Structural Checkmate

With the Houthis declaring a full naval blockade specifically against Saudi Arabia on 20 July and threatening any vessel calling at Saudi ports, the southern Red Sea faces heightened security risk. Within days of the announcement, the Houthis claimed strikes on two tankers have effectively paralyzed direct Yanbu-to-East exports through the Bab-el-Mandeb.

Since the Hormuz disruption began, Saudi Arabia has pushed crude west through the East-West pipeline to Yanbu, maintaining export volumes at roughly 3.5-4.0 mbd after local refinery draws, with nearly all destined for Asia. With the direct southern route largely blocked, Asia-bound Yanbu barrels are forced to head north toward the Suez Canal and/or the SUMED pipeline before embarking on a massive detour around the Cape of Good Hope (COGH). Taking a fully laden VLCC through Suez is impossible due to draft limits, forcing charterers to short-load at Yanbu or part-discharge at Ain Sukhna, both adding cost and transit time. An alternative two-vessel transshipment strategy via SUMED avoids these draft limitations, but the 2.5 mbd pipeline has limited spare room to handle such an influx, while Red Sea shuttle runs rely on a small pool of dedicated units. Offtaking crude directly from existing storage at Sidi Kerir – where inventory is reportedly around 15mbbls – offers a temporary workaround, though this still leaves charterers facing the extended detour to reach Asian buyers.

This routing friction is further compounded by a severe vessel positioning deficit across both main crude segments. Sourcing ballasting VLCCs from the Med/Atlantic to reach Yanbu presents an immediate bottleneck, as West-of-Suez ballaster availability is sitting at a thin 74 units, roughly 10% of the mainstream VLCC fleet. A short-term deficit of VLCCs able to reach Yanbu on time looks likely, which could drive freight rates higher. Charterers could alternatively switch to Suezmaxes, which can transit Suez fully laden, but this reduces Yanbu loading efficiency and loses economies of scale. Furthermore, while most Suezmaxes are concentrated in the West and could theoretically position to the Red Sea quickly, Atlantic Basin demand has been exceptionally strong this year. Pulling Suezmaxes away from Western trades to position into Yanbu could tighten effective fleet supply in the Atlantic. However, much will depend on whether Suezmax trade into Europe is negatively impacted by greater availability of Yanbu barrels in the Mediterranean. Recent CPC pipeline suspensions following tanker attacks in the Black Sea further complicate the picture, as Europe will need replacement barrels.

If the rerouting materialises, overall crude ton-mile demand would receive a significant boost. A Yanbu-Suez-Cape of Good Hope-Ningbo voyage is around 15,257 nm – roughly 130% longer than the usual route. If all Yanbu crude volumes bound for the East are rerouted via Suez and the Cape of Good Hope, the loss of stranded Middle East barrels could be more than offset, resulting in around 2% net monthly growth in crude ton-mile demand. However, some cargoes could still move via the Bab el-Mandeb or on shorter-haul voyages into Europe instead.

Despite these mounting logistical hurdles and near-doubling freight costs, a structural shift in Asian crude trade flows away from Saudi barrels remains unlikely, as the severe supply crunch across the broader Arabian Gulf leaves Asian refiners with no choice but to absorb the additional shipping costs. Usual Yanbu-East freight on VLCCs, recently assessed at mid-to-high $5 per barrel, is expected to surge to mid-to-high $9 per barrel via Suez and the COGH, though this assumes freight rates hold roughly steady. However, there is a clear upside risk to that number: the Houthis’ reach could plausibly extend as far as Yanbu itself. Any escalation would likely demand a war risk premium.

