22nd June 2012

MRs - DOES SIZE MATTER? Since the beginning of this century the larger MR category has gone through a major transformation. The size of the MR fleet between 40,000 to 55,000 dwt (MR2) has increased by more than threefold over the past twelve and a half years from 344 to 1174 tankers. In contrast, the supply of 25,000 to 40,000 dwt tankers (MR1 or so called “Handy”) has remained fairly static, rising just marginally over the same period. The end result of these developments is that the larger MR fleet is now nearly double the size of the smaller MR fleet, while the situation was in reserve back in 2000. The investment in new tonnage is also dominated by larger MRs, with around 80% of all orders placed since 2005 are for MR2s (here the emphasis has been towards the 47-55,000 dwt tankers).

To the untrained eye, the owners’ preference for larger MRs may appear “unwise”, considering that the smaller MR fleet is more “balanced” in terms of supply. Both size groups will have a limited number of deliveries over the next few years, yet new additions in the smaller segment will be even more restricted than in the larger category. MR1s also have considerably more candidates for scrapping. Near 13% of the existing smaller MR fleet is still single hull, while 15% of the existing double hulls are over 15 years old. In comparison, just 4% of the larger MR population is single hull, while less than 10% of the existing double hulls are over 15 years of age. Another advantage of smaller versus the bigger MRs is that they come at a lower investment cost and with lower bunker consumption.

Despite all of these attractive points, the fundamental drawback of the 25-40,000 dwt tankers is that their trading opportunities are highly restrictive. There is a vast market for these units in the short haul trade within the North West Europe/Baltic and within the Mediterranean. However, there is very little MR1 business for the long haul trade out of the UK Continent and the Mediterranean (eg. transatlantic TC2 market) and the situation is more or less the same in the Caribbean/US Gulf or Atlantic Coast. In the

Middle East and the Asia Pacific, the MR market is also vastly dominated by larger MRs. Interestingly, although in the Far East and South East Asia the prevailing “reference” cargo size is 30,000 tonnes, in reality parcel sizes are bigger and vessels traded are by far within the 40-55,000 dwt range.

Therefore, for a local European trader in a guaranteed local market for whom flexibility is not important, the MR1 segment could be an

attractive proposition (although limited market opportunities are likely to translate into a lower resale value). However, for those looking for flexibility and/or opportunities for longer haul trades, investment in the larger MR segment appears considerably more attractive. Finally, for the owner, who wants to trade internationally, opting for a larger MR is really the only option.

CRUDE

Middle East_________________________ July VLCC programmes were finalised, and that allowed for a modest pick-up in enquiry. Owners started to become a little more optimistic, and then converted that into a small rate gain, though by the weeks' end there were signs of renewed softening to the Worldscale rate, at least, as bunker prices fell sharply. Currently rates stand at around WS 40 East and WS 30 to the West. Suezmaxes started quite brightly, but for all the noise, the market failed to move higher, and rates settled at down to 130,000 by WS 77.5 East and WS 45 to the West with little early change anticipated. Aframaxes did tick up a tad at the very start of the week, but it led to nothing, and rates ended exactly where they kicked off - 80,000 by WS 90 for Singapore with next weeks report likely to read similarly.

West Africa_________________________ A very slow end to an uninspiring week. Suezmaxes suffered a steady battering to lead rates down to 130,000 by WS 60 for the US Gulf, though early dates proved tight enough to command up to a 10 WS point premium, however that will evaporate next week. VLCCs remained in step with events in the Middle East, and couldn’t cover at any higher than 260,000 by WS 43 to the East, and WS 45 Transatlantic, with a lower US$3.2 million seen for a run to East Coast India. Little change expected over the near term.

Mediterranean______________________ Aframaxes fought hard to halt their downward spiral, and did manage to hold the line at around 80,000 by WS 95 cross Med. There is tightness on early dates, but like the Suezmaxes in West Africa, there are few takers, and it will

become irrelevant in any case as the market moves onto the more populous forward position. Suezmaxes saw reasonable early/mid week action, but volumes ended light, and rates edged below 140,000 by WS 70 from the Black Sea for European destinations, with as low as WS 52.5 seen for 130,000 West Med/States. No rebound on the cards for the time being.

