Sizing Up Summer’s End

For the past several weeks the spot freight market has been experiencing weaknesses. Regardless of market levels today, owners and charterers are still challenged with the task of making long-term strategic decisions. Although not a perfect indicator, the fundamentals of crude oil supply can offer a guide as to what can be expected of rates in times of uncertainty. The chart below shows the weekly U.S. crude oil stocks and VLCC AG to USG TCEs for 2006 and 2007. In general, TCEs have a tendency to decline when crude oil inventories are near their highest levels. Stock levels in combination with refinery utilization paint the plausible picture of increasing pressure to replace crude oil inventory when confronted with steady product demand.