VLCC Rates Rise In Middle East And Demand Declines

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  • Middle East-to-China rates increased by 20%.
  • Ongoing OPEC cuts have reduced onshore crude tank utilization.
  • Freight rates USG-to-Europe (TD25) declined by about 25%.

Middle East-to-China (TD3C) rates increased by 20% in the last two weeks. Saudi Arabia’s decision not to raise March OSPs suggests a strategy to regain market share in NE Asia from Russian and Atlantic Basin crudes. Global VLCC ballast mileage was lower in January, indicating more vessels are ballasting to the MEG after discharging in the East, reports Break Wave Advisors.

Tight Crude Market Dynamics

  • Ongoing OPEC cuts have reduced onshore crude tank utilization, tightening the market.
  • January’s global seaborne crude exports were below seasonal averages, indicating increased demand in the medium term.
  • Short-term vessel supply-side factors may limit significant upward momentum in VLCC rates in the Middle East.

The decline in USG Aframax Demand

  • US crude exports to Europe increased in December but cooled off from H2 of January onwards.
  • Freight rates USG-to-Europe (TD25) declined by about 25% over the same period.
  • An increase in USG prompt tonnage in H2 January contributed to the decline in TD25 rates.

Continued European Demand for US Crude

  • NW Europe’s refineries continue to run at high rates, with relatively high crude imports and low inventories.
  • Red Sea disruptions may lead Europe to rely on the US to replace volumes from the MEG.
  • US refinery maintenance season could lead to more crude available for export to Europe.

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Source: Break Wave Advisors

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