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E.A. GIBSON SHIPBROKERS LTD., AUDREY HOUSE, 16-20 ELY PLACE, LONDON EC1P 1HPSwitchboard Telephone: (UK) 020 7667 1000 (International) +44 20 7667 1000E-MAIL: [email protected] TELEX: 94012383 GTKR G FACSIMILE No: 020 7831 8762 BIMCOM E-MAIL: 19086135

MR Spot Rates vs Interest and Capital Cost Repayments

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5,000

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35,000

Jan-08

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$/day

Average Spot Earnings

Full Repayment

Interest OnlyRepayment

*Full repayment/Interest

repayment based on 30% cash

and 70% finance.

*Finance interest of 3.5%.

*Full Capital Recovery over 15

years.

1st October 2010

SLIM PICKINGS FOR SMALL SHIPSDespite the larger product carriers witnessing a brief improvement in rates in recentweeks the MR market continues to feed off scraps with TCE returns equating to $6000/day

at the time of writing. With few prospects of a recovery in the short term how long will it

be until we see a change in the owners fortunes?

A year on year increase of actual MR deliveries from 2005 -2009 totalling 718 vessels has

ensured a drastic over supply of tonnage in the marketplace. Furthermore, insignificantlevels of scrapping in the corresponding years have helped the fleet expand to 1,703

vessels. The impact of this and decreased global product demand is reflected directly inthe difference between the 2008 annual average TCE earning ($24,727) and that of 2009

($7,877). With spot market rates at such a low and ship financing an exciting propositionfor banks at Libor plus 200 bp 300 bp, recently purchased MRs are struggling to reach

their financing costs, let alone full capital repayment.

However, the supply fundamentals for the forthcoming 4 years look to be the antithesis ofthe previous 4 years. Based on forecast delays and assumed cancellations to deliveriesthere are 255 MRs due to be delivered between August 2010-2014. In comparison to the

718 vessels delivered between 2005 and 2009 this is a greatly reduced figure. While ownersare far from being out of the woods a levelling off in the fleet profile should see MR

earnings enhanced. With global products demand estimated to grow by 1.2% annuallybetween 2010 and 2015, according to one source, and greater average trading distances

emerging as Eastern refinery capacity increases simultaneously to demand in the West,the forecast for owners is much improved.

This improving sentiment is further supported by recent 1 year T/C business at

$12,000/day-$13,000/day whilethe forward curve average forthe Cal 11 contract is

$9,750/day. Such rates may fallshort of the levels required to

cover financing costs based onthe model below however the

outlook for the MR marketbased on forecasted supply and

demand fundamentals suggestthat recent woes will be

gradually forgotten over thecourse of the next 4 years.

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CRUDE

A rather uninspiring week for VLCCs in the Middle East as enquiry remains on the light side, rates remaindragging along the bottom with no encouragement or signs of improvement as tonnage continues to build. As weenter the final quarter for the year Owners will be hopeful of some change in fortune although the odds of anyrecovery in the near future look somewhat long. Present levels for a voyage East remain around WS 45 and anew low was set to the West at WS 30 although that may be hard to repeat. Suezmax levels took another notchlower as voyages to the East went at around WS 70 on 130,000mt and still around WS 55 for Westerndestinations. Aframaxes didnt fair any better with last done levels of WS 97.5 on 80,000mt achieved.

West Africa was not as busy as expected and new Suezmax enquiry remained thin. Although the week started offwith a firmer feel it simply failed to translate into points. TD5 only managed a meagre half point increase to WS67.5 over the week, hardly exciting as we enter the highly anticipated 4th Quarter.Naturally placed VLCCs remain tight in the West but with the threat of potential ballasters coming from the Eastrates will remain somewhat deflated. Present levels for a voyage to the US Gulf keep to around WS 47.5 on260,000mt and similar levels should be achieved to the East.

Further softening tendencies for Aframaxes in the Caribbean as Owners grapple for position, which all leads to afall on last done levels which presently stand at around WS 92.5 on 70,000mt upcoast. VLCCs Owners have thepotential to stand their ground and push for at least last done but with other load areas showing signs of

weakening this may well impact on sentiment here.

Mediterranean aframaxes had a busy spell earlier in the week but certainly nothing of a scope sufficient to changethe overabundance of tonnage and the activity subsequently died down anyway. Owners have been pinning theirhopes on the rapidly-deteriorating strike situation in the French ports but despite having been on strike for thewhole week, this has had no impact whatsoever. Prompt tonnage is still plentiful and replacement enquiries wouldbe dealt with very easily (in fact a few owners have merely substituted their strike-bound tonnage with otherreliable positions). The situation is unlikely to be resolved quickly but at the moment it is equally unlikely tomaterialise into a lifeline for Owners.In the Mediterranean and Black Sea the gains that we witnessed on Suezmaxes failed to build at the samemomentum. Nonetheless, we are now looking at a much healthier WS 85 for 135,000 ex Novorossisyk. Strikeaction in French ports has and will delay ships, and some Charterers have had to find replacements already.

