Reduction in oil output drives charter rates down

Kailash Rajwadkar

Mumbai, July 15: The average charter rate for tankers has declined further to $26,000 per day from $30,000 over the last two months after it had touched an all time-high of $40,000 per day in January this year.

One of the reasons for the decline, industry observers said, is the production cut of 2.5 million barrels per day by OPEC coupled with the low demand for oil during summer.

As a result, shipping companies which are set to announce their quarter results will be unable to maintain their momentum of the preceding two quarters, industry sources said.

Revenues from tankers constitute a substantial contribution to the turnover of the major shipping companies in India particularly the Shipping Corporation of India (75 per cent), Essar Shipping (65 per cent) and GE Shipping (48 per cent). However, the agreement signed last week to allow Iraqi oil exports by the United Nations under the oil-for-food programme should boost the charter rates upwards in the next few months, Shipping Corporation of India (SCI), Director (Bulk Carriers and Tanker Division) KM Joseph said.

The oil-for-food programme will see around two million barrels per day of crude available for transportation, he added.

Besides, the market is expected to recover during the second half of the year as winter increases oil demand in the northern hemisphere, a GE Shipping official said.

Though the current decline is in tune with the cyclical nature of the shipping industry, the average rates are still not as dismal when compared with those in 1998-99 of around $ 9,000 per day.