- Divergence occurs Between Crude and Product Tanker Markets.
- Increased Product Tanker Deliveries Weaken Freight Rates.
- Slowing CPP Demand Adds Pressure on Spot Rates.
Though 2025 was initially predicted to continue the weak trend of late 2024, the year began with increased uncertainty. The US government sanctioned more than 180 tankers and hardened its approach to ships transporting oil from Iran, Russia, and Venezuela. This was followed by retaliatory tariffs on most nations (known as Liberation Day), which triggered fears of a worldwide trade war and dampened oil demand growth. Consequently, share prices fell across the globe, with crude and product tanker shares being hit hard. The situation, however, improved marginally after the tariff policy was put on hold for 90 days, resulting in a partial market recovery, reports Drewry.
Divergence Between Crude and Product Tanker Markets
To date of 9 May 2025, the Drewry Crude Tanker Equity Index is up by 10.9%, whereas the Drewry Product Tanker Equity Index is still down by 12.9%. This is showing an increasing divergence between the two sectors. Some factors, mostly those related to the product tanker segment, are to blame for this divergence. The product tanker market fundamentals have been weaker than crude tankers, mainly because the tonnage supply has been higher in the product tanker market.
Increased Product Tanker Deliveries Weaken Spot Rates
Between 2023 and 2022, earnings for product tankers were good, resulting in a large number of new units being ordered. These ships started coming to market in the second half of 2024, leading to a steep rise in available capacity and pressure on freight rates to fall. Through YTD 2025, 50 product tankers were delivered, as opposed to 9 crude tankers, which clearly shows a contrasting picture of fleet growth.
The crude tanker orderbook to fleet ratio is at 11.2% (as of May 2025), whereas for product tankers it is at 20.5%. During the period from 2025 to 2028, the product tanker sector is likely to experience even more stress, with a greater number of vessel deliveries than crude tankers. Such a surge of new tonnage will tend to hold down freight rates, making investors nervous, as evident in falling product tanker share prices.
Weakening CPP Demand Presses Spot Rates Further
Compounding the difficulties, demand for refined products (specifically diesel and gasoline, which account for 80% of CPP demand) is weakening. Trends driving this include increasing use of electric vehicles (EVs) and improved fuel efficiency.
Furthermore, new West African (e.g., Nigeria’s Dangote refinery) and Mexican (Olmeca refinery) refining capacity is boosting local production and minimising imports, while European refinery shutdowns are lowering product tanker demand further. All these are amplifying the already softening outlook for the product tanker market.
Crude Tanker Sector Outlook More Positive
Unlike the product tanker market, the crude tanker market is more favourable. Following a slow 2024, world refinery runs are expected to improve in 2025, supporting demand for seaborne crude. This is expected to be especially favourable for VLCCs. Increases in crude imports by Asian refiners, particularly in China, are anticipated to support vessel utilisation.
Additionally, US sanctions against Russian tankers and Iranian crude can hamper trade flows, compelling nations such as India and China to look for substitute crude suppliers, thereby boosting demand for long-range tankers. The mid-size tanker market also has the potential to tighten since non-sanctioned ships are redirected to Russian trade.
Asset Price Divergence Between Crude and Product Tankers
The fall in asset values has further entrenched the divergence between the product tanker and crude sectors. Product tanker prices, especially for 5-year-old LR2s (-7.2%) and LR1s (-8.0%), have dropped more than their crude peers, e.g., VLCCs (-2.4%) and Suezmaxes (-0.6%). The tanker market during Q1 2025 saw stark divergence between the crude and product markets, a trend set to continue for the remainder of the year.
Outlook: Crude Tankers Set for Better Performance
The conjunction of increasing product tanker deliveries in the face of tepid growth in oil demand is set to greatly diminish the income of product tanker firms compared to that of crude tanker firms. Furthermore, product tanker asset prices are plummeting more sharply, reflecting their less robust market fundamentals. In general, the picture for the crude tanker sector seems more upbeat, with better fundamentals and favourable market conditions set to continue in the remainder of the year.
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Source: Drewry
