The Daily View: Poker face

VENEZUELA, Sinokor’s seismic aggregator play, sanctioned oil pivoting into the mainstream, Iran... There is a growing list of factors aligning here, but whichever way you look at it, this is the strongest earnings stretch for VLCCs since the historic shipping supercycle nearly a quarter of a century ago.

This is not a single strategic play juicing the market — this is a complex series of factors playing out in conjunction. If there is an overarching conclusion here, it is that ships and shipping are becoming more strategic in our geopolitically charged brave new world.

The premium to control these assets is therefore increasing up and above what the derivatives market would say it should be right now.

If the VLCC market was a game of poker, the big blind you have to pay to sit at the table is going up and up, and up.

It’s a little early in the game to call the outcome, but shipping has a rich history of getting overexcited too quickly.

With that in mind, it is worth keeping an eye on the high number of newbuilding orders that are being placed for 2029 and 2030.

These are the players who can’t, or don’t want to pay the premium that is being commanded to play at the VLCC poker table today. They are happy to wait three years to see how the game unfolds.

That’s a bold bet.

If all the letters of intent that are being negotiated today get confirmed, we are going to have a VLCC orderbook of more than 200 units.

That is going to test even the most optimistic scenario for oil demand.

Even if you are assuming that the US can force Iran back into the mainstream fleet, and you genuinely see a route to scrapping the entirely of the shadow fleet, then you are still likely over-egging that play.

Anything over 120-130 units starts to look like an overbuilt market for the current best case forecasts.

So yes, we may be in the betting mood. Buoyed by a market for the history books — one of the strongest, most protracted earnings period for VLCC owners since today’s traders were in nursery.

Not everyone can win that bet though.

It may be stating the obvious to remind everyone at this stage that shipping is a cyclical business, but it is worth remembering that this is likely to look like a very different market in five years’ time.

Richard Meade
Editor-in-chief, Lloyd’s List

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