REPORT: VLCC rates surge ahead of anticipated OPEC cuts
Oil tanker rates are at a four month high ahead of an anticipated cut to oil production by the OPEC states.
Traders booked the most cargoes on record for the time of year in October, suggesting that Middle East producers could be adding barrels to the market ahead of the OPEC decision.
OPEC is expected to soon embark on its deepest cuts to output in eight year amid an ongoing slump in the price of oil.
Day rates on shipments from the Middle East to Asia jumped to US $46,896 while the surplus of crude tankers in the Arabian Gulf reached their lowest level in more than a year, according to Baltic Exchange and Bloomberg surveys.
Traders booked the most one-off, or spot, cargoes for the month of October in at least 12 years, according Galbraith’s Ltd., a London-based shipbroker.
“The suspicion is that there’s an extraordinarily high output from the Middle East ahead of the expected cut decision in November,” Erik Stavseth, an analyst at Arctic Securities ASA in Oslo covering shipping companies. “We see increased exports from Iran, Iraq, Saudi Arabia, Kuwait and also UAE.”
Tanker companies are benefiting from higher demand due to increased Middle Eastern production, while Russia is pumping record volumes, and Libya and Nigeria are boosting exports. The US is also returning to the global export market in full for the first time in four decades.
The 141 cargoes that traders booked are the highest for an October in at least 12 years and the most for any single month since March, Galbraith’s data show. The shipments only capture part of the market because traders also ship oil on vessels booked on long-term charters.
OPEC agreed last month in Algiers to reduce output to an average of 32.5 million to 33 million barrels of crude a day. This compared to the 33.39 million barrels a day the 14-nation group produced in September. Each country’s allocation hasn’t been finalised, though the building blocks of the accord will be in place by the group’s November 30 meeting, according to OPEC secretary-general Mohammad Barkindo.
The excess supply ahead of this decision has been a boon for companies owning crude tankers. In late September, just before OPEC committed in Algiers to cutting supplies, the daily rate for VLCC oil tankers was US $14,779.
Analysts surveyed by Bloomberg are anticipating rates of US $35,000 a day for the vessels through much of 2017. That would make them profitable for a fourth consecutive year, according to estimates gathered by Bloomberg and cash-break even data from Bermuda-based Frontline Ltd., one of the largest operators.