Crude tanker rally continues as VLCC spot rates skyrocket
TANKER owners are popping the champagne corks. Very large crude carriers are now in the midst of their strongest and most sustained upcycle in over a half-decade.
There have been pullbacks along the way since the rally began in early September, but rates are hitting higher lows followed by higher highs.
The Baltic Exchange’s global average VLCC time-charter equivalent index skyrocketed to $108,833 per day on Wednesday, up 26% from the day before. It was the highest reading since April 29, 2020, during the Covid-era floating storage boom.
The spike was largely driven by rates out of the Middle East Gulf. The Baltic’s MEG-China TD3 index soared by 42% in a single day, to $125,081 per day on Wednesday.
Spot rates held steady on Thursday, with the global VLCC average and the TD3 down 1%.
“The short-term supply-demand picture in the MEG is now not far off one-to-one and we are approaching a ‘pick a number’ territory,” said brokerage Fearnleys.
VLCCs have been placed on subjects at extremely high levels, with reported subs rates fuelling the index rise.
According to the Tankers International pool, Sea Pearl (IMO: 9779604) was placed on subs on Wednesday by CNOOC for a MEG-China voyage at $153,846 per day.
The same day, Felice (IMO: 9377418) went on subs for a MEG-Taiwan voyage for CPC at $140,148 per day; Das (IMO: 9854507) for a MEG-China voyage for KPC at $134,623 per day, and Front Otra (IMO: 9732541) on the same route for Unipec at $124,936 per day.
In the shorter-haul market, Skopelos (IMO: 9381720) was placed on subs on Wednesday for a MEG-east coast India voyage for India Oil Company at $167,357 per day.
As always, the question is whether these end up being finalised fixtures or “fixing and failing” exercises (essentially free options) that temporarily inflate the index.
“While sudden rate spikes often end in failed fixtures, the large number of fixtures gives more confidence that it is not just a one-off,” said Clarksons Securities analyst Frode Mørkedal.
VLCC rate strength extends beyond the MEG.
The Baltic’s TD15 West Africa-China index jumped 29% on Wednesday versus Tuesday, to $112,284 per day, its highest reading since April 30, 2020. The TD15 declined 1% on Thursday.
The TD22 US Gulf-China index was at $89,692 per day on Thursday, the highest since April 30, 2020.
“Higher Opec+ exports continue to be the main driver, but the US is also playing a key role in tightening capacity availability,” said Jefferies analyst Omar Nokta.
“Over the first three days of this week, we counted 13 VLCCs booked out of the US Gulf, surpassing the typical weekly figure of seven to eight fixtures. These ships are all destined for Asia, which will keep vessel availability tight as we approach the winter months,” said Nokta.
High exports and sanctions bolster rates
“The current freight market strength is being driven by growing demand for seaborne transportation of crude oil combined with the increasingly ageing and fragmented structure of the fleet,” said DHT chief executive Svein Moxnes Harfjeld during a quarterly call on Thursday.
“VLCCs, the workhorses of the crude transportation market, are regaining their market share through their more competitive freight offering and efficiency, geopolitics and trade dynamics. Sanctions and conflicts are creating disruptions and a focus on security of supply.”
Sanctions are playing an increasing role in supporting rates, delaying deliveries by sanctioned tankers and necessitating more loadings aboard compliant vessels.
Vortexa’s measurement of oil in transit (including crude and condensate) continues to rise. During the week ending October 26, this figure reached 1.36m bpd, topping the peak during the floating storage boom in 2020.
“The rise in crude on the water has been driven primarily by sanctioned countries — Iran, Venezuela and Russia — which together account for roughly 70% of the increase,” said James Doyle, head of corporate development at Scorpio Tankers, on a quarterly conference call on Thursday.
Midsize tanker rates also rising
Spot rates for suezmaxes and aframaxes are following VLCC rates upward, albeit at a slower pace.
The record-high level of oil transit is supporting the supply demand of these vessels, as well. According to Vortexa data, 57% of oil in transit during the week ending October 26 was on VLCCs, with 24% on aframaxes, 17% on suezmaxes and 2% on smaller ships.
The Baltic Exchange’s global average TCE index for suezmaxes was at $78,673 per day on Thursday, its highest reading since November 3, 2023.
The Baltic’s global average for aframaxes was at $60,037 per day, the highest since January 26, 2024.
Kenneth Hvid, chief executive of Teekay Tankers, discussed market dynamics of suezmaxes and aframaxes during a quarterly call on Thursday.
“If you look back since April 2022 [after Russia’s invasion of Ukraine] we had a period where the aframaxes really outperformed all other sectors. I think we’ve now reverted to more traditional dynamics where the larger ships lead the way. The VLCCs pull up the suezmaxes, which pull up the aframaxes.
“The second half of this year has been going from strength to strength — it’s maybe even stronger than most of us expected.
“What we’ve seen over the last week is that this strength just continues to pick up. The week is finishing stronger for the VLCCs, the suezmaxes and the aframaxes, as well as the LR2s [long-range 2 product tankers].
“It’s really moving up in all of the categories. Everything is really working in all of the different segments,” said Hvid.
“We also have a record amount of oil being transported on the water. Of course, most of these barrels go on the most efficient vessels, which are the VLCCs. But when there’s this much oil on the water and this level of supply, it just pulls up the whole market.”
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