On the refined product side, exports from Yanbu and Jizan moving West have averaged around 560kbd so far this year. However, with the direct southern route now blocked, a major trade flow pivoting is expected, with Yanbu and Jizan clean volumes redirection pushing primarily toward Europe and the Mediterranean via Suez. This leaves East/ Africa particularly vulnerable, given that nearly half of its clean product imports originate from Yanbu and Jizan. While swing suppliers like West Coast India and Duqm would typically backfill this short, recent weak East-West arbitrage economics have kept Indian and Omani barrels directed firmly East toward Asia, leaving little uncommitted volume to cover the African deficit. Consequently, East Africa will either be forced to absorb massive freight premiums to pull Yanbu/Jizan product via the COGH detour, or actively bid up for longer-haul Atlantic Basin cargoes to plug the gap.

Overall, the compounding chokepoint constraints represent yet another layer of operational friction, inflating freight costs, lengthening transit times and weighing on global oil flows. In the short term, these dynamics are clearly bullish for tanker earnings.

Yanbu Crude Exports (kbd)

Crude Oil

East

The AG and Red Sea VLCC market was dominated by geopolitical developments throughout the week. Escalating tensions in the Middle East significantly reduced activity within the AG, with many charterers delaying decisions and some owners reluctant to commit while the security situation remained uncertain. As a result, Yanbu and Sidi Kerir became the primary loading alternative, with charterers increasingly looking outside the Arabian Gulf to move cargoes. Despite a modest pickup in enquiry during the week, freight remained largely driven by risk sentiment rather than fundamentals. Toward the end of the week, several vessels were reported transiting the Red Sea via Bab el-Mandeb despite recent Houthi attacks, suggesting some confidence is slowly returning. Nevertheless, the market will continue to monitor developments closely, as security concerns remain the key driver heading into next week.

The AG Suezmax market remains firmly headline-driven. Ongoing strikes across the AG, coupled with heightened security concerns in the Red Sea, continue to influence owners’ trading decisions. While units willing to transit the Red Sea are finding employment on cross-Red Sea voyages, the wider trend remains one of vessels repositioning toward WAF in search of more stable employment.

The Asia Aframax week opened with owners probing the market against the previous week’s fresh benchmark levels, while generally refraining from firm commitments as they awaited new enquiry. A notable volume of early-August requirements emerged over the period; however, as this initial surge of demand was progressively absorbed and later-August cargoes have yet to enter the market, overall activity tailed off. With a modest volume of front-end tonnage still outstanding from the eastern market, rates came under mild downward pressure. In the adjacent TMX market, early-month cargoes were largely concluded on a private basis, while the fixing window for late-month positions remains unopened; with the USG side moving tight and quick, sentiment has been pushed up with the index settling higher than last done. Looking ahead, near-term rate direction will depend primarily on the timing and magnitude of fresh cargo releases for the latter half of August, coupled with actual fixture developments. We assess TD14 as flat at 80 × WS155.

West Africa

The WAF VLCC market gradually strengthened over the course of the week. Initial activity remained subdued, although the disruption in the Strait of Hormuz encouraged more attention toward West African cargoes. While much of the business took place privately, enquiry steadily improved and the tonnage list began to tighten. Following the recent correction driven by Brazil fixtures, freight found support as activity increased, and by the end of the week rates were edging higher again. Should enquiry remain at current levels, charterers may soon need to attract additional ballasters from the East, potentially providing further upside to freight.

A relatively modest week for WAF Suezmax enquiry. Escalating geopolitical risk across the AG, Red Sea and CPC has encouraged additional tonnage from both the East and Mediterranean into the Atlantic basin, lengthening availability. A brief pickup in USG activity provided only limited support, with TD20 gradually eroding as the week progressed.

Mediterranean

An unprecedented week for the CPC Suezmax market in the Black Sea and Mediterranean. Drone strikes around the Novorossiysk area have severely disrupted operations, with CPC calls now viewed as high risk and a number of owners unwilling to berth. Production has been suspended, leaving the market in a holding pattern as attention turns to next week for clarity on whether operations will resume and a revised loading programme will be issued.

