Bunker fuel prices have remained pretty much steady since the spring of 2013, mainly thanks to the rapid increase of US oil production, which has steadied the oil market and shielded it from major fluctuations. As such, one the beneficiaries could be the tanker market, as the bunker element is one of the most important factors taken in to account in setting Worldscale flat rates (WS100). According to the latest weekly report from shipbroker Gibson, “this is particularly true on long haul routes, where bunker costs are the biggest expense endured by ship-owners during the voyage. Up until recently we have seen huge volatility in oil and bunker prices, with Brent oil prices first hiking above $145/bbl in mid20008, then collapsing below $40/bbl in early 2009 before recovering above $100/bbl in 2011. This resulted in significant changes in WS100 rates between 2009 and 2012″.
According to Gibson, “the picture is completely different at present. There has been little fluctuation in oil and bunker prices since March/April last year, despite crude oil output disruptions in Libya and tensions surrounding Iran, Iraq and Russia. This relative stability has been primarily underpinned by rapidly rising crude oil production in the US, which has increased by over 3million b/d since 2008 with major gains expected going forward”.
The shipbroker added that “the lack of sizable swings in oil prices and hence bunker prices will be reflected in next year’s Worldscale flat rates. The bunker element that goes into the flat rate formula is based on prices between October and September each year; therefore we already have nearly all the data that will go into the 20015 calculations. International bunker prices have averaged just 2% lower between October 2013 and September 20014 compared with the corresponding period a year earlier. This suggests that Worldscale flat rates in 201 5 will decline by only around 1-2% on long haul voyages and implies even smaller changes on short haul routes”.
However, as Gibson noted, “on shorter voyages, the bunker element forms a much smaller portion of overall costs and so major fluctuations in exchange rates will play a more significant role in setting flat rates. Furthermore from January 2015, owners operating within the Emission Control Areas (ECAs) will incur additional voyage expenses due to the requirement to burn 0.10% sulphur fuel and it will be interesting too see how the Worldscale fixed differential for miles steamed within an ECA is adjusted to account for this increased expenditure”, it concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, “the VLCCs were always going to suffer from the backlog of tonnage from the previous month’s light total and this proved to be the case as we draw to the conclusion of the first decade with very little movement on rates and this will continue into the second with rates 270 x WS 33.5 for long East and 280 x WS 18 west via cape. Suezmaxes started the week looking balanced due to tightness off prompt dates and there was a suspicion that Owners might capitalize on this. However, such was the desire to relocate West or otherwise get the ship moving East, that Owners lost the opportunity and rates will end the week moving on a sideways beat at 140 xx WS 32.55 West and 130 x WS 667.5 East. Aframaxes were very quiet this week and with the start of the APPEC today, we cant expect a sporadic but ultimately uninspiring week to follow with rates hovering around 80 x WSS 90 going East”, Gibson said.
CLEAN PRODUCTS
In the clean products, in the East, Gibson noted that it was “a week of re-adjustment for the LR1s which saw rates fall across the board. After a quiet few weeks the available tonnage built up to market-breaking levels and rates have come off fairly hard. 55 Naphtha AG/Japan is down to around WS 115 and going West about 1.9m for AG/UK Cont, and maybe even less by the end of Friday. Volume has been better and there is hope that rates are levelling out here. LR2s, on their own, are doing fine. Tonnage remains tight and volume respectable, however, the diving LR1s is a problem and Owners have been accepting less in order to secure employment prior to any possible slowdown as Charterers switch to the cheaper LR1s. 75 x WS 105 is last done AG/Japan, which is still a pretty good return for owners. Going West is about $2.7m depending dates. Looking ahead: APPEC now and we can expect a quiet few days Monday, Tuesday and Wednesday, with business returning to normal end of the week”.
Gibson added that “MRs have seen rates fall quite dramatically, but this fall has stimulated activity and as the week draws to a close there has been a healthy level of enquiry and fixing. Rate wise, TC12 has fallen slightly to WS 120, but not every ship will be willing and some may well easily ask for 5 WS points higher. East Africa fell like to stone to WS 157.5 and this number has been repeated, however, most Owners will be pushing for at least WS 160, after the 2nd half of the week’s rally. West remains highly unattractive and as a consequence Owners are asking for in excess of US$1.7m to reposition into the weaker Western markets. Shorthauls have suffered as well, with Jubail/Jebel Ali down to US$225-230k and Iraq deliveries fixing around US$325-350k levels. Owners are hoping that the stimulus in activity will help them push rates next week, but it is so finely balanced that a quiet couple of days and the weak sentiment could well creep back in”.
Finally, “supplemented by a Japanese holiday on Tuesday, and the recent arrival of APPEC, it has been yet another quiet week in North Asia for CPP, and the market has remained steady and unchanged at low levels. US$470K is on subs at the time of writing for Korea/Singapore for an MR, which is close to where we were pegging it last week. However, there could be an upside going forward for North Asia MR Owners, as the majority of the Australia ballasters have preferred to head to Singapore opposed to the North, and so we may see tonnage in the North start to tighten next week. LR1s are also quiet, most Owners will peg Korea/Singapore at US$550K but realistically with TC5 weakening it will make sense for most to fix at below those levels now. LR2s are flat and unchanged at US$600K levels. Singapore, as mentioned before, has attracted more MR ballasters recently, which could mean that softening is on the horizon for the near future, but for now Owner sentiment is holding the market at around 30kt x WS 180 levels for Singapore/Australia”, Gibson concluded.