VLCCs Rewrite the Record Books

The VLCC markets reached unprecedented levels this week, with TD3C surging above $1.2mn/day, TD34 climbing over $750,000/day and TD22 reaching around $400,000/day on an Eco basis. The rally has been driven primarily by increasingly severe geopolitical disruption.

Despite the ongoing double blockade, crude volumes moving through the Strait of Hormuz have increased from the lows seen during the spring, although on paper they remain well below pre-war levels. Convoyed shuttle movements of mainstream crude, largely using ageing vessels, have increased since June. This has enabled a partial rebound in Middle East crude exports, with total regional crude/DPP exports up by around 3.67 mbd versus the March-May average. The actual increase is likely higher but flows remain difficult to track accurately as vessels transit with AIS switched off for safety and security reasons.

At the same time, these movements have created significant inefficiencies. Much of the crude carried through Hormuz on shuttle vessels is subsequently transferred via STS onto often more modern tonnage in the wider Gulf of Oman (GOO) for onward voyages, primarily to Asia. AIS data shows that while the number of ballast and laden VLCCs inside the AG has declined in recent months, the number of vessels sitting in the GOO has surged, more than offsetting the fall inside the Gulf. In recent weeks, the combined VLCC count across the AG and GOO has exceeded total regional supply seen before the war in January and February. This highlights how disruption has increased the number of vessels required to move barrels despite lower absolute volumes.

Houthi attacks on Saudi-controlled assets around Bab el-Mandeb have also forced the rerouting of Yanbu crude into the Mediterranean, for onward shipments to both Western and Asian customers. As a result, VLCC supply in the East Med has increased from marginal levels to close to 30 vessels currently. Nevertheless, despite this increase, overall VLCC supply in the West remains broadly in line with levels observed between mid-April and June.

Available mainstream VLCC supply has been somewhat eroded further by attacks on vessels. The list of attacked vessels continues to grow, and any damage will require time for repairs to take place. The severity ranges from relatively minor damage to more substantial cases, but collectively this is helping to offset the impact of newbuilding deliveries.

The latest attack on the Saudi East-West pipeline represents another twist. Estimates for repair timelines vary. An unofficial estimate suggests repairs could take around five weeks, leading to a temporary decline in Yanbu loadings and a corresponding reduction in VLCC shipments from the East Med. Unless incremental barrels emerge elsewhere, this would result in a net reduction in VLCC tonne-mile demand.

Affected ballast VLCCs in the Med are more likely to remain tied up or require a significant freight premium to trade elsewhere, limiting the amount of tonnage that could realistically become available in the Atlantic Basin. The ballaster flow from the East will also remain restricted, at least in the immediate future. With TD34 spot earnings sizably above those in the West, there remains a strong incentive for Far Eastern ballasters to head to the GOO, until a meaningful downward correction in freight is seen. Longer term Yanbu exports will remain vulnerable to further attacks. Intermittent disruptions are possible, adding another layer of volatility to the market.

On the demand side, so far this year China had done much of the heavy lifting in balancing the oil market, cutting crude imports and refinery runs sharply since the spring while also drawing down inventories. A report circulated this week that China is considering releasing up to 20 million tonnes of crude from its SPR to domestic refiners, which would limit import demand. Domestic gasoline and diesel demand has also weakened amid rising EV penetration and slower industrial activity. However, the loss of Iranian barrels has forced independent Chinese refiners to seek greater volumes from mainstream trades. In addition, the unexpected easing of product export controls in August may indicate that Beijing is willing to allow state refiners to import more crude and take advantage of strong refining margins through higher refined-product exports. Still, there is a natural limit to this upside as stronger Chinese crude buying would place further upward pressure on oil prices and ultimately weigh on demand.

The freight market is beginning to show the same self-correcting response. Exceptionally high VLCC rates are already diverting some demand towards Suezmaxes, while elevated oil prices risk limiting further crude buying. However, there is little indication that the Middle East conflict is moving towards resolution. Despite President Trump’s statements, there are few visible signs that the US and Iran are materially closer to an agreement, and an increasing part of the market appears to be pricing in disruption lasting at least until the end of the year, and potentially beyond.

For tanker markets, this leaves persistent geopolitical disruption and vessel inefficiencies on one side, and growing demand destruction on the other. In the near term, disruption remains the dominant force, highly supportive for freight. But the longer exceptionally high oil and freight costs persist, the greater the risk of permanent demand destruction.

TD3C – TCE ($/day)

Crude Oil

East

The AG/Red Sea VLCC market continued its remarkable firming trend throughout the week, with a steady flow of enquiry and tightening prompt tonnage keeping owners firmly in control. Freight pushed to new highs as the week progressed, with WS800 being reported for TD34, with potentially a little sign of a ceiling at this end of the week, despite some charterers beginning to consider smaller sizes. The market ends the week firmly, with limited availability continuing to support elevated levels heading into next week.