Slowly and progressively, the Med Aframax market kept momentum from stalling. Although numbers looked to have fallen a tad from their peaks in the first stages of the week, levels did eventually get moving again, owing to volatility in the US. Further boost to sentiment came as geopolitical tensions saw an increase in questions from Sidi Kerir, coupled with Libya becoming more active and a number of ports causing delays to itineraries. Finishing the week, the market remains on a firm footing, with owners looking to push rates beyond the WS400 realm for a benchmark Ceyhan.

US Gulf/Latin America

The States VLCC market started the week on a softer footing following the recent correction in Brazil, with lower freight levels encouraging some fresh enquiry. Activity gradually improved as the week progressed, while an increasing number of prompt vessels were reported on subs, steadily tightening the tonnage list. Although prompt availability in the USG remained sufficient for much of the week, stronger activity in neighbouring regions began to draw vessels away, helping sentiment recover. By the end of the week freight was moving back in an upward direction, and should enquiry remain steady, the market may soon need to attract ballasters from the East to meet demand.

North Sea

A bit of an improvement after an active week in the North Sea Aframax market. With the US market going through the roof and the Mediterranean term pushing, the North Sea has had to play second fiddle but still gained some decent rate increases. Ballasters remain a big influence and will continue to be into next week, especially considering the hot US market. All things considered, there will be more upside next week for the local market.

Crude Tanker Spot Rates (WS)

Clean Products

East

A very frustrating week for the LRs in the AG, as the political situation worsens and the effective continued closure of the SoH — and now BEM — takes grip of the market. Owners are having to take stock and assess where to position their ships, while charterers have had to proceed with caution and have been careful to take as many options as they can. It is set to be another turbulent week ahead.

A relatively quiet week for the AG and Red Sea MR market, with geopolitical tensions continuing to weigh on sentiment and cargo enquiry remaining subdued. The week opened with a handful of outstanding cargoes and rates largely repeating last done levels before owners with prompt tonnage came under pressure. TC17 slipped from WS240 to WS225, while TC12 fell from WS205 to WS190 as limited enquiry allowed charterers to dictate proceedings. Red Sea rates remained largely unchanged, supported by reduced vessel supply as some owners continued to avoid BEM transits. Mid-week saw a modest improvement in activity, particularly ex WCI, with several prompt vessels taken out of the list and a handful of X-AG fixtures surfacing; however, this was not enough to tighten fundamentals, with rates holding flat after the initial correction. The back end of the week was notably quiet, with very few outstanding cargoes and only a handful of fixtures emerging on subs, leaving little fresh direction. With prompt tonnage still available and cargo volumes yet to recover meaningfully, sentiment remains cautious heading into next week. Owners will be hoping for a pickup in AG enquiry to prevent further downward pressure, although any deterioration in the regional security situation could quickly tighten vessel supply, particularly in the Red Sea.

UK Continent

MR owners are maintaining a bullish stance and, in spite of prompt units, rates continue to climb. This has been the week of tricky stems, with peripheral load ports outside the ARA region the main driver. The market is still working in a very prompt window, which is sort of working for both owner and charterer as there is not so much fix/failing on poor itineraries. The interesting point on availability is the constant replenishment coming from the huge amount of short options being exercised at the moment, making it tricky to find a fixture that solely has long-haul options.

A positive week for the owning fraternity up in the North for Handysize. Continued demand for both XUKC and UKC/Med has created a supply issue on the tonnage lists, enabling freight to firm to 30 × WS210. UKC/Med has meant vessels have been leaving the region and, with little appetite for MRs to entertain XUKC, the market has been reliant on Handies to keep product moving. The weekend has come at a good time for those needing to move cargoes, who will be hopeful of a few firmer positions available early next week. Owners bullish here.

Med

A flurry of activity in the second half of the week makes MRs in the Med an evolving picture compared with the slow start on Monday. WS130 Med-TA remains a fair call for now, given there remain a couple of vessels to snap up any prompt enquiry, especially with ex-Russian units having somewhat successfully entered the vanilla market. That said, it is very much a case-by-case scenario, with some owners ballasting West, some opting for short-haul runs, and some favouring ex Red Sea runs. There are signs of a Med-East naphtha arb emerging which could develop further, though more time is needed to see if it materialises into a steady dynamic, with the larger LRs the favourable tonnage.

