Bunkers at Fujairah averaged $730/mt in the first quarter of 2012 compared to $672/mt in the fourth quarter of 2011; an increase of approximately $58/mt said Frontline this week, detailing the market conditions which prevailed during the first quarter of the year. The market rate for a VLCC trading on a standard 'TD3' voyage between the Arabian Gulf and Japan in the first quarter of 2012 was WS 56,representing an increase of  approximately WS 2 points from the fourth quarter of 2011 and a decrease of approximately WS 2 points from the first quarter of 2011. Mainly due to increased bunker rates the TD3 flat rate was adjusted up by 19.2 percent from 2011 to 2012, hence the same WS gives 19.2 percent higher gross earnings in 2012 than in 2011. Current market indications are approximately $25,000/day in the second quarter of 2012.
The market rate for a Suezmax trading on a standard 'TD5' voyage between West Africa and Philadelphia in the first quarter of 2012 was WS 82.2, representing a decrease of approximately WS 1 point from the fourth quarter of 2011 and the same as the first quarter of 2011. Mainly due to increased bunker rates the TD5 flat rate was adjusted up by 18.7 percent from 2011 to 2012, hence the same WS gives 18.7 percent higher gross earnings in 2012 than in 2011. Current market indications are approximately $16,000/day in the second quarter of 2012.
"The VLCC fleet counts 598 vessels at the end of the first quarter of 2012, up from 594 vessels at the end of the previous quarter. 11 VLCCs were delivered during the quarter whilst seven were deleted. The order book counted 111 vessels at the end of the first quarter, down from 123 orders from the previous quarter. Current order book represents about 18 percent of the VLCC fleet. According to Fearnleys the single hull fleet stands at 23 vessels.
The Suezmax fleet counts 451 vessels at the end of the first quarter, up from 446 vessels at the end of the previous quarter. 14 vessels were delivered during the quarter whilst nine were deleted. The order book counted 96 vessels at the end of the first quarter, down from 114 vessels at the end of the previous quarter. No new orders were placed during the quarter and the current order book now represents 21 percent of the total fleet. According to Fearnleys the single hull fleet now stands at nine vessels" said Frontline.
Meanwhile, in terms of oil demand and supply, the company mentioned that "the International Energy Agency's ("IEA") May 2012 report stated an average OPEC oil production, including Iraq, of 31.34 million barrels per day (mb/d) during February and March 2012. This was an increase of 820 kb/d compared to the fourth quarter of 2011.
IEA further estimates that world oil demand averaged 89.50 mb/d in the first quarter of 2012, which is a decrease of 400 kb/d from previous quarter and an increase of 300 kb/d from first quarter 2011. Additionally, the IEA estimates that world oil demand will average approximately 90.0 mb/d in 2012, representing an increase of 0.9 percent or approximately 800 kb/d from 2011".
Frontline's board sees a challenging supply/demand situation for the tanker market where the combined VLCC and Suezmax fleet between 2004 and 2012 increased by 98 percent without being backed by a similar increase in demand. Frontline will continue to remain cautious and focus its resources on the present activities until a clearer sign of recovery can be seen in the tanker market. Following the restructuring completed in December 2011, the cash break even rates for the company were substantially reduced for the period 2012-2015, creating a downside protection for the company.
As part of the restructuring, the Company obtained agreements with its major counterparties to reduce the gross charter payment commitments under existing chartering arrangements. Frontline will, however, compensate charter counterparties with 100 percent of any difference between the renegotiated rates and the actual market rate up to the original contract rates. Some of the counterparties will receive some additional compensation for earnings achieved above original contract rates. The TCEs earned in the in the first quarter of 2012 were above the renegotiated rates and Frontline recorded cash sweep expense of $14.9 million in the quarter. The main part of this relates to the amended charter parties with Ship Finance.
The development in the first quarter and so far in the second quarter has been stronger than the Board anticipated at the beginning of the year. Based on results achieved so far in the quarter and the current outlook the board expects the operating result in the second quarter to be better than in the first quarter" concluded Frontline.
Nikos Roussanoglou, Bunker Ports News Worldwide