Mixed Signals

Mixed Signals

The crude tanker market experienced a disappointingly weak first quarter, with the anticipated strong winter market failing to materialize. However, the market showed signs of a rebound in Q2, though this seems to be faltering. This raises the question, was this merely a temporary blip, or did fundamental shifts drive this improvement?

Trade data for VLCCs remains uninspiring. In the Middle East, April crude exports did not increase despite OPEC+’s decision to begin unwinding production cuts and remained flat in May based on preliminary trade data. In the Atlantic Basin, however, the signals are more bearish. After a strong rebound in long-haul shipments East during Q1, volumes declined sharply in April and continued this trend into May. This drop is primarily due to West African and US Gulf barrels being diverted to Europe, a trend that has benefitted Suezmaxes and Aframaxes.

Suezmaxes have also gained from a substantial increase in CPC export volumes – shipments rose by over 400kbd between February and April compared to Q4 2024 averages. Additionally, a significant rise in CPC exports East was seen over the period, with most of the barrels routed via the Cape of Good Hope, providing further support. Aframaxes, meanwhile, benefitted from gradual increases in Libyan production and additional gains in TMX exports, with more direct shipments to Asia.

Another critical factor underpinning the market is the wave of sanctions targeting the dark fleet. Combined with a decline in oil prices, this has encouraged more mainstream tonnage to re-enter the Russian crude trade, thereby tightening availability for conventional trades.

Looking ahead, the announced OPEC+ production increases could further support VLCCs in the Middle East. Yet, regional export growth may be constrained by higher domestic crude burn for power generation during the summer and increased refinery runs. Meanwhile, compensation cuts could reduce exports further, although it is uncertain whether these will materialise.

Fundamentally, crude tankers may face headwinds during the summer months as more crude is retained domestically not only in the Middle East but also in the US and Russia during peak demand season. Much will depend on OPEC+ production strategy, with a decision for July output due this weekend. While current supply-demand balances do not indicate a need for further output hikes, internal friction partly due to poor compliance by some members could see OPEC+ continuing to release more crude into the market, suppressing oil prices and boosting commercial and strategic stock builds in the process. On the flip side, this could undermine US crude export potential, though planned production growth in Brazil and Guyana will still offer some incremental support for crude tanker demand.

The near-term market trajectory will also depend on geopolitical developments. The outcome of Russia-Ukraine peace talks remains critical. A failure to reach an agreement could lead to further sanctions, benefitting mainstream tankers, though a tighter price cap could disincentivize some owners from lifting Russian cargoes. Still, even if peace talks show substantial progress, major shifts in European and Russian crude flows are unlikely in the short term. Similarly, ongoing US/Iran negotiations, discussed in our previous report, are expected to aid the crude sector, regardless of whether sanctions are lifted or reinforced.

On the downside, chaotic US trade policy continues to cast a shadow over global oil demand. While many tariffs have been rolled back for now, the remaining duties and the ongoing uncertainty are likely to have a negative, albeit hard-to-quantify, impact on consumption. Suezmaxes may also be pressured if further gains are seen in Dangote runs, although for now Nigerian exports have been shielded by modest production gains and relatively regular imports of US barrels in recent months, occasionally supplemented by other imported crudes.

The potential resumption of Red Sea transits is likely to have limited impact on crude tankers due to limited East-West volumes, but LR2s are set to lose a sizable chunk of their demand without re-routing via Cape, potentially prompting some units to shift into the dirty trade.

On the supply side, VLCC and Suezmax fundamentals remain favourable. VLCC deliveries are minimal this year, and while 29 Suezmaxes are scheduled for delivery, fleet aging will help mitigate their impact: 25 of these were built in 2005 and are turning 20 years old this year. Still, Suezmaxes may face increased competition from Aframaxes/LR2s, with 63 deliveries expected in this size group in 2025. Although there are also over 60 Aframaxes/LR2s turning 20 years of age this year, most of these units already form a part of dark and/or sanctioned fleet. 

All in all, short-term fundamentals are mixed. The market has been bolstered by supply constraints and geopolitical developments. The coming months could be pivotal; with additional OPEC+ output, possible shifts in the Ukraine war and sanctions on Russia, and an Iran US nuclear deal on the table.

OPEC+ crude exports, excl. Iran (kbd)

Crude Oil

East

The VLCC AG market has experienced a notable decline in rates this week, following a bearish trend at the beginning of the week. The situation remains challenging for owners, as there appears to be no clear indication of a bottom in the market. The availably of tonnage for the second decade is increasing which is further exacerbating the situation due to a limited level of enquiry. The mismatch between supply and demand is likely contributing to the downward pressure on rates. Overall, the outlook remains cautious, with the potential for continued softness in rates until a more balanced market can be established. Today we are calling AG/China WS52 and AG/USG WS28.

The Suezmax AG market has been rather sluggish throughout the week with a well-stocked tonnage list for Charterers to play with. There are plenty putting their hands up for an AG West run and today’s levels are around 140 x WS47.5 via C/C. Rates to go East have remained stable around the 130 x WS95 region. With sentiment improving in the East it seems unlikely rates will fall much lower here next week.