Caribbean_________________________ Aframax Owners rapidly lost any left-over drive from last week, and had to stage a fighting retreat to 70,000 by WS95 upcoast by the weeks' end. Unless delays reappear, then Charterers should stay well in control. VLCCs were largely bystanders and were willing to accept rates of down to US$ 3.25 million for Singapore if anyone wanted...and very few did, though there should be some bargain hunting next week to prevent further boredom. North Sea___________________________ A repeat performance of last week for Aframax players here. Just not enough enquiry to create any momentum, and always plentiful availability. Rates flatlined at 80,000 by WS 95/97.5 cross UKC 100,000 by WS 75/77.5 ex Baltic, and there is no good reason to predict a shift in the range over the coming week. Suezmaxes received the bare minimum of attention, but 135,000 by WS 57.5 was seen for States discharge to at least provide a rate 'marker'. VLCCs found some suitors for the fuel oil 'ARB' run to Singapore as differentials briefly widened, but it looked as if that was going to reverse, thereby jeopardising the 'on subs' deals concluded at the US$ 3.5/3.6 million level.

CLEAN PRODUCTS East of Suez is firing on all cylinders as Western Markets fire blanks.

East______________________________ The week on the LR1s has been feverish with activity while the LR2s remain flat. The LR1 requirements started out as being a rush on WCI/Red Sea Gasoil/Ums lifting’s but towards the weeks close this was also aided with a smattering of long haul inquiry and the way things are looking we should be looking at a drastically reduced list on Monday. In terms of freight guidance we have seen a lift of 7.5 points for the 55kt Naphtha movements with levels now at WS 107.5 off early July lifting’s and 65kt Jet is now on subs at US$ 1.875m but it is tighter on certain dates then US$ 1.9m+ could be a possibility. The momentum is with the Owners at the end of the week and; subject to sustained levels of enquiry, then next week could see further firming. The LR2s have had a flat week with levels remaining at US$ 2.3m levels for Jet/West and WS 90 for AG/Japan. AG/East Africa was fixed at 80kt x WS 132.5 and the S. Korea/UKC movements are fixing at the US$ 2.5m levels. At the weeks close there is tightness in the list but given present enquiry, for now the outlook is steady.

The MRs have seen a renaissance this week and Owners are now turning down cargoes and content to sit and wait until next week. TC12 continues to be the anomaly and this has actually fallen to WS 118, but 1 point less is reported on subs. East Africa is still fixing at 170-175 levels, but given the strong sentiment this could rise. Jet westbound moves are expected to firm beyond US$ 1.35Mill for the next done, simply due to rising expectations. The driving force for this has been the short haul demand, which has seen June tonnage clear out.

The Far eastern markets have on the whole been busier than in previous weeks. The Northern markets have seen an increase in short haul Korea / Japan movements and the flow of backhaul cargoes from Korea/Singapore has remained steady. Freight levels have been consistent with previous weeks and Korea/Singapore is still at US$ 430k level with a premium for any vessels under 46 dwt. The Singapore spot market has had a markedly different week from the previous two weeks and a fair amount of the prompt tonnage has been cleared out, rates however remain unchanged. Most of the Singapore / Australia cargoes have hitherto been covered by COAs but the increased activity has meant that charterers might need to come to the market in the near future with 30 x WS 177.5 on subs for this voyage.

Mediterranean______________________ A slowdown in cargo demand this week in the Mediterranean as rates for Cross Med and ex Black Sea began to tail off. For Cross-Med handy stems have been fixing around the WS 137.5-140 levels with market outlook appearing softer. Equally a quiet week for Black Sea Exports as tonnage remains in ready supply from East to West and no rate variance to report. A similarly slow week for the MRs with only a handful of longhaul stems reported; the market was fixing 37 at WS 120 for transatlantic discharge early in the week, but with the softening TC2 market now considered 37 at WS 115-117.5 and WS 125 levels for West Africa. Seemingly little appetite for moving product to the Red Sea/AG, so market requires testing, but considered USD 800k / 900K levels respectively, although repositioning in this direction should be an attractive option for owners with the east market firm. UK Continent_______________________ Another disappointing week as Cargo demand remains seasonally slow on the Continent with plenty of tonnage. TC2 has slipped below WS 120 this week with WS 115 reported on subjects at time of writing creating new lows for 2012. Only a handful of fixtures for West Africa with Gasoil clips securing WS 122.5 basis 36KT Gasoil. Smaller clips into West Africa reported fixing at around WS 145 basis 33KT UMS. Not much relief either for Cross Continental trades with both Handy and Flexi trades feeling the pinch. For 30KT Cross Continent, WS 122.5 is on subs whilst for flexis, ideas are around the WS 165-167.5 area.

