Middle East oil tanker returns extend slump as fuel costs climb

Bloomberg/London

Returns for the biggest oil tankers hauling Middle East crude to Asia, at the lowest in almost two months, slumped for an 11th session as fuel costs increased and charter rates held near recent levels.

Daily earnings for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage slid 4.6% to $13,690, figures from the Baltic Exchange in London showed on Friday. That was the lowest level since November 12. Marine fuel, known as bunkers, costs the most since October in Singapore and climbed for a sixth session.

Higher bunker costs in the city-state, the world’s biggest refuelling port, helped to lop “about $1,000 a day” from returns for VLCCs heading to Asia, according to a daily report from Oslo-based RS Platou Markets AS. Booking rates for the tankers, each able to hold 2mn barrels of crude, stayed near the level in this year’s first session.

Charter costs for VLCCs “remained stubbornly anchored” this week, London-based EA Gibson Shipbrokers Ltd said in an e-mailed report on Thursday. Vessel “availability seems quite sufficient to more than easily cope with the anticipated enquiry, hence a flat near-term outlook.”

Fuel prices advanced 0.7% to $637.50 a metric tonne in Singapore, according to figures compiled by Bloomberg.

The exchange’s earnings assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. They can boost returns by slowing ships on return journeys after unloading cargoes.

VLCC demand is forecast to rise 2.3% this year, half the pace at which tanker supply will expand, New York-based Clarkson Capital Markets estimated in an e-mailed report on Thursday. Demand growth will slow to 1.5% next year as the fleet expands 1.9%, the report showed.

Charter costs for VLCCs on the benchmark route added 0.2% to 42.7 industry-standard Worldscale points, exchange data showed. That compared with 42.65 as of Jan. 2.

The Worldscale system is a method for pricing oil cargoes on thousands of trade routes. Each individual voyage’s flat rate, expressed in dollars a ton, is set once a year. Friday’s level means hire costs on the benchmark route are 42.7% of the nominal Worldscale rate for that voyage.