Freight rates to Asia soar with high demand

Freight rates to Asia soar with high demand

LONDON (Reuters): The market is booming for very large crude
carriers (VLCC) with freight rates to Asia hitting their highest
point since the 1991 Gulf War.

The price of transporting crude oil from the Middle East to
Japan has reached almost $12 a ton, nearly double the rate a year
ago, on surging Asian demand and a shortage of modern,
environmentally sound ships, brokers and analysts said.

Freight rates have been forced up due to an unusually large
amount of oil in transit -- almost 460 million barrels, a level
rarely seen since the early 1990s and up 30 million barrels since
last year, according to Oil Movements, a British weekly
newsletter.

"Volume has been building at around 0.4 million barrels per
day since mid-year, and is probably not too far away from
stretching the capacity of the transport system," the newsletter
said in its latest issue.

Oil Movements publisher Roy Mason said that although the
Japanese economy was sluggish, booming demand in countries such
as South Korea, Thailand and Taiwan more than made up for this.

"Japan is important but it is the others that are generating
the good rates," he added.

The booming U.S. economy was also pushing up long-haul oil
demand, Mason said.

"Long-haul oil trade is up partly because the short-haul surge
in output has been much slower than the industry had been
counting on.

"Long-haul has substituted for short-haul," Mason said.

Tanker analysts also said the surge in VLCC rates over the
last three weeks was also a legacy of the 1970s boom in
shipbuilding, with many of these now elderly vessels still active
even though they are increasingly unwelcome in Japan and South
Korea in particular.

The Japanese and South Korean authorities are deeply concerned
about oil spills and the environmental devastation they can
cause, and South Korea has in the last year or two followed
Japan's example by insisting that ships that call there are
modern and safe.

"South Korea has had a big impact in the last year and a half.
They have been demanding almost exclusively modern tonnage and
that has added a lot (to demand for such ships)," a U.S. tanker
broker said.

Demand for crude has also been pushed up by a boom in refinery
building in Asia in recent years. South Korean refinery capacity
rose 11 percent last year from 1995 and is now the biggest
refining center in Asia after Japan.

Freight rates have also been boosted by seasonal factors as
both North America and Japan and South Korea stock up ahead of
the winter, analysts said.

VLCC rates from the Middle East to Japan on Wednesday hit
Worldscale 100 for the first time since the Gulf War and for only
the second time since the 1973 oil crisis, they added.

Worldscale rates express tanker freight rates as a percentage
of a set level, which in the case of Middle East/Japan voyages is
$11.93 per ton.

Brokers said orders for new ships were high, and in the longer
term this could push rates down as more modern vessels came onto
the market.

But several brokers felt that the market was likely to
maintain its strength for now, after three VLCCs had been fixed
at Worldscale 100 to Japan.

"The strength could stay for a couple of months. People are
optimistic that at least rates will not go down for now," one
broker said