Singapore (Platts)--4Apr2011/515 am EDT/915 GMT

The market for the Persian Gulf to US Gulf voyage, a benchmark route for VLCC spot trade for a long time, is a witnessing a decline with the fall in US demand for Middle East crude, shipbrokers Poten & Partners said in a report published over the weekend. "Once an important benchmark of international tanker earnings, it appears to have evolved into little more than a means of repositioning," the shipbroker said.

"This may indicate that it is no longer appropriate to measure the health of the market as a whole against the seemingly abysmal earnings on this trade."

Poten said it was not uncommon these days to see the freight levels rates from the Persian Gulf to the US Gulf hit negative time charter equivalent or TCE levels with shipowners simply looking for "repositioning cargoes" that take their vessels to the Atlantic Basin.

"In 2011 to-date, VLCC rates from the Arabian Gulf to the US Gulf have hardly come up for air at a time when rates to points East from varying load areas have stabilized at more palatable levels to shipowners," it said.

"Over time, the discount applied to voyages [to] West has increased largely due to the rise in Atlantic loading opportunities to meet heightened eastern demand."

The long-term average rate since 2000 for the Persian Gulf-East voyage has been at $49,400/day compared with Persian Gulf-West at $31,900/day, the report said.

Currently, the Persian Gulf-West returns on a TCE basis at Worldscale 35 points would yield minus $4,600/day when calculated on a round-trip basis, the report said.

"Comparing current earnings on the [Persian] Gulf-West trade to those of years past shows a grim picture for the shipowner, but there is more to the story than what meets the eye. In practice, it is unlikely that a vessel will actually conclude such a round trip voyage," Poten said.

One of the reasons that a shipowner would take a Persian Gulf-West voyage currently is that the volume of spot fixtures from loading ports in the Atlantic Basin, such as West Africa, the Caribbean and South America, to discharge ports in the Far East, Southeast Asia, and India has increased significantly.

So there is an opportunity for owners to take advantage of the more attractive economics of a "triangulation voyage" in which a ship picks up a second "back-haul" cargo instead of returning to its original loading port in ballast, which normally would be the Persian Gulf, Poten said in its report.

For such voyages, shipowners can often be paid for two voyages concurrently, effectively increasing their utilization beyond 100% from an earnings perspective, the report added.

Explaining the triangulation voyage, Poten said that while a Persian Gulf-US Gulf voyage would appear to offer negative returns for the shipowner on a round-trip basis, the West Africa-East trip would yield a TCE earnings of around $21,000/day at a rate of w55.

It said that picking up an eastbound voyage as a back-haul would result in a higher proportion of laden days versus ballast days.

"On this basis, this type of play increases daily earnings to almost $25,000 per day," the report said.

In the last three years, VLCC fixtures from the Atlantic Basin to the East have doubled compared with the Persian Gulf-US Gulf trips. In 2009, while there were more than 200 fixtures from the Atlantic basin to the East, the Persian Gulf-US Gulf route saw just below 100 fixtures.

So far this year, close to 40 fixtures have been done on the Persian Gulf-US Gulf route compared with 90 fixtures from Atlantic Basin to the East.

--Pradeep Rajan, pradeep_rajan@platts.com

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