In all it has been a firming week for Med Handies, with rates moving from WS170 up to WS180. A steady uptick in activity has been the main driver, gradually clearing through tonnage and generating positive sentiment throughout. A couple of larger MR units opted for short-haul runs, which essentially helped rein in owners’ ambitions; without this we could potentially have seen a larger jump. Looking ahead, it is a question of whether enquiry is sustained — if so, sentiment could build and owners will start next week on the front foot, depending on how the list looks come Monday.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Forward fixing and firming levels are the theme this week across both the UKC and Med, as activity flows from the off into tight lists in both regions. The North started the week at WS260, repeated a handful of times before the list tightened again and owners pushed levels through the gears all the way to WS290, with WS300 within sight by the end of the week. It is worth noting that cargoes are reaching into mid-first decade August, which is unusual for this market and could bring a quieter next week; however, if this week is anything to go by, replenishment may be picked off quickly. Looking ahead, if we see an active start, we think owners will look to quickly close the gap on the Med, which currently sits around the WS350 mark.

The Med saw a similar pattern to the North, with cargoes to cover from the off and owners taking advantage of tight supply to drive on rates. Levels began the week around the WS290-295 mark before firming to WS300 and all the way to a confirmed WS340, with WS350 rumoured by week’s end. Cargoes as far forward as 4-6 August were looking for cover early in the week, showing how thin supply really has been. Looking ahead, we expect some replenishment, but owners are feeling bullish, and should we get off to a fast start, levels look set to firm further.

MR

This week has mostly been dominated by Handy enquiry, with owners mostly finding employment basis 30kt, but as Handy rates firm so too do MR levels. Availability in the North has been scarce, both naturally placed and WMed, with a reported WS247.5 fresh test on subs and levels likely to firm further. Down in the Med, tonnage remains thin and, as in the North, Handy rates are expected to drag MR levels upward with them. A well-publicised fresh test is needed, but we expect ideas around 45 × WS250.

Panamax

A good week for Panamax owners in the Atlantic basin as surrounding markets firm up, causing charterers to look to this segment. Tonnage is now thin on the ground and enquiry continues to flow, allowing owners to push on toward 50 × WS300 by the close of the week. We expect this trend to continue in the near future. A fresh test for UKC-TA was seen this week, with WS180 on subs before ultimately failing. With TD21 on the rise, we expect owners will look to ballast TA to lock in good earnings unless they can find backhaul stems off their dates.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeJul 24thJul 17thLast Month*FFA Q3
TD3C VLCC AG-China WS14387373319353
TD3C VLCC AG-China TCE $/day11,750401,250389,500330,500352,250
TD20 Suezmax WAF-UKC WS-3228232239236
TD20 Suezmax WAF-UKC TCE $/day-4,750110,500115,250123,000106,500
TD25 Aframax USG-UKC WS188443254192337
TD25 Aframax USG-UKC TCE $/day68,500132,75064,25044,00085,750
TC1 LR2 AG-Japan WS67499433509 
TC1 LR2 AG-Japan TCE $/day19,750140,250120,500147,750
TC18 MR USG-Brazil WS31304274188258
TC18 MR USG-Brazil TCE $/day3,25035,75032,50018,50023,750
TC5 LR1 AG-Japan WS80524444528349
TC5 LR1 AG-Japan TCE $/day17,250105,25088,000110,00058,250
TC7 MR Singapore-EC Aus WS-6277283274232
TC7 MR Singapore-EC Aus TCE $/day-3,00027,25030,25029,75018,500

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

Bunker Prices ($/tonne)

wk on wk changeJul 24thJul 17thLast Month*
Rotterdam VLSFO  +8690682583
Fujairah VLSFO  +56836780943
Singapore VLSFO  +56821765688
Rotterdam LSMGO  +9412301,136891

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