Singapore — VLCC freight rates surged in Asia Wednesday as Saudi Arabian shipping company Bahri chartered more than a dozen VLCCs from the spot market with the country planning to step up crude output by 3 million b/d from April, market participants said Wednesday.
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From April, Saudi Aramco aims to pump 12.3 million b/d of crude, which is not only 27% above current output, but would exceed the company's maximum production capacity by 300,000 b/d.
"In line with Saudi Arabia's decision, the VLCC market was buzzing [all of] last night," said Sunil Thakur, a Mumbai-based VLCC broker with Straitship Brokers.
In what was a hectic day for chartering in a long time, apart from Bahri, there were 24 other fixtures done out of the Middle East and separately five other VLCCs booked on the West Africa-East Asia routes. Also, another five were taken for loading in the US Gulf and East Coast Mexico for voyages to East Asia.
"The sentiment is strong and the outlook is bullish," Thakur said.
Bahri is one of the world's largest tanker companies with its own fleet of 42 VLCCs, but with Saudi Arabia stepping up output, it will need more tankers to store and deliver this output to prospective buyers, including refineries in the US, sources said.
RATES ON THE RISE
VLCC rates on the hitherto inactive Persian Gulf-US Gulf route rose by 35 Worldscale points to w70 Wednesday, due to these upcoming deliveries, S&P Global Platts data showed.
Several of the ships were chartered by Bahri under Contract of Affreightment, or CoA, deals wherein they can be used to move crude in back-to-back multiple voyages, they said.
This demand is getting reflected in the VLCC rates, which have risen by more than w59.5 day on day Wednesday to w115 on the Persian Gulf-China route, Platts data showed.
The higher rates also benefit Bahri, as they can offer their tankers to other charterers at higher rates.
On the benchmark Persian Gulf-China route, VLCCs were chartered overnight at rates ranging from w56.5 to w82.5.
Bahri is rushing to contain the fire ... It will take a few days for the rates to stabilize if all the fixtures are finalized, one of the VLCC brokers said.
Ships are first taken tentatively in what is described as placed on subjects, and within a few days, these deals are either finalized or cancelled.
Bahri's determined bookings had a spillover impact on other charterers such as GS Caltex, SK Energy, S-Oil and Day Harvest which rushed to cover their cargoes and avoid steep hikes in rates.
There is also a strong demand to take tankers for storing crude now, in anticipation of rates rising in the next few months.
Trading companies such as Vitol and Trafigura, and oil majors including Shell, have made inquiries for floating storage of crude, a tanker broker said.
Owners are now again aiming for rates of over w100 for VLCCs on the Persian Gulf-China route. These rates, seen earlier this year, can now fetch daily earnings of at least $100,000 as bunker prices have declined, thereby reducing operational costs.