RE: RE: Energy: 29% earnings declineAgree. HED is attractive but the risk/reward ratio looks poor for now. Around Obama inauguration may be optimal since VLCC tanker rates are are showing supply side reductions taking effect (faster than I imagined). It looks like the supply side econimics are moving at an accelerated rate; the geopolitical risks simply acted as a catalyst.
Persian Gulf Tanker Rates May Drop as Owners Await Demand Boost
By Alaric Nightingale
Jan. 5 (Bloomberg) -- The cost of delivering Middle East crude to Asia, the world’s busiest route for supertankers, may extend its steepest annual drop in at least a decade, with few signs of accelerating demand.
Refineries hired 97 very large crude carriers, or VLCCs, to load in both December and November, according to a report today from Paris-based shipbroker Barry Rogliano Salles. That’s 5.8 percent below last year’s average. A further 40 were booked to load this month.
“Sentiment is still affected” by a “lack of activity,” Mathieu Philippe, a Dubai-based broker at the company, said by phone today.
Tanker owners will have to contend with reductions in the supply of oil. The Organization of Petroleum Exporting Countries, accounting for about 40 percent of world supply, is cutting output after the steepest plunge in crude prices on record.
The benchmark tanker rental rate, based on Saudi Arabian cargoes to Japan, fell 31 percent to 42.85 Worldscale points on Jan. 2, its steepest drop since the first trading day of January 2005. That’s because the market adopted Worldscale rates based on last year’s record ship-fuel prices, meaning a lower Worldscale price is needed to give owners the same daily income.
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 U.S. dollars a ton, 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.
A rate of 45.85 points works out at $37,002 a day, a decline of 5.8 percent compared with the previous assessment on Dec. 24, according to the Baltic Exchange. Globally, rental income fell 5.8 percent to $32,509 a day. Frontline Ltd., the largest owner of the vessels, said Nov. 28 it needs $34,700 a day to break even on each of its supertankers.
Rates fell 78 percent last year, the steepest drop since at least 1998.
https://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4sYKmVksykY