Crude Freight: Past the Peak, But the Floor Should Hold

VLCC rates from the US Gulf and West Africa have fallen from historical peaks by 27% and 32% respectively over the past two weeks, with smaller tankers following. Is this a short-term correction, or the start of a deeper decline? And if rates fall further, would they reach pre-war levels?

To answer that, we need to look at the five main drivers of this year’s rally: 1. Middle East Gulf (MEG) ship-to-ship (STS) shuttle relay delays, which tie up tonnage and tighten the Atlantic Basin 2. War risk premia 3. The shift of trade flows from sanctioned to mainstream markets 4. Market consolidation 5. Higher bunker costs

Bunker costs have doubled this year relatively in tandem with oil prices. That has naturally raised the floor for tanker rates, but it does not fully explain a tenfold rise in freight. This article therefore focuses on the first four factors.

Atlantic Basin availability is tight, but current freight levels still make flows to Asia unattractive The recent drop in Atlantic Basin rates is triggered from charterers stepping back from the market. Atlantic crude discounts are at record levels, but high freight still makes trades to Asia uneconomic.

This story was originally published by Hellenic Shipping News. Read the full story at Hellenic Shipping News →