Too many tankers are available to haul crude oil from the Gulf to Asia at cut-price rates and have been driving down rates on the spot charter market over the past week.
Analysts believe the market for very large crude carriers (VLCCs) is not likely to pick up soon, and some have predicted that a glut of these "relet" vessels will drive the daily charter rate below US$10,000 (Dh36,732).
The "relets" are vessels already owned or time-chartered by oil companies.
When not in service for their owners, they are offered to other shippers to carry their cargoes, usually at a discount rate.
It is their presence in the Gulf, coupled with lower-than-predicted demand from Japan, that has been weighing on the Worldscale 100 index, which represents the price in US dollars per tonne that a VLCC can expect to earn for carrying crude oil. "Rates have softened further in a market that is totally in the hands of charters and in which owners have little choice other than to accept the current state of affairs," the Oslo-based shipbroker Astrup Fearnley said in its weekly report.
"Although activity is likely to pick up in the near future as charterers start to fix tonnage to cover their May lifting programmes … an immediate spike in rates [is] unlikely due to more than sufficient number of vessels available in the Arabian Gulf to meet the expected increase in demand," the report continued.
The energy agency Platts, quoting a Japanese shipbroker, reported that the benchmark Gulf-Japan rate on hiring a VLCC "has fallen by w10 [10 points on the Worldscale index] in the last seven trading days to w59".
Platts's quote from the shipbroker continued: "It is a depressing market at the moment. The main culprits are the relet vessels from [Far East refiners]. They are pulling down the market.
These vessels don't attract strong numbers. Normally, during the spring season, because of the refinery maintenance, oil companies may need to re-let."
Others agreed. "VLCCs continue to slip and have now declined 41 per cent over the past week on quoted basis," said Erik Nikolai Stavseth, a shipping analyst at Arctic Securities. "We still see further downside and would not be surprised if VLCCs follow down to four digits."
His comments are "energy speak" for a prediction that the daily charter rate could fall below $10,000.
"The reason for the collapse in freight rates is also a likely consequence of the weaker margins in Asia as a result of massive supply coming in," Mr Stavseth said.
"Japanese utilities have been expected to come in to buy light/sweet crude but have so far been less aggressive than first thought."
As of February, VLCC operators were predicting an average cash break-even rate for the remainder of this year of $14,100 per vessel per day.
The VLCC relets have a cash break-even rate of $5,300 per vessel per day.