VLCC Spot Rates: Softer, but far from soft

The VLCC market is softening, but we contend that the downside is limited. Exceptionally high freight costs have softened long-haul Atlantic-to-Asia demand. Asian refiners are increasingly favouring shorter-haul Middle East barrels offered either on a delivered basis or via ship-to-ship (STS) transfer in the Gulf of Oman. This will reduce VLCC tonne-mile demand. But the VLCC fleet is extraordinarily inefficient with the ongoing Middle East disruption, and any agreement to normalise Hormuz transits seems vanishingly unlikely anytime soon.

US Gulf-China VLCC spot rates have softened to $452k/day, a fall of $186k/day from their peak of $638k/day two weeks ago. Over the same period, West Africa-China rates have fallen by $212k/day, from $763k/day to $551k/day. Gulf of Oman-China rates have fallen from $913k/day to $657k/day over the past two weeks. But this is a correction from scarcely believable freight rates to exceptional ones. Rates remain at all-time highs when excluding the extremes reached over the past month.

A few factors have allowed the Gulf of Oman VLCC position list to lengthen and softened rates, according to our brokers. Increased Iranian attacks since the beginning of October have contributed to lower Gulf of Oman ship-to-ship activity. STS transfers of crude cargoes in the Gulf of Oman fell by 2.2m b/d to 4.45m b/d w-o-w in the week ending Sunday, according to Vortexa. Additionally, weather-related discharge delays in China and South Korea have eased, freeing up ships to return the Middle East. Charterers are also likely holding back to tame Middle East rates.

This story was originally published by Breakwave Advisors. Read the full story at Breakwave Advisors →