The cost of delivering two million-barrel cargoes of Middle East crude to Asia, the world's busiest route for supertankers, dropped to a six-week low, making it more likely that owners will decide to sell older ships as scrap.
Rental income from the Saudi Arabia to Japan route fell 14 per cent to US$8,494 a day, according to the London-based Baltic Exchange. That's less than the US$9,700 that Frontline Ltd, the largest supertanker company, says it needs to break even on each of its vessels, including smaller suezmaxes that ship one million barrels.
'If it stays low through summer, then by the end of it we will see a lot more scrapping,' Nikos Varvaropoulos, an official at Optima Shipbrokers Ltd in Athens, said by email on Tuesday. Because a global ban on single-hull tankers takes effect next year, some owners will try to scrap vessels now to fetch the best prices, he said.
The global fleet of crude oil tankers has expanded 4.5 per cent this year, according to data from Lloyd's Register-Fairplay, a shipping information provider. At the same time, worldwide oil demand is expected to drop 2.9 per cent to 83.9 million barrels a day, according to the Paris-based International Energy Agency.
The situation contrasts with markets to ship non-oil commodities such as coal, iron ore and grains, where the fleet has expanded by less than one per cent, according to Lloyd's Register-Fairplay. Vessel demand has been buoyed by record Chinese imports of iron ore. Rates for delivering such raw materials have advanced as much as fivefold this year, climbing 4.1 per cent on Tuesday.
Worldscale points based on the tanker industry's Worldscale system, rental rates on the Saudi Arabia to Japan route declined 2.8 per cent to 31.92 Worldscale points, the lowest since June 2, according to data from the Baltic Exchange.
Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in US dollars a tonne, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.
Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.