The VLCC/Suezmax market is seeing active fixing activity from China and India, likely influenced by recent sanctions. Meanwhile, Supertankers are returning to clean operations, but the impact of sanctions could potentially reverse this trend, reports Breakwave Advisors.
Initial Impacts
The US sanctions announced on January 10th triggered a surge in vessel bookings, particularly from the Middle East Gulf, leading to a significant increase in freight rates to multi-month highs. Shipowners capitalized on this situation by pushing for higher prices.
- Increased Demand: Chinese and Indian refineries are actively securing crude oil from the Middle East, resulting in high fixing activities in the market.
- Fleet Mobility: There has been a noticeable increase in the number of vessels ballasting to key crude oil loading regions since January 10th, indicating a pick-up in fleet mobility.
- Rate Plateau: Since January 20th, Middle East freight rates have plateaued due to temporary measures taken by buyers in the previous week, causing the momentum to taper off slightly.
- Long-Term Outlook: While the sanctions may cause some delays in Russian oil supply, it is unlikely to completely disrupt the flow.
Supertankers Halt
The recent trend of supertankers switching to clean cargoes experienced a halt in January.
- Key Factors:
- Declining LR freight rates since the start of Q2 2025.
- A closed East-West arbitrage over the last month of 2025.
- Only two Suezmax new builds loaded CPP in early January.
- Shifting Trends:
- With the reopening of the East-West arbitrage, LR2s are returning to dirty trades.
- The entry of Greek/EU Aframax operators into the market, replacing sanctioned vessels, is likely to further increase the number of LR2s switching back to dirty trades.
- The expected entry of an average of 2 Suezmaxes per month for 2025, likely to pick up diesel cargoes for East-West routes, could marginally impact LR demand.
Overall, the dynamics of the supertanker market are subject to continuous shifts influenced by factors such as freight rates, trade flows, and geopolitical events.
Freight Rate Surge
The recent US sanctions on 100 Aframax/Suezmaxes active in Russia have significantly disrupted the oil tanker market. These sanctions effectively removed a substantial portion of the available fleet from the supply picture, particularly impacting the movement of Russian crude oil.
- Freight Rate Surge: This sudden reduction in available tonnage led to a surge in freight rates, particularly for voyages from the Middle East Gulf to key destinations like China and India. Shipowners capitalized on this situation by demanding higher prices for their services.
- Supply-Demand Imbalance: Non-sanctioned tonnage available to transport Russian crude oil to China and India is inadequate to replace the capacity lost due to the sanctions. This scarcity necessitates offering Russian crude at discounted prices to incentivize Greek Aframax and Suezmax operators to facilitate shipments to India and Turkey.
- Impact on Atlantic Basin: This shift in trade flows is expected to significantly tighten Aframax supply in the Atlantic Basin, particularly in the Mediterranean, Black Sea (CPC blend and KEBCO trades), and the Gulf of Mexico.
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Source: Breakwave Advisors
