Losses for oil-tanker owners hauling Middle East crude to Asia narrowed, amid an oversupply of vessels for loading in the Arabian Gulf and few cargoes.

Daily losses for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage shrank to $ 5,780, figures from the Baltic Exchange in London showed yesterday. VLCCs were losing $ 6,356 a day on August 3, exchange data showed. The ships were earning $ 41,093 daily at this year’s high in April.

The VLCC fleet will expand 6.9% this year, above 4.7% demand growth, according to Clarkson, the world’s largest shipbroker. The supply of the largest crude carriers in the Gulf over the next 30 days shrank by one ship to 84, according to Kevin Sy, a Singapore-based freight-derivatives broker at Marex Spectron Group.

“Still more than enough ships around,” Sy wrote. “With 77 ships available from now until the end of the month it’s unlikely rates will make a dramatic rally today or any day soon.”
The exchange’s assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. Owners can boost returns by slowing ships on return journeys after unloading of cargoes. The price of ship fuel, or bunkers, slipped 0.4% to $ 621.93 a metric ton, the figures showed.

Charter costs for VLCCs on the benchmark voyage gained 0.9% to 34.34 industry-standard Worldscale points, exchange figures showed. Each of the tankers can hold 2mn barrels of crude.

The Worldscale system is a method for pricing oil cargoes on thousands of trade routes. Each individual voyage’s flat rate, expressed in dollars a tonne, is set once a year.

Yesterday’s level means hire costs on the benchmark route are 34.34% of the nominal Worldscale rate for that voyage.

The Baltic Dirty Tanker Index, a broader measure of oil- shipping costs that includes vessels smaller than VLCCs, fell 0.5% to 623, according to the exchange. The gauge is at the lowest level since July 19.

“(Last week) fixtures in the AG (Arabian Gulf) crude market were intermittent, with Chinese charterers selectively coming to the market for AG-East voyages. However, the fixture volumes were unable to lift rates,” Deutsche Bank said yesterday.

Average earnings reached a record low level on July 23, with the previous record low set on September 30 last year.

Average earnings per day are calculated after a vessel covers its voyage costs such as bunker fuel and port fees. VLCC operating costs, including financial costs, are estimated at around $ 10,000 a day.

“Physical rates remained stuck at same levels for the third week,” broker Marex Spectron said.

Average earnings turned negative on July 5, for the first time since November 3 last year.
“Present fundamentals fail to show any support for rates in the near-term,” broker CR Weber said.

Last year on August 1, VLCC average earnings turned negative for the first time since the Baltic Exchange started collating the data in 2008 as worsening conditions took their toll.

“Brokers said sentiment remains weak with ample VLCC supply,” RS Platou Markets said.
In April of 2012 earnings reached their highest in a year at about $ 45,000 a day, fuelled by a cargo rally which subsequently ran out of steam.

A rush of fixings earlier in April from Saudi Arabia to the US, together with buoyant Asian demand, bolstered sentiment as buyers sought to ensure stable supplies, given growing fears of disruption due to the tensions with major oil producer Iran.

Average VLCC earnings have been volatile in recent months, falling below the $ 10,000 a day level a number of times. Earnings stayed above $ 10,000 a day from February 15. until June 8 and then again between June 20 and June 27 before sliding below the key psychological level.