The AG Suezmax market remains exceptionally active, led by a heavy volume of Fujairah enquiry and fixtures concluding at record levels. Tonnage availability remains limited against sustained demand, allowing owners to assess each requirement on a case-by-case basis and continue pushing rate expectations. However, the market remains heavily politically driven, with regional tensions, security concerns and operational uncertainty around Gulf transits continuing to influence vessel appetite, availability and risk premiums.

Asia Aframax earnings surged to around $90,000/day this week, almost doubling week-on-week and finally catching up with adjacent markets. The last time regional earnings traded above the $80,000/day mark was at the start of 2023. Owners capitalised on a tight tonnage list, supported by stronger earnings out of Fujairah and Vancouver, alongside a firm LR market. With steady demand across both the Atlantic and Pacific continuing to compete for tonnage, charterers are finding it increasingly difficult to secure vessels regionally unless Indo earnings can offer comparable returns. With owners now holding considerable optionality and the list remaining constrained, current levels should remain well supported provided enquiry continues at pace. We close the week firm, assessing Indo/North at 80kt × WS350.

West Africa

The WAF VLCC market remained firm throughout the week, supported by limited tonnage availability and strength in surrounding regions. As freight continued to rise, charterers increasingly looked towards smaller sizes for coverage, while owners remained reluctant to ballast towards the Atlantic without attractive levels. Despite limited visible activity towards the end of the week, the tight list continues to provide strong underlying support.

The Suezmax market here has firmed further, underpinned by a lack of workable VLCC availability and an increasing number of split stems moving into the Suezmax sector. This additional demand has steadily absorbed the available tonnage, leaving the position list tighter and giving owners greater control over negotiations. WAF/East rates have consequently been pushed incrementally higher, with owners continuing to demand a meaningful premium for the longer duration and reduced forward visibility associated with Eastern voyages.

Mediterranean

A busy October CPC programme has maintained sustained pressure on the regional tonnage list, with a steady flow of early-and mid-month requirements limiting opportunities for the position list to rebuild. Mediterranean-controlled units are also increasingly evaluating high-paying WAF stems as credible alternatives, reducing the pool of vessels available for local Black Sea and cross-Med business. This competition between basins has tightened prompt supply and reinforced owners’ confidence, particularly on well-positioned, unrestricted tonnage.

In what’s been an eventful week for the Med Afras, many a charterer would have been longing for the weekend break by around Wednesday morning, struggling to come to terms with fundamentals not supporting market behaviour at the time. Ships failing and stems being cancelled did absolutely nothing to alter owners’ stance on where they were willing to fix, exampled a couple of times where owners chose to sit spot rather than succumb to charterers’ attempts to lower freight rates. Subsequently, when further stems were placed into the market and those holding back could wait no longer, piling in on top of uncovered stems, a renewed impetus was suddenly found. At time of writing, WS540 is reported on subs for a short flat, with an impressive list of requirements outstanding for Monday morning.

US Gulf/Latin America

The States VLCC market remained firmly supported this week, with limited tonnage availability and strong fixtures pushing freight sharply higher. Despite periods of limited enquiry, owners maintained a strong position as tonnage continued to disappear from the list. The market ends the week at elevated levels, with rumours of fixtures being done around the $50m mark. However, fresh enquiry is now needed to determine whether the Atlantic has found its ceiling or if further upside remains.

North Sea

A turbulent week, with plenty of uncertainty from surrounding markets providing ample opportunity for owners to take the impetus and push on rates. Some are still choosing to find value in the States market; however, there is still enough local demand to hold levels at a very competent TCE equivalent. As we move into October fixing, we see little likely to upset the apple cart in the near term.

Crude Tanker Spot Rates (WS)

Clean Products

East

Very active week for the LRs in the Middle East, with both on- and off-market stems being consistently covered. The lists remain very tight for both sizes, and with outstanding stems, rates have really pushed hard. Reports of $7.5m on subs for an LR2 westbound and an equally impressive $6.5m for an LR1 westbound certainly show owners’ intent. Several stems remain outstanding, and lists are only getting tighter. Charterers will be pulling on relationships their hardest as owners continue to push.

MRs maintained their firm footing this week, as a steady flow of fresh enquiry, a tight tonnage list and support from a surging SE Asia market kept sentiment firmly in owners’ favour. Rates continued to push through the week, with TC12 reaching WS375 and TC17 moving to WS485, while strengthening LR levels added further support and pushed AG/UKC lumpsum assessments towards $4m. Activity eased towards the end of the week, however, leaving owners and charterers in a stand-off over where value lies next. With the cargo list beginning to shorten, the coming week should provide a clearer indication of whether current levels can be sustained.

