Wednesday, April 18, 2007

Persian Gulf Oil-Tanker Glut

Persian Gulf Oil-Tanker Rates May Extend Decline on Vessel Glut
By Alaric Nightingale
April 18 (Bloomberg)

The cost of transporting 2-million barrel consignments of crude oil from Middle East ports on supertankers may extend a three-week decline because there are too many ships available for hire.

About 104 tankers can reach Persian Gulf ports by May 18, according to a report today from Paris-based shipbroker Barry Rogliano Salles. That's already enough to cover the entire month's demand, based on April shipments. More vessels will become available later in the month, increasing the glut.

``There is still plenty of tonnage,'' Nikos Varvaropoulos, an oil-tanker broker from Optima Shipbrokers in Athens, said in an e-mailed note.

Kuwait Petroleum Corp., the state-owned oil company, booked the tanker Smiti to ship crude to the U.S. yesterday at a 21 percent discount to London-based Baltic Exchange's benchmark rate. The owners of Smiti, India's Essar Shipping Ltd., didn't try to negotiate over the rate, Varvaropoulos said.

Haggling over rates can last several days when owners believe prices will rise or if they think there may be a shortage of ships competing to haul the cargo. After offering to lease its tanker at 60 Worldscale points, Essar accepted Kuwait Petroleum's counter-offer at 40 points without further bartering, Varvarpoulos said.

Asian refineries account for about 70 percent of demand for Middle East crude. Rates for tankers plowing that voyage slumped to 53.44 points yesterday, a drop of 46 percent since March 26. Rates to the U.S. have declined 39 percent to 46.92 points since March 27.

Asian Demand

At 53.44 Worldscale points, VLCCs, can earn about $28,026 a day on a 38-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg bunker prices.

At 46.92 Worldscale points, VLCCs, can earn about $21,650 a day on a 64-day round trip from Saudi Arabia to the Louisiana Offshore Oil Port in the Gulf of Mexico, based the same formula.

Daily returns from voyages to the U.S. are normally lower because the journey-lengths are longer, meaning owners can guarantee employment for their ships for a longer period.

At those rates, Frontline Ltd., the world's biggest carrier by capacity, may be losing money. The shipping line said Feb. 27 that it needs $30,200 a day to break even on each of its VLCCs.

Ship-fuel prices at Fujairah in the United Arab Emirates fell $7 to $346.50 a ton on April 17, their highest price in eight months, according to Bloomberg data.

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