Bunker prices were the talk of the town back at the start of the year, as their steady increases had been adding another "headache" to ship owners around the world, especially for VLCC tanker owners. This is due to the fact that the larger tankers are spending more time at sea and consuming more fuel oil. But, although current lower bunker prices have the potential to boost earnings significantly for the owner, spot worldscale rates are  falling even faster and so time-charter equivalent (TCE) earnings have dropped sharply in recent weeks.
Nevertheless, in its latest report, London-based shipbroker Gibson noted that "bunker prices have been steadily falling since February this year, but more dramatically in the last month, with the downwards pressure on oil prices. Since the start of March 2012, the average weekly price of 380 cst fuel oil in Fujairah has decreased by $129/tonne (-17%), reaching an average $617/tonne this week. Oil prices are down and Brent is at its lowest since January 2011, after falling below $100/bbl to just over $97 yesterday. The fall comes as a result of a weak economic outlook, a worsening debt crisis in Europe and a steady rise in global crude stocks" said Gibson.
The shipbroker added that "the average TCE earnings on the TD3 route (based on slow steaming) have dropped 73% from their recent high of $47,500/day at the start of April to only $13,000/day currently; the lowest level since October 2011 and near VLCC operating costs. In a stronger market, the relative reduction of an additional $100/tonne in bunker costs would bring significant value to owners, however in a falling market, it can only bring them frustration. The case is similar for Suezmaxes, but not as extreme, with Suezmax earnings down 43% from their May 2012 high of $36,500/day, to $20,750/day currently.
This downwards trend in oil prices could extend through the short-term, riding on the back of continued economic concerns, high crude production levels and record stock levels in the West. It then remains to be seen if owners can hang on to or even push up current spot rates to reverse the decline in earnings. However, the fundamentals of the market are at present relatively weak and the outcome of this week’s OPEC meeting to maintain production limits is neutral (as opposed to the potential positive developments from the Saudi proposal to raise output and the negative implications of other OPEC members’ call to cut output). This leaves the potential reprocussions from Iranian sanctions as the likely key market driver for higher VLCC earnings in the next few months" concluded Gibson.
Meanwhile, in the Middle East this week, Gibson mentioned that "lower bunker cost savings were again handed straight over to VLCC Charterers, and the market compressed into a new, lower, worldscale rate-range with numbers down to WS 38.5 East and WS 30 West paid. The July programme has only been scratched, and will be fully available for Charterers to fix from next week. They don’t have to of course, and plentiful availability won’t pressure them into taking rash action, though volumes should prove sufficient to prevent further erosion. Suezmaxes started relatively brightly, and held the small gain into the slower second half of the week. Rates settle at around 130,000 by WS 85 East and WS 47.5 West for now. Aframaxes merely ticked over on limited demand, and that meant rates staying at no better than 80,000 by WS 90 for Singapore runs" said Gibson.
In West Africa, "VLCCs here inevitably began to equalise with the lower numbers seen in the Middle East so that rates to the East sunk to 260,000 by WS 41.5 with a much lower USD 3.6 m seen for East Coast India. Inter Atlantic economics should make more sense now for Charterers at the 260,000 by WS 47.5 asked for, but for now there is limited interest. Suezmaxes moved through an active mid-week patch that eventually dragged the market a few worldscale points higher to 130,000 by WS 70 US Gulf, WS 75 U.K. Continent Mediterranean and even as high as WS 90 was paid on an early 'caught' position. Owners will hope for another round of attention early next week, but Charterers will be less ready to oblige" Gibson noted.
Finally, in the Mediterranean, "Aframax charterers embarked upon a concentrated bargain hunt from the 'off', and created a mini firestorm that sucked rates up by 30 worldscale points to a peak 80,000 by WS 122.5 cross-Mediterranean but once less fuel was added, rates began to spiral down again to an 80,000 by WS 105 midpoint by the weeks' end with further slippage likely. Suezmaxes found enough friends to rebuild their foundations and rates moved up a little to 140,000 by WS 70+ for Black Sea/Europe movements with USD 3.1 m seen for Singapore discharge, and things should stay reasonably solid for the time being" concluded Gibson.
Nikos Roussanoglou, Bunker Ports News Worldwide