China's fiscal tightening measures dampened sentiments also Concerns over looming financial contagion in the euro zone from the crisis in Greece resulting in lower oil demand outlook pushed down oil freight rates in the month of May 2010. However, riding on the momentum of the past few months, the freight rate index (sourced by Bloomberg) for the route TD3 (from Ras Tanura, Saudi Arabia, to Chiba, Japan) opened flat at the 30 days average (as commonly referred to in the industry) of 88.35 Worldscale (WS) points, marginally down by 0.09% over the April close. With the forward price of crude oil surging, the number of vessels used for floating storage increased, thus cutting available supply to the market and in turn driving up freight rates. As a result, the 30 days average oil freight rate index for TD3 route moved to the month high of 89.108 WS on May 11.
As such, the route TD3 is one of the busiest routes for shipping crude oil through supertankers from Saudi Arabia to Japan; while Worldscale points are a percentage of a nominal rate, or the flat rate, for more than 3,20,000 specific routes. Flat rates for every voyage, quoted in US dollar a tonne, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates. Notably, 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. Importantly, rates along the Saudi Arabia-to-Japan route set a benchmark for supertankers.  After the 30 days average TD3 route oil freight rate touched its month high, European debt concerns began pulling down freight rates as they raised the larger concerns about global economic recovery. Also, according to the median estimate of five shipbrokers and one owner surveyed by Bloomberg, the highest monthly demand for supertankers in more than two years failed to curtail an expansion in the number of vessels seeking cargoes in the Middle East, the world's largest export region for crude oil. Besides, there were 19% more very large crude carriers (VLCCs) for hire in the Persian Gulf over the next 30 days than there were cargoes that needed shipping, which weighed down on freight rates further. Additionally, China's continuance with monetary tightening measures dampened the demand sentiments for several commodities including oil.
Moreover, tanker supply in May swelled as Asian refineries performed yearly maintenance and, thus, offered ships for hire which they usually avoid. As a result, amid downturn in oil prices, the 30 days average freight rate for the route TD3 fell to the month low of 80.91 WS in the last trading session of the month, an 8.5% fall on a monthly basis. - Multi Commodity Exchange, Mumbai |
