3rd July 2015 Mid-Year Review

Where do you begin to describe the events influencing the resurgent tanker market of the past 12 months? In the crude sector, OPEC’s historic decision against cutting crude production to defend its market share reverberated throughout the tanker markets. With the oil price crashing, bunkers, which represent the single biggest voyage expense, followed suit. At the same time higher global crude production increased transportation requirements which supported freight rates. Towards the end of 2014, a widening contango in crude oil futures increased speculation of floating storage. Although the contango was insufficient to make floating storage profitable, earlier this year up to 30 VLCCs were chartered in anticipation of a floating storage play later in the year. Increasing crude flows out of Iraq supported Suezmax earnings, whilst exports from West Africa to Europe remained robust, offsetting the near disappearance of the traditional West Africa to US crude trade. With lower import demand from the US, flows of West African and Latin America crude to the East increased, boosting tonne mile demand. In addition, the continuing conflict in Libya provided further support to the West African Suezmax market, albeit at the expense of the Mediterranean Aframax trades. In the products sector, earnings remained under pressure over the first half of 2014. However, the addition of refining capacity in the Middle East began to support the market in the second half of the year. This, coupled with stronger global refining margins, particularly in Europe, has boosted product trade, and subsequent product tanker earnings. With margins remaining strong so far in 2015, together with an additional 800,000 b/d refining capacity in the Middle East coming on stream, product tanker earnings have remained at their highest levels since 2008. A comparison spot rates/tce earnings on several of the benchmark trades can be seen on the next page. By the end of June VLCC earnings on TD3 (AG-Japan) were at $69,250/day compared with just $12,250/day for the corresponding period last year. Making the same comparison for TC2 (MR 37Kt gasoline trade UKCont-USAC, rates have moved from $5,500/day last year to a very healthy $26,500/day. The continued recovery in earnings has been both supply and demand driven. With the exception of MRs, fleet supply growth in both the crude and product sectors has slowed since 2014 with supply in some size groups even contracting. Limited fleet growth is also apparent this year which has also contributed to the markets strength. Inevitably, with the success of the tanker sector, the temptation to take advantage of low newbuilding prices has resulted in a sustained period of investment across the board with the exception of the MRs. With shipyards reporting shrinking orderbooks beyond 2016, pressure is mounting on yards to lower prices still further particularly with the dearth of orders from the other shipping sectors currently feeling the pinch. At the other end of the supply chain, not surprisingly we have seen very little recycling so far in 2015 with just a mere 17 tankers (25,000 dwt+) sold – the largest two units, both 1992 built were Aframaxes. Lightweight prices themselves have softened considerably since last June and currently stand at around $390/ldt (basis India) about 20% lower than this time last year – not that many tanker owners would be currently considering this option. Second-hand values across all tanker sizes are all higher than in June 2014, even for the 15 year olds. And there have been several notable second-hand deals, which have attracted the attention of the market. Values for the crude tankers have risen faster than those of the products sector, but nevertheless there are plenty of buyers looking to invest in both sectors. Probably the most talked about deal so far this year was Euronav’s acquisition of four VLCCs for $96 million apiece under construction for Metrostar, which has given the buyer newbuilds without adding to the orderbook.

Looking at events on the political scene little has changed since last year’s round up. A resolution to the Iranian crisis appears to be near but again nothing has been settled and a further extension of talks is apparent. The Libyan situation remains unstable and no immediate peace process appears to be on the horizon. Sanctions against the Russian Federation in respect to the situation in the Ukraine remain in place but have had little impact as crude and product exports continue to flow. The US Government has so far withheld taking any decision on overturning the ruling on the ban of crude exports, but we continue to see even larger volumes of products from the region. Certainly, the next few months will be interesting, to say the least. For the tanker market, we could be entering a period of “ifs and buts” as well as entering uncharted waters which will be challenging. The table below shows some of the market developments affecting the tanker industry over the past 12 months. June 2013 June 2014 June 2015 Spot Rates/tce Earnings (a) WS TCE/day WS TCE/day WS TCE/day VLCC Rates: Mid East-Japan 41 $19,750 38 $12,250 64 $69,250 Suezmax Rates: West Africa-UKC 49 $9,500 72 $22,750 93 $50,000 Aframax Rates: North Sea-UKCont 83 $7,250 99 $13,500 150 $69,500 55k Naphtha: Mid East-Japan 95 $10,000 110 $13,000 141 $32,250 37k Gasoline: UKCont-USAC 118 $9,000 99 $5,500 171 $26,500

VLCC S/H D/H Total 13 623 636 1 625 626 1 637 638 Suezmax S/H D/H Total 1 488 489 0 476 476 0 483 483 Aframax/LR2 S/H D/H Total 16 900 916 8 887 895 4 927 931 Panamax/LR1 S/H D/H Total 13 380 393 7 433 440 2 416 418 MR (25-55mdwt) S/H D/H Total 105 1,756 1,816 71 1,772 1,843 59 1,821 1,880

