Break even costs for a VLCC are around $22,000 a day, according to leading tanker owner Frontline. Charter rates have come under pressure from owners seeking immediate employment for older tankers re-entering service after repair or newly built vessels that have been delivered from shipyards.
These owners have accepted lower charter rates rather than have vessels lying idle, brokers said. Cargo volumes from West Africa to Asia have failed to support Middle East VLCC rates. "The Chinese are taking less West Africa crude. More Suezmax tankers are taking crude out of West Africa which has taken away some VLCC cargoes," the European tanker broker said.
A VLCC can carry about 2 million barrels while a Suezmax can transport 1 million barrels. The poor VLCC market is likely to continue into next month, brokers said. "June doesn't look very promising either - the market is over-tonnaged and there's a lack of cargo supply," said Ashok Sharma, managing director of ship broker BRS Baxi. "Forty-six on the Worldscale measure has already been paid for a newly delivered VLCC. I wouldn't be surprised to see rates fall to the low 40s, but it will be a challenge for charterers to keep rates there," Sharma said from South Korea.
Brokers said owners of ships already trading would resist charterers attempts to push rates lower because they would not be in the same rush to fix their vessels as owners of newly delivered ships from dry dock or shipyards. Worldscale40 is the equivalent to earnings of around $10,000 a day, close to daily running costs for a 300,000 deadweight tonne (DWT) VLCC, brokers said. About 15 VLCC cargoes have been fixed for loading in the Middle East in the first 10 days of June, the European broker said.
"All the Saudi cargoes came out this week with some cargoes from the United Arab Emirates. But it has been a lot less busy than people expected," the broker said. Around 120 Middle East cargoes were fixed for May loading - "a fairly average month", the European broker added. VLCC rates on the Middle East-to-Japan route fell to W52.25 on Thursday from around W59.50 a week earlier. Rates on the West Africa-to-China route fell to about W54.50 on Thursday against W59.75 a week earlier. Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia fell to around W101.25 on Thursday compared with around W104.75 last week.