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UK Continent VLCC freight rates remain elevated, pressurizing fuel arbitrage to Asia

Freight rates for VLCCs loading in the UK Continent remain at relatively high levels, with a strong Caribbean market offsetting a weaker environment in West Africa and the Persian Gulf in the past two weeks, shipping sources said.

The UKC-East route, basis 270,000 mt, has been assessed at a $6 million lump sum since May 21, during which time WAF-Far East rates have dropped Worldscale 7.5, while Persian Gulf-China rates are down w13.

Caribbean-Singapore fixtures have been concluded from $7.3-$7.5 million.

Bunker costs to ballast from UK Continent to the Caribbean are about $1 million, which has kept freight rates in the UK Continent firm, despite a slight increase in tonnage in the region.

"There are ships building up a little in the UKC that are discharging in Rotterdam and Antifer, but the Caribbean to Singapore market is still getting fixed at $7.3 million which will attract some of the UKC ships to that region," a shipbroker said.

On the fixture front, brokers said Trafigura had failed the Starlight Venture at $6.1 million for a Rotterdam-Singapore voyage with a June 10-12 laycan.

"The fuel oil arbitrage to Singapore does not seem to be working on the VLCCs. It is more economical to go on a Suezmax at the moment," the shipbroker said.

The high sulfur fuel oil arbitrage from Rotterdam to Singapore was closed, traders said, which, together with healthy supplies, was leading to lower Rotterdam prices.

"Europe is in contango...[and] not recovering, a trader said.

"Bulk building economics for arbitrage do not work" a second trader said, as "the arb spreads are narrower versus last week levels".

Meanwhile, a rise in high sulfur fuel oil prices in the Mediterranean was leading to increased interest for importing cargoes from Rotterdam.

A third trader said if the arbitrage between Rotterdam and Singapore remained closed during June, then more volumes would be freed for export to the Mediterranean.

There were high volumes of fuel oil stored in Rotterdam, "and more M-100 on the way. Therefore, if the Singapore arb is still closed, the only option is Mediterranean delivery," he said.

source: http://www.platts.com