A slow week for the LR's, options staying west hover around WS 105 for transatlantic and West Africa runs loading ex cont basis 60kt, with LR2's ideas around 90 x 80 . Further discharge options destined to the Far East on the LR2's around US$ 1.9 m loading ex med.

Caribbean_________________________ Rates have slipped in the Caribbean/USG this week as cargos have thinned and tonnage remains long. The market for distillate stems going backhaul to UKC-MED has suffered with fixing levels around the WS 62.5 levels basis 38KT. For West Africa discharge Owners can gain a premium of around 55 points on the market with levels reported fixing around WS 115-117.5. Little to report in the TC3 market, however Owners ideas remain around the WS 115-120 levels.

DIRTY PRODUCTS

Handy____________________________ It has been a busy week for handys in both the Cont and Med. A strong beginning to the week has not tailed off with numerous fixtures going someway in reducing a long tonnage lists. The end month cargo cycle coupled with a high number of shorter voyages booked has provided Owners with the opportunity to push for higher rates. Expect WS 125 to be sought for cargos with dates end/early, (an increase of +5 points off the base of WS 120 this week). Whether this is achievable is debatable, but certainly a short term window has opened in favour of the suffering Owners. Cont still trading slightly higher rates than the Med.

MR_______________________________ A tale of the poor relation: MRs up in the north remain scarce enjoying all of the benefits that go with being in demand, levels well into the WS 140's and a firmness to follow. In the Med however without much enquiry and bunker price prohibiting ballast away from the area, it's been a case of sit and wait it out.

Panamax_________________________ This market has not been entirely quiet with numerous freighting questions being asked. Subsequent activity however failed to develop as needed if Owners were to realise ambition in holding onto previous WS benchmarks. A few ballast positions and fixing date progression makes the current outlook softer the further forward into July you look. Charterers will be looking to edge closer to the WS 120 figure fixture by fixture.

SL/JCH/TP/JT/AS/JW/SLT

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wk on wk last last FFA FFA FFA change June 21st week month Q3 11 Q4 11 Q1 12

TD3 VLCC AG-Japan +4 44 40 60 42 46 41TD5 Suezmax WAF-USAC -6 64 70 92 65 68 58TD7 Aframax N.Sea-UKC +0 95 95 94 90 97 92LQM Bunker Price (Fujairah 380 HSFO) -35 583.5 618.5 672.5

wk on wk last last FFA FFA FFA change June 21st week month Q3 11 Q4 11 Q1 12

TD3 VLCC AG-Japan +9,500 15,000 5,500 33,000 12,250 19,750 16,750TD5 Suezmax WAF-USAC -3,250 16,000 19,250 32,000 17,250 20,000 16,000TD7 Aframax N.Sea-UKC +1,000 14,250 13,250 10,250 10,750 16,250 14,000

wk on wk last last FFA FFA FFA change June 21st week month Q3 11 Q4 11 Q1 12

TC1 LR2 AG-Japan +0.0 90 90 85TC2 MR - west UKC-USAC -1 120 121 148 120 126 121TC5 LR1 AG-Japan +2 102 100 112 106 106 105TC7 MR - east Singapore-EC Aus +1 164 163 174LQM Bunker Price (Rotterdam HSFO 380) -27 551.5 578.5 626.5

wk on wk last last FFA FFA FFA change June 21st week month Q3 11 Q4 11 Q1 12

TC1 LR2 AG-Japan +1,750 11,000 9,250 4,750TC2 MR - west UKC-USAC +750 7,250 6,500 11,250 7,250 9,000 9,750TC5 LR1 AG-Japan +2,000 9,250 7,250 9,250 10,750 11,250 13,500TC7 MR - east Singapore-EC Aus +750 9,250 8,500 8,750

Dirty Tanker Spot Market Developments - Spot Worldscale

(a) based on round voyage economics at design speed

Clean Tanker Spot Market Developments - $/day tce (a)

Clean Tanker Spot Market Developments - Spot Worldscale

Dirty Tanker Spot Market Developments - $/day tce (a)