Turn of tide may give Gulf Navigation cheer

Gulf Navigation could receive a windfall in revenue after Asian refinery demand for Middle East crude caused charter rates to rocket to an eight-month high.

The UAE shipper, which owns and operates 15 chemical and oil tankers, has two additional very large crude carriers (VLCCs) under construction due to be launched next year and in 2013.

Rates for VLCCs, from Saudi Arabia to Japan, rose 2 per cent to 63.96 points, which express hire costs for tanker voyages as a percentage of a nominal rate that changes annually, according to data from the Baltic Exchange in London. That was the highest level since March 15, and the climb was the 10th in a row since then.

"There is a rebound in rates, which is good after drops seen in the first quarter and second quarter for shippers," said Kareem Murad, an analyst at Shuaa Capital. Shipping companies, such as Gulf Navigation and National Shipping Company of Saudi Arabia, may show an earnings surprise in the fourth quarter, Mr Murad said.

Gulf Navigation intends to position itself as a transport link between the Saudi market and China to meet the increasing oil demand expected over the next 20 to 30 years. Tanker users booked 137 VLCCs to load cargoes in the Persian Gulf this month as rising refinery output in China stoked crude demand, Pareto Securities, based in Oslo, said yesterday in a report. China is the world's second-biggest consumer of crude after the US. Each VLCC can haul 2 million barrels of oil.

Daily returns for VLCCs on the voyage between the Middle East and Asia advanced 13 per cent to US$17,228, according to the exchange. The Baltic Exchange's assessments don't adjust for the fact that owners are lowering vessel speeds to reduce fuel costs that represent their largest expense. The vessels were earning $338 a day as of November 7.

VLCC returns averaged $11,372 a day in the third quarter, the least since 1997, according to data from Clarkson Research Services.

That is less than the $13,000 that Drewry Shipping Consultants estimates the vessels need to cover daily running costs including crew and repairs and excluding debt.

* with Bloomberg News