Tanker Rates May Snap 7-Year 2nd-Qtr Drop

Tanker Rates May Snap 7-Year Second-Quarter Drop, Dahlman Says
By Grant Smith

March 14 (Bloomberg)

The cost of hiring crude-oil supertankers may rise in the second quarter for the first time in seven years as record U.S. temperatures allow refiners to finish maintenance work early and boost imports in readiness for the annual driving season, according to Dahlman Rose & Co. LLC.

Daily hire rates for the largest tankers in the next three months may be higher on average than the $50,000 a day estimated for the first quarter, said Dahlman Rose analyst Omar Nokta. Rates for the 2-million-barrel carriers are currently at $55,000 a day, he said.

The U.S. has had its warmest January since the National Weather Service began storing data 128 years ago, damping demand for heating oil and enabling refiners to cut imports after bringing forward maintenance programs. Refiners are poised to increase imports to replenish shrinking motor-fuel inventories.

``Rates are picking up steam now as refiners get ready for the driving season, so we could see the second quarter beating the first for the first time in this cycle,'' Nokta said in a telephone interview from New York March 12.

Dahlman Rose correctly forecast the direction of freight rates last year. It upgraded its outlook for the shares of tanker operators last June before a two-month rally in which freight rates rose 32 percent. The bank advised ``caution'' on Sept. 11. Rates declined 27 percent in the next 11 weeks.

Seven-Year Trend

Hire rates have fallen every second quarter since 2000 because refinery operators such as Exxon Mobil Corp. and Valero Energy Corp. take units offline when consumption of winter fuels dwindles, to reconfigure equipment for gasoline production. This year, refiners have chosen to overhaul machinery in the first quarter instead, to take advantage of the warmer-than-normal weather. The U.S. is the world's biggest energy user.

U.S. refinery utilization rates

fell in the week to Feb. 12 to 85.2 percent of capacity, their lowest in more than a year, Department of Energy data show. Gasoline supplies have declined 4.7 percent to 216.4 million barrels in the past four weeks.

Tanker demand will be buoyed because the Organization of Petroleum Exporting Countries, which pumps 40 percent of oil used worldwide, has finished a phase of production cuts begun in November aimed at trimming unwanted supply, Nokta said. The 12- member group has pledged to reduce supply by 1.7 million barrels a day since last October and will meet tomorrow in Vienna.

``OPEC is going to have to boost supplies, or at least not cut, as they've seen the last set of cuts starting to work and because the demand is there,'' said Nokta.

Increased hire rates will help stoke gains for the shares of Frontline and Overseas Shipholding Group, Nokta said. The companies are among the largest tanker operators, after Nassau, Bahamas-based Teekay Shipping Corp., the world's biggest.

``It looks like Frontline and Overseas Shipholding should see some support,'' he said.

Matches Bank of America

Last May, Dahlman Rose helped Athens-based Quintana Maritime Ltd. raise $191 million from a sale of shares to finance the purchase of 17 commodity carriers, the second- biggest acquisition by a dry-bulk shipping company.

Dahlman Rose's outlook matches that of Bank of America Corp. which cited an expected increase in OPEC shipments.

``We expect long-haul shipping rates to rise late March into the second quarter as OPEC increases production to re- supply the market,'' Bank of America analyst Philippe Lanier in New York said in a March 5 report.

Nokta, 27, has worked as an analyst for Dahlman Rose for three years and holds degrees from Texas A&M University and Fordham University.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_iIQxxgqqY8

Persian Gulf Tanker Rates - Frontline, Ltd.

By Grant Smith
March 2 (Bloomberg)

http://www.bloomberg.com/apps/news?pid=20602099&sid=aXvljKXZBpKU&refer=energy

The cost of shipping 2 million-barrel consignments of crude to Asia from the Middle East may end a week of gains on expectations that supplies of ships will build as refiners start maintenance programs.

More than two-thirds of the expected cargoes from the Persian Gulf this month have been assigned ships, according to a report today by Paris-based shipbrokers Barry Rogliano Salles. It's another two weeks before new supplies will need to find vessels, the report said.

``In April refineries will close for maintenance so oil companies re-let'' vessels they don't need, Nikolaos Varvaropoulos of Athens-based Optima Shipbrokers said in an electronic message.

Freight rates for supertankers on the benchmark route to Japan were assessed at 69.3 Worldscale points yesterday by London's Baltic Exchange, up 13 percent from Feb 23. Two tankers were hired to Taiwan at WS 65, Barry Rogliano said in its report.

Worldscale points are a percentage of a nominal rate, or flat rate, for a specific route. Flat rates, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

At 65 Worldscale points, owners of modern, double-hulled Very Large Crude Carriers, or VLCCs, can earn about $40,022 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.

Frontline Ltd., the world's biggest operator of supertankers, said Feb. 27 that it needs $30,200 a day to break even on each of its VLCCs.

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