May 12, 2015 [Platts] - Worldscale rates for Aframaxes on the East of Suez routes have surged as more than 10 Aframaxes have been taken on short-term time charters to store fuel oil in the last one week with traders expecting fuel oil prices to rise in the next few months, market sources said Monday, May 11.
Most Aframaxes taken on time charter are for delivery in Singapore, a bunkering and storage hub for fuel oil, they said.
For the first time in a month, Platts assessed the key Aframax Indonesia-Japan rate above the w100 mark Friday.
The increase was due to rising fuel oil production and therefore the need to move or store the commodity, said an Aframax broker in Singapore.
Aframaxes that typically carry around 80,000-100,000 mt of cargo are widely used to move and store fuel oil and crude.
“Margins to produce fuel oil are good and as crude prices rise, reserves that were purchased previously at lower rates are finding their way to the refineries,” the broker said.
Aframaxes have been taken on short-term time charter of 60-90 days for between $26,000/day and $31,000/day to store fuel oil, owners and charterers said.
At current rates, the cost of storing fuel oil for one month is unlikely to be more than $14.50/mt and if oil prices rise, as traders expect, it could translate into higher returns, said a source with an Aframax owner.
Companies that have taken ships on short-term time charter included BP, Mercuria, Concord and Glencore’s shipping arm ST Shipping, sources said.
Even if some ships on time charter fail, they would be replaced by others as the demand to store fuel oil was strong, a senior official with an Aframax owner said.
Among the fixtures heard, the Desh Mahima was placed on subjects for 60-90 days time charter by BP at $30,000/day, brokers said.
The time charter activity is pushing up rates in the spot market as well despite ample availability of ships.
“It isn’t that there is a shortage of ships but due to the demand for time charters the sentiment has turned bullish,” the Aframax owner official said.
Vitol has placed the Kalamas on subjects at w109 for May 22 loading from Santan and Senipah for a voyage to Geelong, brokers said.
“Situation is very fluid as rates are being offered in a very wide range but they are definitely moving higher,” said another Aframax broker in Singapore.
Supply is also tight in northwest Australia and tonnage is ballasting from Singapore.
The Saeatta was placed on subjects for May 23 loading from Cossack at w102, sources said.