Deliveries Jul to Jun (25,000 dwt+) 26.2 M dwt (197 vsls) 17.7 M dwt (162 vsls) 16.7 M dwt (180 vsls) Orderbook (excl. options) 49.6 M dwt (455 vsls) 62.1 M dwt (590 vsls) 77.3 M dwt (599 vsls) VLCCs On Order 61 86 114

Demolition Jul to Jun (25,000 dwt+) 9.8 M dwt (96 vsls) 12.3 M dwt (104 vsls) 4.7 M dwt (70 vsls) Ldt price China / Sub Continent $315 / $430 $325/ $495 $220/ $390

VLCC Price NB / 10yr old $90M $29M $100.5M $50M $95M $52M Suezmax Price NB / 10yr old $56M $26M $66M $34M $64M $40M Aframax Price NB / 10yr old $47M $20M $54.5M $24M $53M $31M

Brent Oil Price (ICE Close) $102.82 (June27th) $ 112.36(June 30th) $ 62.00(June 30th) Brent-Previous 12 mth Low/High $97.34 / $118.9 $101.63 / $117.34 $112.29 / $46 Bunkers 380cst Fujairah/Rotterdam $605 /576 tonne $623/$599 tonne $333/323 tonne World Oil Supply (May) OPEC Crude Production Non OPEC Production

91.6 million b/d 31.1 million b/d 51.22 million b/d

92.6 million b/d 30.2 million b/d 53.42 million b/d

95.61 million b/d 31.27 million b/d 54.85 million b/d

(a) These are assessed at market speeds (around 13 knots laden / 11.5-12.0 knots ballast)

CRUDE

Middle East_________________________ Pressure stayed upon VLCC Owners but, overall, they managed a stout defence, and although average rates settled, a collapse was prevented, and the market ended the week in 'conference' territory in the low ws 60s East and low/mid ws 30s to the West. There’s plenty yet to come for July, but equally, availability also remains plentiful enough, and Charterers may still just retain the advantage, unless they rush to complete the programme in short order. Suezmaxes started steadily enough, and then increased in confidence as local interest swelled, and continued short term t/c enquiry circulated in the further East. Rates moved to above ws 100 to the East with over ws 60 payable now to the West. Aframaxes eased slightly to 80,000 by ws 145 to Singapore, but there’s not a lot of excess tonnage, and it will be either 'no change', or an orderly retreat, for next week. West Africa_________________________ The Suezmax see-saw kept rocking....quiet, with a tonnage build, initially brought the market noticeably lower, and into the ws 80s, but that then provoked a wave of bargain hunting that reversed the negative conditions, forcing rates back up to 130,000 by ws 90/92.5 to the USGulf,and close to ws 95 to Europe. There may be no further gain, but if Charterers do decide to trade on forward dates, then a higher price is likely to result. VLCCs found lots of Indian opportunity which became further complicated by replacement needs, and rates held up to $5.65 million to West Coast India and at up to ws 65 for far Eastern options.

Mediterranean_____________________ No disasters for Suezmaxes, but there was a general softening on a slower pace, and reasonable availability. By the weeks end, although activity was still sluggish, the turnaround in West Africa was beginning to reinforce sentiment, and that should stem any further decline. Aframaxes slid inexorably through the week to move from ws 150 to ws 115 X-Med in just a few days. Owners sense, now, that a bottom has been reached, and the hope will be that the same conclusion will be reached by Charterers, and a busier spell then provoked. Caribbean_________________________ An easier fixing pace, fatter supply, and the U.S. holiday at the weeks end, combined to erode Aframax hopes, and rates settled towards 70,000 by ws 145 up coast with Owners vulnerable at the start of next week to. VLCCs saw comparatively little which eventually brought rate ideas down to just under $7 million to Singapore, and near $6 million to West Coast India. Still very healthy, but necessarily reflective of better availability hitting up against the drier demand. North Sea___________________________ A complete about-face for previously buoyant Aframaxes...the balloon burst at the 80,000 by ws 190+ height X-UKCont, and it was a flapping fall to ws 105 as the week progressed, with 100,000 by ws 90 now available from the Baltic. Larger fuel oil movements to the East were hard to bolt together for traders, but an attempt was made at the $6.1 million level to Singapore, which would seem repeatable.

