MARKET REPORT - WEEK 5

VLCC
The first month of 2010 proved to be a very positive one for tanker Owners as returns for eastbound business averaged over $50,000 pdpr with highs of close to $100,000 pdpr on certain voyages. Looking back to that period last year the average was almost exactly the same, although the peak levels were not nearly high as what we saw last month. In 2009, January proved to be the strongest month of the year due in a large part to the strength from the end of 2008 carrying over. This year's spike came upon everyone unexpectedly and is beginning to show signs of a downward correction; rates already off almost 20% from the start of the week.

In January the AG was helped in a large part due to the stronger Atlantic market that attracted ballasters away from the east on a regular frequency. It was no coincidence that the falling rates in the AG occurred right after the collapse of the West Africa Suezmax market which took VLCC's out of play for Trans-Atlantic business. In fact we did not see any ballasters from the east play in the Atlantic Region this week.

The pace of activity slowed as the week progressed, but a strong start led to a total of 31 fixtures reported this week; 19 emanating from the Middle East and 12 from the Atlantic Basin. The former was led by eastbound business the majority of fixtures (9), destined for China. Rates started the week at the ws120 level, quickly adjusted down to ws110 and that's when the quietness set in. Charterers sat back and reduced their forward fixing window back down to two weeks, leaving fewer opportunities for more units. This caused rates to drop just below triple digits with one outstanding inquiry receiving upwards of 13 offers which will undoubtedly see a further drop in levels. Westbound business followed a similar trend beginning the week at ws70, with the latest fixture just below ws60 on a smaller than usual cargo size.

As we look to next week we expect the downward trend to continue as charterers remain patient, slowly working those last decade cargoes. To date we have seen 70 fixtures reported for February which should leave us another 25/30 to go. We compare that to a position list with 42 units load ready by month's end. While the list is not overly out of balance, the Charterers advantage is certainly clear and as we do not expect to see the list depleted by ballasters, rates will continue to soften as we move forward, likely down to the mid ws50's to the west and to around ws90 to the east.

In the Atlantic Basin we saw 12 fixtures reported this week, all bound for eastern destinations. The last trans-Atlantic fixture seen was over two weeks ago at ws135 and the next could easily be more than 40% lower. The activity from the Caribbean, North Sea, Med and West Africa did manage to deplete the list of natural players in the region where although rates did soften, they have now leveled off, with the active Caribs/Singapore rates, for example, steady at the $4.8M level.

Suezmax
Low fixture activity levels from West Africa - partially due to a cessation of the armistice between the Nigerian government and rebel militants which ushered in fresh attacks against the oil infrastructure there - saw Atlantic rates remain bottomed in the low ws90s for the duration of the week. With reports suggesting lower export levels we expect that progression into the March loading programs will be slow and, accordingly, there is little to suggest a change in direction in the short term.

Aframax
The Caribbean Aframax commenced the week with a loaded tonnage list and light inquiry levels, at best. Accordingly, rates complacently hovered around either side of the ws150 level for the duration of the week. Looking forward, rates are more convincingly expected to break below the ws150 line in the week ahead, assuming no major shift in the supply/demand ratio.

Panamax
The Caribbean Panamax market held generally stable around the +/- ws197.5 level on the back of weather berthing delays as well as refinery issues in Canada holding up tonnage.

Products
The Atlantic market saw limited inquiry again this week and the only market seeing any movement proved to be the Cont-WAF route, where rates surpassed the ws200 mark on the back of sustained inquiry. The activity on that route likely prevented a further erosion of rates on the Cont-States route as the gasoline arbitrage has been limited for the physical trade. The few cargoes competing for space with the Cont-WAF inquiry ranged from ws175-187 over the course of the week with no certain direction observable.

The Caribbean/Up coast market saw lackluster inquiry. A handful of fixtures were done in the low $300s on a lumpsum basis for USG-Caribbean voyages and the upcoast market slipped by a few points to the ws142.5 level. Looking ahead to the second-half February cargoes, it is likely that tonnage will start to outpace inquiry, allowing for a small measure of downward pressure on the market.