Genoa and Trieste also expected to have maintenance/labour problems respectively between 8-12/10 and againOwners will hope to benefit.

In the North Sea and Baltic, a more balanced tonnage list and respectable levels of enquiry allowed Aframax ratesto nudge up a tad, although it is debatable how solid the platform is, given the current climate for Aframaxes inthe West generally. As it stands though present levels for cross-North Sea voyages are currently at WS 95 on80,000mt. VLCC availability remains tight but present arb levels ranging around USD 2.75 million from theContinent to Singapore should encourage Owners to consider other viable load options.

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PRODUCTS

In products, the East remains weak but has seen a steady amount of activity while the West has seen quietertimes.

LRs have had a week of steady activity but with too many ships rates have continued to fall. 55,000 mt AG/Japandropped to WS 120 and 65,000 mt AG/U.K. Continent is down to USD 1.65 million. Less may be done but ratescannot fall much further as returns are so low. LR2s also saw big drops with 75,000 million AG/Japan down 10points this week to WS 110. 80,000 mt AG/U.K. Continent is close to 2.0 million down some USD 250k. There

seems little optimism for the short term though and we may see rates stay here for a while.

MRs have been fixing a certain amount this week. The activity has been focused mainly on the short hauls buttowards the latter stages of the week some Naptha and South/East African demand became apparent. After a lotof smoke and mirrors it has emerged that the fixing level for 35kt AG-West Coast India/Japan has been steady atWS 140 levels with 35 x 139 being the lowest number confirmed and WS145 x 35kt having failed at the time ofwriting. After a very slow start at the beginning of the week enquiry open up on the African trade and ratessuffered as expected on this most attractive run for MR Owners; presently 35 x 265 is the fixing level for AG-West Coast India/East Africa with South Africa reported at 10 WS points less.. 40kt Jet AG/U.K. Continent hasseen no activity, last confirmed was at USD 1.325 million on an unapproved ship and with the Western Marketnot looking too attractive it is hard to see an Owner willing to less than this last done level. We have quiet timesahead with both Chinese Holidays and Appec and, while tonnage has been fixed, its not to a great enough extent

to suggest that freight should go up.

The Far Eastern Market has seen a very uninteresting week. 30kt Singapore/Japan has continued to see no realactivity with freight sentiment now sliding down to WS 130 levels. 30kt Singapore/Australia has equally been quietand next done would be in the WS 210 area. Back hauls South Korea/Singapore have been quiet but thought tobe around the USD 345k area and little has been reported to the US West Coast or Chile with freight ideas inthe USD 1 million and USD 1.65 million brackets; our customary end month tightness in the North China/SouthKorea range has not been witnessed for the Month of September.

Despite a steady flow of gasoil cargoes stemming from the Black Sea and East Mediterranean, freight rates remainunchanged due to a wide availability of tonnage. Cross-Mediterranean cargoes are seen to secure WS 125 basis30kt, whilst exports from the Black Sea fix a 5 point premium. A slow week for long haul fixtures sees fixing tradeparallel to those from upon the Continent, 37/130-135 deemed as market for transatlantic discharge whilst WestAfrica discharge sees WS 152.5 confirmed basis 33kt gasoline.

A quieter week for the Continent markets see rates soften as the supply of approved units has surpassed enquirylevels. Despite a draw of some 3m barrels of gasoline in the U.S. we didn't observe an increase in transatlanticinterest, fixing levels fell to WS 130-135 basis 37kt by weeks end. Cargoes bound for West Africa were moreactive, approved units fixed at WS 155 level basis 33kt unleaded mogas. Inter-Continent lifting's were very slow,flexi's remain stagnant securing WS 180 basis 22kt and with no 30kt demand, the handy market finishes untestedwith WS 140-145 deemed as market.

The Caribbean market has levelled at WS 137.5 basis 38kt for up coast movements, but exports from the

Bahamas command a further 5 points. With the arb window reported to be closed for backhaul movements ofgasoil, rates have softened and market is considered WS 82.5 basis 38kt on subs at time of writing.

LH/PG/TP/DH/MS/alh

GIBSON SHIPBROKERS LTDThis report has been produced for general information and is not a replacement for specific advice. While the market information is believed to bereasonably accurate, it is by its nature subject to limited audits and validations. No responsibility can be accepted for any errors or any consequences arisingtherefrom. No part of the report may be reproduced or circulated without our prior written approval

E.A. Gibson Shipbrokers Ltd 2010

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TMR 20101001 (2)