VLCC market remained weak in August as oil storage on the sea weakened at a period that characterised by oversupply of vessels.
VLCC market remained weak in August as oil storage on the sea weakened at a period that characterised by oversupply of vessels. As a result, according to the latest OPEC"s Monthly Oil Market Report that covers the month of August, VLCC spot freight rates were 4% higher in August compared to the previous month and 48% lower compared to the same month a year ago. This minor monthly gain did not help the general weakness in the market which continued to suffer from soft demand coupled with an oversupply of vessels as a result of a higher-than-average expansion rate in the global VLCC fleet thus far in 2009.
Despite the number of vessels engaged in crude oil storage, operations fell by the end of August compared to the beginning of the month, but this was more than offset by additional VLCCs used to store products. The VLCC sector gained 4% on average in August as a result of a firmer West African and a steady Middle East market. Higher tonnage availability in the market as a result of a high rate of expansion in the VLCC fleet was the main weakening factor for freight rates on this vessel segment throughout the month and this did not change much due to the fact that more VLCCS were engaged in storage operations in August.
Volumes of crude oil stored on tankers actually went down in August with the narrowing of the contango structure in crude oil futures to about 45 mb compared to 55 mb in July, but reports indicated that there was some fuel oil storage build-up on tankers taking place in August and that about 15 mb of fuel oil was stored on at least eight VLCCs in Far East Asia. This was on top of another eight VLCCs tied up in storing middle distillates as part of the average of 50 mb of products stored on tankers in August.
By the end of August, more than 60% of crude in floating storage was in the US Gulf Coast and Northwest Europe and more than 50% of middle distillates were stored on tankers in Northwest Europe.