CLEAN PRODUCTS

East______________________________ MRs in the AG remain active and cargoes still need to be covered. Tonnage is tight on the ppt position and over the next 7 days or so as a consequnce rates are expected to remain unchanged. There is continued optimism from owners, as they expect MRs to benefit from the firm LRs, if the larger stems are split up. 35,000 mt Naphtha AG/Japan is upto ws 150 and 40,000 mt jet AG/UKCont hoveres around $1.80 million. WC India to Red sea is firm at $900,000. East LRs saw a stellar start to the week particularly on the LR2s but rapidly onto the LR1s. 55,000 mt Nap AG/Japan is now upto ws 155 and 65,000 mt Jet AG/UKCont is at $2.70 million. 75,000 mt Nap AG/Japan hit ws 140 and remains there with Owners pushing for more. 90,000 mt Jet AG/UKCont also is stable at $3.40 million and again Owners are impatient for more - but with returns as high as they are some Owners may well just take the money and move on.

Mediterranean____________________ The X-Med market has carried on up strongly at the end of the week, after a brief stall on Wednesday, with rates now hitting 30 at ws 265. Tonnage is very tight and Owners are pushing hard. The MR Med market is ticking over for now but encouraged by the very busy Handies. 37,000 mt Med/TA is now at ws 180 with West Africa untested but enquiry to be covered, around 37 x ws 195. Med/East so far has stayed stable at $1.2 million lumpsum and +150k into the AG. UK Continent_____________________ A quieter end to the week on TC2 with 37,000 mt at ws 170 being paid, some 10-15 points down. With the US on holiday today activity levels will remain slow for now but with a few more cargoes anticipated rates could firm slightly into next week. X-UKCont Handies remain flat 30,000 at ws 205.

DIRTY PRODUCTS

Handy____________________________ The general tone of the continent this week is that the region continues to thrive in this market and owners had real belief in market strength. This comes as little surprise when you take into consideration the number of vessels being sent to the Mediterranean on long haul voyages. This said, come Friday the mood has started to shift where a few days have passed with limited enquiry. One thing charterers will take from this week is that perhaps finally a trend reversal may be coming their way. The Mediterranean has taken a U-turn this week and we are starting to see the effects in rates slowing down. Although we have not seen a dramatic change in numbers, conditions do appear to have changed, and this market now appears somewhat unsettled. Tonnage remains a little tight though and charterers need to keep on their toes, if enquiry picks up again confidence can just as easily be regained.

MR______________________________ On the Continent those owners firm on itinerary monopolised market trend when it came to fixing full 45kt stems that came to fruition. Tonnage has been limited in this region and therefore come Friday we fail to report any real shocks with the market remaining stable. This said, the Mediterranean come week end has left some rather more twitch as where the Handies have lost value, thoughts begin to rise as to whether conditions on the next opportunity will be as profitable. Panamax_________________________ At the start of this week the continuing trend of firm markets was playing into owner's hands, highlighted with reports of ws150+ being fixed from the Med. This said, Charterers have started to spot that there could be some light on the horizon where the Aframax sector in the US shows signs of slowing. For now the market this side of the Atlantic is very much date dependant and expect any owners left in natural position to be snapped up quickly, albeit, at sensible levels.

PAT/JH/DLT/DP/LHT Produced by Gibson Consultancy and Research

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wk on wk July Last Last FFAchange 2nd Week Month Q3

TD3 VLCC AG-Japan -4 61 66 60 61TD20 Suezmax WAF-UKC -16 88 104 92 86TD7 Aframax N.Sea-UKC -71 119 190 133 111

wk on wk July Last Last FFAchange 2nd Week Month Q3

TD3 VLCC AG-Japan -6,750 66,250 73,000 63,000 65,500TD20 Suezmax WAF-UKC -12,000 46,750 58,750 48,750 43,750TD7 Aframax N.Sea-UKC -56,250 46,000 102,250 55,750 39,000

wk on wk July Last Last FFAchange 2nd Week Month Q3

TC1 LR2 AG-Japan +15 140 125 126TC2 MR - west UKC-USAC -25 168 193 154 158TC5 LR1 AG-Japan +10 149 139 144 138TC7 MR - east Singapore-EC Aus +2 189 187 185

wk on wk July Last Last FFAchange 2nd Week Month Q3

TC1 LR2 AG-Japan +7,000 43,750 36,750 38,250TC2 MR - west UKC-USAC -5,500 26,250 31,750 22,500 23,500TC5 LR1 AG-Japan +3,250 34,250 31,000 32,000 30,750TC7 MR - east Singapore-EC Aus +500 23,250 22,750 21,7500

LQM Bunker Price (Rotterdam HSFO 380) -3 323 326 332LQM Bunker Price (Fujairah 380 HSFO) -15 323 338 354LQM Bunker Price (Singapore 380 HSFO) -7 334 341 362LQM Bunker Price (Rotterdam 0.1% LSFO) -21 533 554 563

(a) based on round voyage economics at 'market' speed

Dirty Tanker Spot Market Developments - Spot Worldscale

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

Clean Tanker Spot Market Developments - Spot Worldscale

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