Ship Owners Forced to Pay to Carry Middle East Oil (Update2)

09/05/2009 00:00 AST

Ship owners are being forced to pay to carry oil from the Middle East to the U.S. for the first time in at least a decade after demand collapsed and the fleet expanded.

Supertanker owners make no rental income from the voyages and are paying $3,445 a day toward fuel costs, data from the Baltic Exchange in London show. Rental rates normally cover fuel costs. The journey to the Louisiana Offshore Oil Port from Ras Tanura, Saudi Arabia's largest export facility, earned owners as much as $104,663 a day in July.

Some owners may be prepared to subsidize voyages as they relocate vessels to the Atlantic, Anders Karlsen, a shipping analyst at Nordea Markets in Oslo, said by phone today. The alternative would be paying all the fuel costs themselves and sailing empty. Owners could also mothball ships, Karlsen said.

"It's a sign there's a lot of surplus" in the fleet, Martin Stopford, managing director of Clarkson Research Studies in London, said by phone today.

The Organization of Petroleum Exporting Countries, led by Saudi Arabia and accounting for about 40 percent of global supply, agreed to cut output three times since September as demand crumbled. Oil prices have plunged 61 percent from a record $147.27 a barrel reached in July.

Twenty-one percent of the global fleet of 2,067 oil tankers is anchored, compared with an average of 16 percent across all types of vessel, data compiled by Bloomberg show. Supertankers are moving at an average speed of 9.2 knots, from as fast as 10.6 knots in July, suggesting captains are slowing down to save on fuel, the data show.

Supertanker Fleet

The supertanker fleet expanded by 21 to 520 vessels this year, according to Lloyd's Register-Fairplay data on Bloomberg.

Rental incomes haven't been this bad in at least a decade, said Mark Jenkins, a London-based analyst at Simpson, Spence & Young Ltd. That's as far back as the shipbroker's data goes.

Nippon Yusen K.K., Japan's largest shipping line, leased the Tosa for a rate of 17.5 Worldscale points to Kuwait Petroleum Corp., according to reports today from Athens-based Optima Shipbrokers and other brokers. Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes.

The rate may be equal to $6,042 a day less than the shipper needs to pay its fuel and port costs, according to a calculator on the Web site of shipbroker RS Platou. Suguru Uchida, a spokesman for Nippon Yusen in Tokyo, declined to comment.

While negative returns are unusual, owners do routinely offer discounts to customers to cover the cost of moving ships into more profitable regions, Clarkson's Stopford said.

Should the situation persist for several months, owners are likely to favor mothballing ships and removing their crews, Per Mansson, managing director of shipbroker Nor Ocean Stockholm AB in Stockholm, said by phone.

Owners of older ships may choose instead to scrap them and those with ships on order may seek to delay delivery dates, Nordea Markets's Karlsen said.

Bloomberg