Shipping rates of very large crude carriers are on the way down, which may not bode well for regional companies such as National Shipping Company of Saudi Arabia (NSCSA).
With oil prices floating above $87 a barrel, the market is now oversupplied by supertankers competing to ship cargoes of 2 million barrels, stalling what has been considered a recovery in pricing.
Shares of NSCSA have already fallen by 20 per cent in the past six months. Last month, NSCSA reported a net profit of 82 million riyals, down 30 per cent in the most recent quarter compared with the previous one, and missing analyst estimates. The results reflected spot-shipping rates that were lower than expected.
There are 5 per cent more very large crude carriers, or VLCCs, for hire over the next 30 days than there are cargoes, according to the median estimate of seven shipowners and brokers surveyed by Bloomberg News yesterday.
There was a 1 per cent shortage a week ago, which was the first time for almost a year that respondents said there were not enough ships available.
Enquiry levels should come down over the coming days, said Henrik With and Glenn Lodden, analysts in Oslo at DnB NOR Markets, a unit of DnB NOR Bank, Norway's largest. Consequently, they said, rates could come down during the week.
Returns on the Saudi Arabia to Japan route have been above what Frontline, the world's largest operator of supertankers, needs to break even on the carriers for the past six sessions, according to data from the company and the London-based Baltic Exchange. That ended four months of unprofitable rates.
Frontline said in August that it needed US$30,900 (Dh113,480) a day to break even on the carriers. Returns had been above that level since November 1, when they ended a period of unprofitable rates that began on June 30.
Gulf Navigation, Dubai's only publicly traded oil tanker owner, could also be negatively affected if shipping rates come down.
* with Bloomberg
