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VLCC rates could rebound on Mid-East cargoes, but gains likely capped

[SINGAPORE] Freight rates for very large crude carriers (VLCCs) could rebound in the coming weeks on cargoes for December loading amid tighter tonnage supply, although gains could be capped because fixture volumes have already peaked, brokers said.

Charter rates could climb to around 75-80 on the Worldscale measure, equivalent to around US$35,000 per day, according to one Singapore-based supertanker broker.

"People had speculated rates could hit Worldscale 90 or 100 as we got closer to Christmas and while the next two weeks should see rates peak as they have in the last few years, paper futures for December loading show a rate of W78," the broker said.

Frontline, one of the world's largest tanker owners, agreed charters on Nov 14 for three VLCCs at W70 to transport crude oil from West Africa to Asia in December.

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"With the likes of Frontline fixing West Africa cargoes before the peak supports the view they don't expect a great jump in rates," the Singapore broker added.

Rates from the Middle East to Asia are around W68-70, or about US$28,000 a day, depending on the route and age of the ship. That is nearly four times the level of daily earnings in September, brokers said.

But while rates have risen since October partly due to weather delays in China, average earnings across all VLCC routes are around US$19,000 per day so far this year, according to figures from shipping services firm Clarkson.

That is below break-even levels of US$20,000-25,000 a day, said Ashok Sharma, managing director of ship broker BRS Baxi Far East.

"This year has been a write-off. People have lost money on VLCCs this year," he added.

While brokers anticipate more Middle East cargoes for December loading will be released next week, especially from Saudi Arabia, there are likely to be fewer than the 135-140 fixtures recorded in October.

"October has been the busiest month historically for the last three years," the first Singapore broker said.

Vessel oversupply is also weighing on the supertanker market.

With 10 VLCCs due for delivery by the end of this year and 52 scheduled next year, the global VLCC market is set to climb around 9 per cent by the end of 2018, Mr Sharma said.

By comparison, seaborne crude oil shipments are forecast to grow by 3 per cent to two billion tonnes this year, according to Clarkson figures.

VLCC rates on the Middle East-to-Japan route fell to around W68.75 on Thursday from W70.75 last week.

Rates on the West Africa-to-China route slipped to W70.25 on Thursday from W71.50 the same day last week.

Charter rates for an 80,000-deadweight-tonne Aframax tanker from Southeast Asia to East Coast Australia dropped to around W116 on Thursday from W117.25 a week ago.