Happy Thanksgiving?

Let us address the first question first. VLCC fixing activity was steadily on the rise throughout the month and the number of fixtures increased with each passing week. Once the decision had been made by the Saudis to discount the price of their crude oil and this decision was implemented in the wake of the OPEC meeting in the middle of November, the writing was on the wall. Even though there may have been little reason for stock building, refiners opted to purchase this surprisingly discounted oil. The die was cast, and whether the Americans were away dining on Turkey or not, the need to fix further vessels to carry discounted Saudi crude oil was already a factor in the market. This was the tipping point which made the spectacular rise in freight levels more or less inevitable.

Now for the second question, as to whether what we are seeing now is just a market anomaly, or the start of a firm winter market. We are afraid that we are inclined to believe in the former interpretation.

In mid-November the IEA issued their monthly report. This was quite interesting reading as the institution reduced 4Q07 demand by 0.5 mb/d and 2008 estimate by 0.3 mb/d. This is one of the highest monthly adjustments made by the IEA in recent years. Furthermore, the 4Q07 demand estimate hinges almost entirely on one factor: a substantial growth in Japanese demand. According to the IEA, Japanese demand from the 3rd to the 4th quarter should increase 0.64 mb/d, or 13.4%. This increase would represent more than one third of the global increase in this period. Since Japanese demand represents less than 6% of global demand, we find this peculiar. It is correct that we earlier have seen similar quarterly increases in Japan, but in the last three years the increases from third to fourth quarter have been in region of 2%-3%. Japanese nuclear power plants have been out for several months, so this should not be an argument. OK, end September stocks in Japan were low, but still sufficient.

In an average month about 110 VLCCs are fixed in the spot market out of the MEG. Occasionally only 100 or as many as 120 vessels are fixed. This represents about 50% of total VLCC shipments from this area. As of end November, 91 VLCCs were fixed for December loading and one would expect a minimum of 10 and a maximum of 30 more fixtures. In comparison; on the last day of October only 64 cargoes were fixed for November loading. As it looks a total of 107 fixtures are logged for this month. The interesting connection here is that we have logged 27 more fixtures for the next month´s ladays at the end of November compared with the end of October. Does this mean that we eventually will see the total tally of December fixtures becoming quite high (around 120-125)? Or have charterers basically fixed early with the remaining outstandings for December in all probability are only some 20 fixtures?

From our tracking activities we observe that there is no clear trend on shipment volumes in December. In comparison with November in any given year, December shipments are sometimes less, sometimes about the same, and sometimes higher. Hence, there is no regularity that can indicate whether we will see more or less than an average monthly volume in December this year. Hence, one should not bet on more than another 20, or so, fixtures.

With current market levels so high we believe most charterers are waiting, waiting for more vessels to emerge load ready for the 2nd half of December. In the meantime, freight will fall. How deep and how quickly is hard to say, but we are of the opinion that last week´s upturn in owners´ fortunes was a blip on the radar screen and that all fundamentals point to a relatively weak winter market.