UK Continent

This week has seen a seasonal shift in activity and rates, and owners will be glad to see the back of the doldrum rates. Bunkers continue to be the elephant in the room, as whilst the WS rates are improving, the real earnings are being eroded by rampant bunker costs, a factor that we feel will likely only increase. We have seen rates push to WS150 TA, WS220 Brazil, WS215 to WAF, and demurrage accelerate into the 40s. Many, many questions remain around the resilience of the USG market, which will have a massive effect on the Atlantic dynamic; we expect a volatile Q4.

With the 52cbm MR cap effectively lifted, handy owners have seized the moment, and rates have been released from the floor this week. Of particular note is that the Med delta is now very much in positive territory, as owners’ desire to head south is very limited. Good action this week will likely see rates incrementally increase, especially if the MRs continue to rally.

Med

It has been a steady week for the most part regarding MRs in the Med, with last done sitting at WS120 Med-TA. Rates have slowly firmed in line with an active north market feeding more bullish sentiment in the Med — the flurry of activity near the end of this week suggests this will continue into next week. Additionally, increased tensions in the AG region have led to a hike in bunker prices, which owners will be factoring into their econs, and this supports the positive rate sentiment. WAF has remained a viable option for willing owners throughout, with ULSD/jet-suitable ships given increased product volumes in the region at the moment and the demand for them in Europe.

It has been a tale of two halves for handies in the Med this week. It seems cabotage and direct business clouded speculation on where rates were early on in the week. Additionally, with tonnage better situated in the East Med leading to higher numbers paid out west, rates were split. Going into the weekend, a fair call would be around the WS185 mark. Owners will be hopeful we see a return to business as usual post the disjointedness caused by summer, and there is a stream of regular enquiry to put them on the front foot.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The week started with a good amount of tonnage available from both naturally placed units and WMed ballasters, with expectations for the softer sentiment from the previous week to continue, at around WS285-290. As the week progressed, a few enquiries clipped away the top of the list, while some vessels went OP, helping rate ideas firm, with reports around WS295. Limited tonnage now remains on the list, though replenishment is expected heading into next week.

The week started with ample tonnage and a healthy list following an active end to the previous week, with owners looking to steady rates and keep levels above WS265. Activity got off to a strong start, lifting sentiment and firming rate ideas towards WS275. Throughout the week, a number of vessels failed subs, leaving some units sitting prompt. However, activity continued to circulate, allowing rates to hold steady around WS275 heading into the week’s close.

MR

MRs had good availability, with expectations that enquiry would look to prorate Handy stems, as seen recently, with rates around WS195-200. MRs did see some activity during the week, although it remains unclear whether this was for 30kt or 45kt stems. Nevertheless, the activity left MR options more limited, with rate expectations firming towards WS205-210.

A good amount of options were available to start the week, with rate ideas still taking their lead from the North at around WS200-205. As the week progressed, the market did see a shift, with MRs attracting some appetite and a number of units being clipped away from the list, leaving rate ideas around WS205. Looking ahead, owners will be hoping to see some spillover support from the booming Aframax market in the coming week.

Panamax

The week started with Panamaxes largely looking towards backhaul cargoes from the UKC and Med, with rate ideas around WS185-195. The Aframax market did not attract much attention during the week, although some under-the-radar activity was believed to have taken place, helping rate ideas firm towards WS200. Looking ahead, Panamaxes will be hoping to find further support from a firmer Aframax market in the coming week.

The market came back online following the closure of Saudi Arabia’s East-West pipeline, firming an already strong market with rates around WS480-485. Throughout the week, rates remained elevated as tight tonnage and a steady flow of enquiries continued to provide support, with levels ending the week around WS495-500, while geopolitical tensions remain uncertain.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeSep 17thSep 10thLast Month*FFA Q3
TD3C VLCC AG-China WS3191,140821570615
TD3C VLCC AG-China TCE $/day366,7501,270,250903,500614,500652,750
TD20 Suezmax WAF-UKC WS128454327329288
TD20 Suezmax WAF-UKC TCE $/day81,250252,750171,500175,250137,750
TD25 Aframax USG-UKC WS84459374328343
TD25 Aframax USG-UKC TCE $/day31,500136,750105,25089,75085,500
TC1 LR2 AG-Japan WS41826786537 
TC1 LR2 AG-Japan TCE $/day12,500247,750235,250153,250
TC18 MR USG-Brazil WS14274261281282
TC18 MR USG-Brazil TCE $/day2,25030,00027,75032,75028,000
TC5 LR1 AG-Japan WS23843820566584
TC5 LR1 AG-Japan TCE $/day4,750182,000177,250116,000114,500
TC7 MR Singapore-EC Aus WS36444408262313
TC7 MR Singapore-EC Aus TCE $/day5,25054,50049,25025,25031,000

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

Bunker Prices ($/tonne)

wk on wk changeSep 17thSep 10thLast Month*
Rotterdam VLSFO  +33724690674
Fujairah VLSFO  +1561013857829
Singapore VLSFO  +61903842814
Rotterdam LSMGO  +12715051,3791,284

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