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Large tankers squeezed as 2014 first quarter rally ends

Large tankers squeezed as 2014 first quarter rally ends
A better first quarter than in 2013 saw owners of the larger sizes of tankers just about wash their faces financially, but it is a different story now.

Earnings for VLCCs on the Arabian Gulf-Japan (AG/Japan) route have averaged less than $10,000 a day in the second quarter, based on Clarkson Research figures, which just about covers operating costs for all but the most efficient operators. Suezmaxes have done rather better averaging around $13,000 a day on the West Africa-US Atlantic Coast (WAF/USAC) route.

A disconnect has developed in the last month between the two sectors with suezmax owners managing to get earnings up to around $20,000 a day on WAF/USAC although they dropped again last week. Meanwhile VLCC owners remain mired around $10,000 a day on AG/Japan.

On the demand side, the International Energy Agency is forecasting a 2m b/d rise in oil demand for the fourth quarter compared to the second quarter, which should boost the market.

Whether that will do much for VLCC earnings remains to be seen.

Half of an increase like that will probably have to be underpinned by Saudi Arabia, points out London broker EA Gibson, because other OPEC members have little scope to increase output - good news for VLCC owners. The other good news is that, despite a reported slowing of Chinese economic growth, the country's oil imports continue to rise - 6.32m bpd for the first four months - up 680,000 bpd year on year.

However oversupply of tonnage is unlikely to disappear anytime soon, the broker cautions, because of widespread slow-steaming and the scheduled delivery of 18 more VLCCs this year.

Meanwhile the situation in Iraq is causing anxiety. Although production is concentrated in the south and exports from Basra are so far unaffected, the concern has driven oil prices to over $114/b for Brent crude.

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