Rising bunker price heaps pressure on VLCC owners

Source Lloyd's List vom 08.12.2011

High oil price pushes up costs, eroding earnings in the overtonnaged VLCC market IN another blow to struggling tanker owners, bunker fuel costs are creeping up towards $700 per tonne, stifling daily returns for very large crude carriers deployed on the key Middle East to Asia oil trade. Prices for 380 cSt bunker fuel from Fujairah in the Middle East are $691.50 per tonne, Athens-headquartered broker Optima reported on Wednesday. A week ago the bunker price was $682.50, up from $664 the week before, the broker reported. High oil prices of around $110 a barrel for Brent crude, the international benchmark, are driving up bunker prices. Oil prices increased at the start of this year during the instability of the Arab Spring and have remained above $100 for much of 2011. European Union sanctions against import and transport of Syrian oil have helped to keep prices high, amid concerns in the market of oil supply constraints. Extended trade sanctions against oil giant Iran, which produces 2.3m barrels per day, has fed those supply fears, keeping oil prices high as 2011 draws to a close. BP's chief executive Bob Dudley warned this week that high oil prices threaten global economic growth. Growth in tanker owners' balance sheets is certainly threatened, and by more than the high cost of bunker fuel. Too many VLCCs are competing for cargoes, forcing owners to accept low or stagnant charter rates. On Wednesday, freight derivatives broker Marex Spectron highlighted oversupply in the Middle East Gulf, the main region where VLCCs load cargoes. The broker reported 43 available for employment in the region over the next three weeks, with just 23 cargoes expected to come onto the market. As vessel oversupply and high bunker costs conspired to pile pressure on owners in the last week, the Baltic Exchange's data showed stagnant rates and earnings on the Middle East-Asia voyage. Singapore's Phoenix Tankers was one owner willing to accept the week's flat rate. It chartered out its 2009-built, 309,887 dwt Phoenix Vigor at W59 for the trip. The Baltic Exchange shows that W58-59 has been the rate all week. The Baltic Exchange puts the rate of W59 at $13,000 per day, higher than the daily cost of roughly $10,000 per day to run a modern VLCC. Earnings might not be spectacular, but at least owners are covering operating costs: a month ago, earnings were a paltry $500 per day. "Steady" is the word brokers are using to describe the present market. It is a word that owners will be happy to hear in the run-up to Christmas, given the potential for more of the unsettling volatility seen throughout much of this year.