Supertanker owners may start refusing cargoes within the next three months unless rates return to a profitable level.
Supertanker owners may start refusing cargoes within the next three months unless rates return to a profitable level, said Frontline Ltd., the biggest operator of the ships which carry almost half the world"s oil. Ship owners are contributing $942 a day toward fuel costs to ship Middle East crude, according to the London-based Baltic Exchange. Rates have been below operating costs since July. Should the losses persist, some owners may choose to idle their ships, according to Jens Martin Jensen, Singapore-based chief executive officer of Frontline"s management unit.
?If you see another quarter, then I think owners have to do something,? Jensen said by phone today. ?We are subsidizing oil companies.?
The Organization of Petroleum Exporting Countries has cut output by 4 percent this year to 28.4 million barrels a day, according to Bloomberg estimates. Over the same period, the fleet of in-service supertankers has advanced 5.8 percent to 528 ships.
The five-member Bloomberg Tanker Index, led by Frontline, dropped 19 percent this year, extending last year"s record 49 percent slump. Frontline rose 3 kroner, or 2.3 percent, to 132.50 kroner in Oslo, valuing the company at 10.3 billion kroner ($1.7 billion).
Returns for Owners
Rental rates on the industry benchmark Saudi Arabia to Japan route climbed 0.6 percent to 30.69 Worldscale points today, their first advance in 11 sessions, according to the London-based Baltic Exchange.
Returns for owners on eastern and western routes from the Middle East reached this year"s peak of $64,146 a day in January. The vessels need $11,603 a day to pay insurance, crew, repairs and other running costs, according to London-based Drewry Shipping Consultants Ltd.
Frontline said its largest carriers needed to earn an average of $31,900 a day to break even in the second quarter, once finance costs were taken into account. They made an average of $38,400, including vessels on longer-term rentals.
The slump is triggering an acceleration in the demolition of aging carriers, according to Cumberland, Maryland-based Global Marketing Systems Inc., the world"s largest cash buyer of obsolete vessels. The number of supertankers sold for scrap may reach a six-year high, the company estimates.
The drop in rental rates prompted A.P. Moeller-Maersk A/S, Denmark"s biggest crude carrier, to seek revisions to orders for new tankers, Kristian Morch, chief operating officer of the company"s oil-shipping unit, said by phone today. The company sold $1.58 billion of stock this week to fund acquisitions in the oil and terminals businesses.
Euronav NV, Belgium"s biggest owner of supertankers, plans to raise as much as $200 million to fund acquisitions of vessels and diversify its financing, the company said today.
Frontline is sailing its carriers more slowly to conserve fuel, Jensen said. Frontline is sometimes ?waiting days? for profitable cargoes, he said.
Jensen declined to say whether Frontline would idle its own tankers. Doing so would make the vessels less attractive to hire when they return to service because they lose safety approvals from oil companies, he said.
A ?handful? of independent owners have already started to reject cargoes because rates are too low, London-based EA Gibson Shipbrokers Ltd., said in a report today.
?If more owners refuse to play, then eventually some upward re-adjustment will develop,? Gibson said.
Jensen denied an earlier report that Frontline may remove a vessel from the market next week.