The recent ceasefire agreement between Iran and Israel has indeed served as a critical turning point, allowing the VLCC (Very Large Crude Carrier) sector to begin a phase of normalization after weeks of heightened geopolitical tension.
VLCC Market Dynamics
Eastbound VLCC rates experienced a sharp downturn, plummeting by nearly 50% almost overnight. This dramatic fall reflects an easing of regional risk, particularly following a recent U.S. military operation in Iran, and a thinning of inquiries for the second decade of July. The sentiment was further weakened as some charterers re-let tonnage that was previously secured at elevated levels. In the West African market, rates are also adjusting downward, though the decline is less pronounced.
Looking forward, the direction of VLCC rates will be influenced by several factors:
- Peace-driven risk repricing: The de-escalation of geopolitical tensions will continue to remove risk premiums embedded in freight rates.
- OPEC+ production policies: OPEC+ countries have announced an accelerated increase in oil output for July 2025, with a targeted hike of 411,000 barrels per day (bpd). This, along with discussions for August production levels, will impact global oil supply and, consequently, tanker demand.
- Rate normalization: Following periods of speculative highs, rates are expected to normalize as market fundamentals reassert themselves.
Key watchpoints for the VLCC market include owner resistance near current rate floors, the potential replenishment of July stems (cargo bookings), and continued monitoring of vessel transits through the Strait of Hormuz for signs of sustained stability.
Interestingly, towards the end of June, Asian oil appetite reached relatively high levels despite typical summer seasonality that usually dampens demand projections. Asia’s crude oil imports jumped in June 2025, overcoming a soft start to the year, with June imports surging to 28.65 million bpd, the highest since January 2023. This surge, led by China and India, provides a supportive pillar for a potential tanker market rebalancing, even as vessel supply remains a key negative influence. However, rising oil prices may weigh on Asia’s demand for crude imports from August onwards.
Oil Prices: Post-Conflict Stability and Demand Outlook
Oil prices experienced a sharp drop but have stabilized above pre-military conflict levels in Iran. The brief U.S. military operation and limited response, coupled with no disruption to oil flows and unsubstantiated rumors of Iranian action related to Persian Gulf oil flows, led to significant selling. A large portion of the geopolitical premium embedded in oil prices has now dissipated. Brent crude prices, for example, fell below $70/bbl after soaring past $81/bbl following the Israeli and U.S. attacks in mid-June.
Despite the sharp decline, oil prices remain higher than levels observed prior to the military conflict. As the market anticipates more oil supply from OPEC+, questions are arising regarding whether oil demand is not as soft as previously thought. Recent economic data from China points to more stability, with analysts questioning the immediate need for further stimulus. Furthermore, global oil inventories continue to draw down, and while structural reasons might account for lower-than-normal inventories, it’s notable that current levels sit at the lower end of the historical range.
While there might still be some room for oil prices to decline further, the outlook for oil demand for the remainder of the year is viewed with slightly more optimism than before. This positive outlook is supported by robust demand growth, especially in Asia, where the consumption of gasoline, jet fuel, and diesel remains strong in non-OECD countries. Overall, the market looks well-supplied, but geopolitical risks to oil supply security remain a key factor to monitor.
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Source: Breakwave Advisors
