Floating storage to boost Q4 dirty tanker rates
The cost to book crude oil tankers will soar nearly 180 per cent in the fourth quarter, fuelled by a rise in floating storage volume, possible weather disruptions and seasonal demand, a Reuters poll showed.
The contango in London's Brent crude is expected to widen enough to encourage investors to charter tankers to store crude oil offshore, reawakening demand in an oversupplied freight market.
A survey of 10 analysts and shipbrokers unanimously agreed that rates for dirty tankers would rebound sharply in the last three months of the year after hitting a 10-month low last week.
'Right now, things are looking pretty dark but the combination of seasonal demand and crude's contango will see freight rates improve through the fourth quarter,' said Anders Karlsen, analyst with Nordea Markets.
Shipping activity traditionally picks up in the fourth quarter, helped by possible disruptions from fog, hurricanes, rougher shipping conditions in the North Atlantic and Northern Hemisphere fuel demand due to colder weather.
The median of the poll showed the operating cost for a very large crude carrier (VLCC) from the Middle East to Japan, the market's benchmark, would spike by 177 per cent to average US$38,500 per day in the fourth quarter.
Suezmax tankers were expected to rise 90 per cent to US$26,500 a day, while smaller sized Aframaxes would jump 143 per cent to US$20,500.
'September seasonally is the lowest demand month so we see plenty of growth in the fourth quarter,' said Martin Jaer, analyst for Arctic Securities.
'This is the time to play the contango trade with oil prices expected to rise by the end of the year,' he added.
Trading firms turned major profits in 2009 by storing crude on tankers for later delivery as crude prices further out on the futures curve traded at sharp premiums, known as contango.
The contango narrowed this year to a point where floating storage was not economical, leaving an abundance of unchartered tankers.
This helped push rates for VLCCs to below US$10,000 a day this month, a level which barely covers operating costs for many shipowners.
'There is talk in the market of the probability of floating storage becoming financially achievable within the next month or two,' said Thomas Anzalone, a trader with Imarex.
'This would serve the market by employing some of the excess tonnage currently weighing rates down,' said Mr Anzalone.
The global tanker fleet is expected to decline by 3.3 per cent by the end of this year compared to 2009, said shipping analysts at Wells Fargo Securities.
The average operating cost for VLCCs in the last five years has jumped 100 per cent from Sept 1 to mid-October, Mr Anzalone said.
Last year, VLCC spot rates climbed 147 per cent from the third to fourth quarters.
While there are hopes for firmer rates at the end of this year, analysts say that sluggish demand for crude oil, worries over economic recovery and rising fleet supply will pressure VLCC earnings in 2011.
The contango in London's Brent crude is expected to widen enough to encourage investors to charter tankers to store crude oil offshore, reawakening demand in an oversupplied freight market.
A survey of 10 analysts and shipbrokers unanimously agreed that rates for dirty tankers would rebound sharply in the last three months of the year after hitting a 10-month low last week.
'Right now, things are looking pretty dark but the combination of seasonal demand and crude's contango will see freight rates improve through the fourth quarter,' said Anders Karlsen, analyst with Nordea Markets.
Shipping activity traditionally picks up in the fourth quarter, helped by possible disruptions from fog, hurricanes, rougher shipping conditions in the North Atlantic and Northern Hemisphere fuel demand due to colder weather.
The median of the poll showed the operating cost for a very large crude carrier (VLCC) from the Middle East to Japan, the market's benchmark, would spike by 177 per cent to average US$38,500 per day in the fourth quarter.
Suezmax tankers were expected to rise 90 per cent to US$26,500 a day, while smaller sized Aframaxes would jump 143 per cent to US$20,500.
'September seasonally is the lowest demand month so we see plenty of growth in the fourth quarter,' said Martin Jaer, analyst for Arctic Securities.
'This is the time to play the contango trade with oil prices expected to rise by the end of the year,' he added.
Trading firms turned major profits in 2009 by storing crude on tankers for later delivery as crude prices further out on the futures curve traded at sharp premiums, known as contango.
The contango narrowed this year to a point where floating storage was not economical, leaving an abundance of unchartered tankers.
This helped push rates for VLCCs to below US$10,000 a day this month, a level which barely covers operating costs for many shipowners.
'There is talk in the market of the probability of floating storage becoming financially achievable within the next month or two,' said Thomas Anzalone, a trader with Imarex.
'This would serve the market by employing some of the excess tonnage currently weighing rates down,' said Mr Anzalone.
The global tanker fleet is expected to decline by 3.3 per cent by the end of this year compared to 2009, said shipping analysts at Wells Fargo Securities.
The average operating cost for VLCCs in the last five years has jumped 100 per cent from Sept 1 to mid-October, Mr Anzalone said.
Last year, VLCC spot rates climbed 147 per cent from the third to fourth quarters.
While there are hopes for firmer rates at the end of this year, analysts say that sluggish demand for crude oil, worries over economic recovery and rising fleet supply will pressure VLCC earnings in 2011.
