point, or 0.1 percent, to 778 points, according to the Baltic Exchange (Getty Images)

The supply of supertankers competing to carry 2 million barrel cargoes of Middle East crude oil returned to surplus as demand for the ships slowed, potentially weakening owners’ ability to sustain a rally in freight costs.

There are 7 percent more very large crude carriers, or VLCCs, for hire over the next 30 days than there are cargoes, according to the median estimate of eight shipowners and brokers surveyed by Bloomberg News today.

A week ago there was a 1 percent shortage, the first time for almost a year that respondents said there weren’t enough ships available.

“Enquiry levels should come down over the coming days,” Henrik With and Glenn Lodden, analysts in Oslo at DnB NOR Markets, a unit of DnB NOR Bank ASA, Norway’s largest bank, said in an emailed report today. Consequently “rates could come down during the week.”

Returns on the industry’s benchmark Saudi Arabia to Japan route have been above what Frontline, the largest operator of supertankers, needs to break even on the carriers for the past seven sessions, according to data from the company and the London based Baltic Exchange. That ended four months of unprofitable rates.

Frontline said August 27 it needs $30,900 a day to break even on the carriers. Returns have been above that level since November 1, when they ended a period of unprofitable rates that began on June 30.

They fell 4.2 percent to $32,982 a day today, according to the Baltic Exchange. Charter rates as measured in industry standard Worldscale terms declined 1.8 percent to 74.91 points, according to the bourse.

Six of the respondents said supply expanded relative to demand compared with their last estimates; one said it stayed the same, and one said it shrank.

Frontline’s trading strategy is to identify consecutive charters, first from the Middle East to Europe, then from Europe to the US, and lastly from the Caribbean Sea or West Africa to Asia, according to the company’s annual report.

Frontline aims to reduce the amount of time its ships sail empty, the report shows.

It also has vessels on longer term charters that will be earning amounts different to what’s available in the single shipment, or spot, market, according to the company.

The Baltic Dirty Tanker Index, a wider measure of crude oil transportation costs that also encompasses vessels smaller than VLCCs, added 1 point, or 0.1 percent, to 778 points, according to the Baltic Exchange.

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