In Asia, Aframax activity picked up towards the end of the week, but the damage has already been done to what was an already soft market. A vanilla Vitol cargo should set the pace for next week and one can only imagine how many offers it fetched. However, there are other requirements that surfaced, and this could lead and encourage owners to show some resistance in lowering rates further, but charterers are in no hurry to cover seeing that the list bodes in their favour. The question would be if the market has bottomed as daily earnings broke the $20k mark and if it has, expect rates to trend sideways owing to a lack of demand for June loadings. Summer has arrived with the TD14 touching YTD lows printing at WS104.75, from its previous low in Jan at WS108.

West Africa

This week the WAF VLCC market has seen a significant decline in inquiry, resulting in minimal reports of cargoes or fixtures. Charterers seem to be taking a cautious approach, showing little urgency in working their stems for the third decade of June.  As rates in adjacent markets are also experiencing a downward trend, it is reasonable to anticipate that WAF will follow suit. This lack of activity and the prevailing bearish sentiment suggest that owners may face further challenges in securing fixtures close to recent levels. Overall, the outlook remains bleak, with a continued focus on how external market influences may play a role in shaping the future demand and freight levels in this sector. We are calling WAF/East in the region of WS52.5 today.

The Suezmax market in West Africa fell away this week, though with a firming USG Afra/Suez market to end the week owners are eyeing up some improvement on their next done fixture. TD20 we assess at around WS82.5 today but with the early side of the list thinning out there is some potential for charterers to be caught off guard if they need to move prompt barrels. Expect Owners to be feeling more bullish next week and try to push up market rates.

Mediterranean

For Suezmaxes in the Med, TD6 is reportedly on subs at WS92.5, though the owners remaining with ships in play aren’t there to compete at those levels and charterers will be hard-pressed to repeat it. The improvement in USG/WAF is giving another outlet for those stuck in the rather slow market in the Med. Rates for Libya Ningbo are firmer and we expect next-done levels to be around $4.7m.

As the week progressed for Med Aframaxes, levels were corrected down with less than encouraging volumes. WS117.5 was set as the low after having risen into the WS130s in the previous cycle. However, just as optimism was on the wane, US markets sparked into life rallying from 70 x WS115 to 147.5 with cargoes remaining uncovered. The effects of this in Europe were immediate and have provided an instant boost to sentiment. Additionally, many of the West Med and UKC units will now look at ballasting across the Atlantic on speculation which will further benefit European markets at least in the short term. It is too early to see if owners can claw back any recently lost WS points given fixing dates are further forward now, however, a stop on any further slide has been seen.

US Gulf/Latin America

The VLCC USG export market has encountered one of its most rapid slowdowns in the last 12 months, with activity grinding to a temporary halt this week. This sudden shift has led to a steep decline in rates, reflecting a weaker sentiment that appears to deteriorate with each passing day. Owners are likely to face a challenging market in the coming week, especially as more vessels begin to enter the area, further intensifying competition. The combination of reduced capacity and increased tonnage could exacerbate the downward pressure on rates. The Brazil export market on the other hand experienced a relatively active week, but momentum was overshadowed by weakening conditions elsewhere which ultimately led to a decline in rates. Today we are calling USG/China $7.4m & Brazil/China WS51.

Local Aframaxes went for an end of week run as charterers piled on top of one another date wise, pushing the market from WS115 to WS147.5 and with cargoes outstanding, likely room to push into the WS160 if owners hold fast.

North Sea

Not a huge amount to tilt the scales for Aframaxes this week apart from the disappearance of a few relets and the occasional owner’s vessel. Levels sit the in the low WS120s and with the US market now on the rebound we won’t expect many to be sitting around and trading local whilst better returns are on the cards. The Med may also make a return and garner some interest from West Cont ships. Any local gains will likely still be slow.

Crude Tanker Spot Rates (WS)

Clean Products

East

Correction seen across both sizes of the LRs this week.  A slight easing of the flow stems to the market allowed for charterers to curb the enthusiasm of owners. TC1 has corrected to 75 x WS137.5 and West has been tested to $3.75m. On the LR1s we assess that TC5 sits at 55 x WS155 and West runs at the $2.9-3.0m levels. Although a negative correction has been seen, given how balanced the lists are, and the fact that activity off market has been decent as we head into the new week expect these levels to trade flat for the first half of the week.

All in all, a slow week for the MRs in the AG with rates tumbling from start to finish. We end the week with TC17 down at 35 x WS195 and TC12 at 35 x WS155. Expect an uptick in enquiry early next week with holidays end of the week but with the list well-supplied little movement in levels likely.

UK Continent

The MR market has remained active around the end month fixing window, so rates have remained firm as a shortage of tonnage has driven rates. Rates increasing in the USG and WAF have drawn tonnage into those regions, so ballast tonnage has been in short supply. Rates have reached a peak of the equivalent of 37 x WS157.5 TA . Going into June the mood has somewhat changed, and it seems that the summer grade UMS flow is likely to slow. Pressure on the rates has started from the south and with a generally quieter market next week is feeling decidedly bearish. 

