Lower bunker prices a boon for ship owners active in the time charter market

One of the positive “side effects” of the decline of oil prices has been the softening of the bunker market as well. In its latest weekly report, shipbroker Charles R. Weber noted that “international benchmark crude oil prices have trended significantly lower since early summer as the return of substantive Libyan crude oil supply has coincided with weaker-than-expected worldwide demand. Brent crude ended the week at $89.91/bbl-a loss of 22% from the YTD high of $115/bbl observed during June. The CRW average of bunker prices at 6 key tanker bunkering ports has shown similar losses; the average ended the week at $515/mt-off 17% from the YTD high of $620/mt observed on June 23rd”, the shipbroker noted.

C.R. Weber added that “the rapid descent of bunker prices has aided spot market TCEs by reducing the single largest voyage cost component. Given this week’s closing rate assessments and the difference between present bunker prices and the YTD peak, VLCC TCEs added 24% on the AG-JPN route and Aframax TCEs have added 22% on the CBS-USG route. Though a contango structure in Brent futures prices has remainded largely in-place since bunker prices started to observe strong weakness, tanker supply/demand trends have realized little immediate benefit thereof as the costs associated with floating storage have remained prohibitive (in stark contrast to the 2009-2010 floating storage craze which intermittently consumed upwards of 10% of the VLCC fleet). Moreover, WS rates have been little affected by the slump of bunker prices (in a departure from such trends prevailing as recently as 2011, when bunkers rose by 24% during the course of the year’s first half, prompting compensatory rate gains). Instead, spot rate variances since the YTD bunker price peak have corresponded closely to various markets’ prevailing supply/demand positioning-largely to the benefit of owners”, the shipbroker concluded.

Meanwhile, in the crude tanker markets this week, in the Suezmax segment, C.R. Weber noted that “chartering activity in the West Africa Suezmax market was slower this week with the fixture tally declining by 7% w/w to a total of 14. The softer demand levels failed to reduce owners’ bullishness, which was aided by lower regional availability replenishment in line with recent demand gains in alternative trading markets for Suezmaxes. Rates on the WAFR-USAC route added 5 points to conclude at ws80-the highest level since late July.
The WAFR-UKC route added 5 points, closing at ws85. With this week’s activity having cleared through the remained of the October program, all eyes are on the start of the November program. Weak demand for November West Arican crude has left a number of cargoes unsold while Saudi Arabia’s discount OSPs for Asian buyers suggests that more of the November West Africa program will be oriented to Western buyers. Both factors suggest support for Suezmax demand in the region and should help to keep rates elevated during the upcoming weeks”, the shipbroker noted.

Similarly, “in the Carribean Aframax market was markedly slower this week; just nine fixtures materialized, representing a 55% w/w decline. Despite the slow demand environment, rates continued to extend recent gains with the CBC-USG route adding 10 points to conclude at ws115. The rate gains followed a tighter regional Suezmax market, which reduced some of the largest class’ attractiveness as an Aframax alternative. Stronger earnings for Aframaxes in alternative markets since summer have also contributed to the Carribean Aaframax market’s ability to post gains, having drawn units away from the region”. Finally, “the Caribbean Panamax market posted fresh rate gains in this week with the CBS-USG route adding 10 points to conclude at ws122.5. The gains came on the back of a more active demand environment with a handful of crude cargoes contributing to more typical fuel oil cargo demand levels”, C.R. Weber concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide