The VLCC freight market at the end of February was highly volatile, reacting strongly to sanctions and geopolitical changes. Even with stricter global sanctions, Chinese imports of sanctioned oil increased, causing a significant change in the dirty oil market, reports Breakwave Advisors.
Delicately Balanced
Western regulators’ focus on vessels transporting Russian and Iranian crude has led to increased use of unsanctioned, older VLCCs from the “shadow fleet.” This has caused short-term freight rate spikes and market volatility due to a constrained fleet.
There are signs of softening rates in the Atlantic Gulf region as some deals were made below previous highs, and an expected increase in vessel availability could further drive rates down. However, short-term fixtures may still command premiums due to limited immediate supply.
Despite this, regulatory pressures and targeting of non-compliant vessels are expected to maintain demand for unsanctioned VLCCs, particularly on the Middle East to Asia routes, supporting freight rates.
The VLCC market remains delicately balanced between stable demand and fluctuating vessel supply, which will continue to influence freight rates.
Oil Price Stable
The global oil market’s focus has shifted to demand, with China’s changing energy mix impacting growth projections. Potential OPEC+ production increases suggest a possible oversupply. Despite geopolitical tensions, oil prices have remained stable.
While global oil inventories are relatively low, OPEC+ has spare capacity, reducing supply disruption concerns. Increased Atlantic basin oil production is boosting tanker demand.
However, the market’s ability to absorb long-term crude supply increases remains uncertain without clearer demand signals or substitution. Projected growth is primarily in gas-related products, which offer less support to the tanker market compared to liquid fuels.
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Source: Breakwave Advisors