With bank holidays across Europe throughout the week there was a surge of Handy enquiry/fixing on Tuesday/Wednesday for Handies in the North. XUKC was the main driver as freight firmed to WS30 x 185 although as the week pushed on activity did slow down but with limited supply on the front end of the list it was hardly surprising. Weekend break has come at a good time for charterers and once back at their desks on Monday hopefully a few more firm itineraries are available. On a side note, MRs are ending the week softly, so there is potential the larger units could be in play for short haul come early next week.

Med 

With surrounding markets being busy, MR tonnage has remained tight causing some upward pressure and rates have crept up especially with grade sensitive stems. Inbound tonnage has been minimal as both WAF and the USG markets have improved. Last done levels sit around 37 x WS160 Med/UKC basis naphtha with a UMS Sines-TA on subs 37 x WS140. Similarly to the Handies, tonnage looks healthier next week which could be a catalyst for rates to soften a bit. 

As the shorter working week ends, the Handy Med market remains divided. We opened the week at 30 x WS180 levels but a tight list in the prompt window and grade dependent stems saw rates jump to a high of 30 x WS205 in the East Med. Additionally, a couple of XItaly runs at 30 x WS210 only served to exaggerate bullishness. In the West Med last done is around the 30 x WS190 mark, highlighting the market split. Tonnage looks healthier going into next week so the implication is that rates could soften. However, if load port and grade dependent stems keep flowing then the divide might take longer to diminish.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

It’s been an overall quiet week in the North with activity split evenly amongst COA, O/P and external cargoes. Rates have continued their gradual and steady upward trend, firming from 30 x WS257.5 at the start of the week to a steadier feeling 30 x WS 260. This week’s lack of enquiry has allowed for positions to work their way up the list, looking ahead, we expect to see a handful of prompt options available come Monday.

The Med got off to an active start when the UK came back online on Tuesday, however, some fixing on Monday meant positions were thinner than first anticipated. 30 x WS255 repeated on Monday for a prompt replacement cargo before firming to 30 x WS257.5 and then moving through the gears as enquiry continued to flow. Activity tailed off toward the end of the week as most of Europe enjoyed bank holidays allowing the market to catch its breath. The week ends with WS262.5 fixed and rates looking likely to trend upward. We expect the list to stay tight overall and enquiry to get off to a quick start leaving owners feeling bullish.

MR

It’s not been the week that owners would have hoped for in either region with enquiry staying with Handy stems. In the North naturally positioned MRs are thin and owners’ ideas are around the 45 x WS180 mark for next done. The Med still awaits a well-publicised fresh test to build on but ideas range between the 45 x WS180-185 mark. 

Panamax

Panamaxes saw an interesting turn of events with a fresh test for cargoes heading TA with 55 x WS127.5 reported for a UKC-USAC run despite a softer feel to the Afra market. Tonnage is now in thin supply on this side of the pond. Deals continue to be carried out on a case-by-case basis, but we assess UKC-USG at 55 x WS120-122.5 mark. TD21 started the week in a negative fashion as the hangover from Memorial Day weekend in the States dragged on. Levels slid further to the 50 x WS155 mark before enquiry began to emerge steadying the market for now.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

	wk on wk change	May 29th	May 22nd	Last Month*	FFA Q2
TD3C VLCC AG-China WS	-9	52	61	67	58
TD3C VLCC AG-China TCE $/day	-11,250	32,250	43,500	53,000	34,750
TD20 Suezmax WAF-UKC WS	-1	78	79	109	93
TD20 Suezmax WAF-UKC TCE $/day	-1,000	26,250	27,250	49,000	33,250
TD25 Aframax USG-UKC WS	-4	121	125	170	154
TD25 Aframax USG-UKC TCE $/day	-1,500	24,750	26,250	45,250	33,000
TC1 LR2 AG-Japan WS	-20	134	154	124
TC1 LR2 AG-Japan TCE $/day	-7,000	30,000	37,000	28,000
TC18 MR USG-Brazil WS	29	181	152	167	163
TC18 MR USG-Brazil TCE $/day	5,500	22,750	17,250	20,750	17,500
TC5 LR1 AG-Japan WS	-13	158	171	134	144
TC5 LR1 AG-Japan TCE $/day	-3,500	26,000	29,500	21,000	20,000
TC7 MR Singapore-EC Aus WS	2	205	203	160	178
TC7 MR Singapore-EC Aus TCE $/day	500	23,500	23,000	16,250	17,500

(a) based on round voyage economics at ‘market’ speed, eco, non-scrubber basis

Bunker Prices ($/tonne)

	wk on wk change	May 29th	May 22nd	Last Month*
Rotterdam VLSFO	+1	471	470	421
Fujairah VLSFO	-3	506	509	473
Singapore VLSFO	-21	507	528	482
Rotterdam LSMGO	-7	613	620	572

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