The world's leading crude oil freight routes from the Gulf were close to their lows for this year on Monday but analysts said the freight market was not on the brink of collapse. Industry sources also said there was no sign that crude demand was faltering, blaming the weakness on the dynamics of the tanker market instead.
Ship brokers said VLCC freight rates from the Gulf to Japan, the world's benchmark crude route, were trading at an average of W60, close to a year low of W52 hit in January. Rates for double-hulled units were trading five Worldscale points higher and single-hulled tonnage up to 10 points lower. Below that level, a three-and-a-half year low was in sight at W50.5, struck in October 2003, according to Reuters data.
Analysts said rates were pressured by long-standing Opec cuts, refinery maintenance in Asia, high stocks in the United States and bulging ship supply. They said there was no evidence that crude oil demand was being eroded, pointing instead to strong demand for long-haul oil into China, which was buoying rates.
"We wouldn't speak of it as a freight collapse...but it does seem to have moved into a softer summer trading market that we've had in previous years," said Clare Grierson, an analyst with Simpson, Spence & Young in London.
E.A. Gibson ship brokers said VLCC voyage rates to Japan were trading at W105 or $67,200 a day in June 2006 compared with W59 or $34,750 on Monday. In a report it also cited the VLCC and ULCC trading fleet rising to 494 by mid-2007 from 477 in mid-2006.
Rates for VLCCs from the Gulf to the United States were similarly pressured, trading at an average of W50, five points short of a low for the year. Beyond that, costs on the major route were close to a four-year low of W42.50 hit in August 2003. Brokers said rates averaged $30,000 to $40,000 a day to Asia, down from closer to $50,000 in the last couple of weeks.
High stocks and low refinery runs in the United States - inventories hit nine year highs last week - and Opec cuts were also weighing on costs, they said. "Westbound trade has been curbed by refinery outages and the fact that the US hasn't been able to process crude quickly enough.
"We've also had problems with Nigerian supply, with volumes shut in," Grierson said. In addition, she said some of the 10 or so VLCCs used for storage in the US Gulf last month were being released back on to the market, pressuring long-haul routes.
Consultancy Oil Movements said last week oil in transit from Opec producers, excluding Angola, had fallen in a surprise counter-seasonal move. It said oil in transit had slumped 18 million barrels to 400 million barrels in the four weeks to July 14.