- VLCC rates surged to unexpected highs in late Q3, driven by shifting arbitrage flows, U.S. Gulf exports, and Saudi supply strength.
- Segment performance remained elevated, with VLCC and Suezmax benchmarks peaking well above seasonal norms before easing late September.
- Q4 risks include shadow fleet segmentation, stricter EU sanctions, Indian-Russian crude trade tensions, and bearish FFA signals.
The summer of 2025 closed with an unexpected surge in VLCC earnings, defying seasonal expectations. A combination of shifting crude price spreads, changing trade flows, and robust export activity supported eastbound tonne-mile demand, keeping supply tight and spot rates elevated through late September. Although the exact weighting of these drivers is difficult to quantify, their combined impact sustained momentum across the dirty tanker market.
Arbitrage Flows and Brent–Dubai EFS Dynamics
Mid-summer momentum was fueled by swings in the Brent–Dubai Exchange of Futures for Swaps (EFS), which briefly turned negative. This created an opportunity for Atlantic Basin crudes—including West African and U.S. Gulf cargoes—to flow eastward, tightening VLCC supply. As Dubai prices firmed and uncertainty over Russian flows persisted, Chinese stockpiling and competitive WTI pricing kept U.S. Gulf exports heading to Asia.Indian refiners, meanwhile, faced increasing scrutiny as Washington threatened secondary sanctions on Russian crude. This raised the possibility of reduced spot purchases from Russia and greater reliance on Middle East Gulf, West African, and U.S. Gulf supply. Strengthening Dubai spreads further reinforced demand for Atlantic sweet grades, extending VLCC tightness.
U.S. Gulf Flows: Europe Versus Asia
U.S. Gulf exports to Europe fell sharply in July and August before partially recovering, with volumes still trailing 2024 levels. Rather than signaling weaker European demand, this trend reflected Europe’s growing flexibility to substitute U.S. barrels with alternative supply sources when arbitrage shifts.
By mid-September, maintenance at Shell’s Pernis refinery temporarily curbed demand, but expectations point to a rebound in Q4. Meanwhile, Atlantic barrels—including those from Guyana and Brazil—expanded eastward flows, diversifying supply and extending tonne-mile demand into Asia.
Saudi Export Strength and Early Fixing
Charterers fixed vessels earlier than usual amid softer freight in May and June, anticipating tighter conditions later. Saudi Arabia also contributed significantly, lifting August exports to 192 million barrels compared with 177 million barrels the previous year. This surge freed additional volumes into the market, reinforcing the upward rate trajectory.
Segment Performance
VLCC rates on the TD3C benchmark (MEG–China) peaked above WS100 on September 19 before easing to WS89.8 by month-end—still well above seasonal norms. On the USG–China route (TD22), rates hit nearly USD 12 million mid-September before retreating toward USD 10 million, remaining elevated relative to historical averages.
Suezmaxes also benefited, with the Nigeria–UKC benchmark (TD20) climbing to WS130 in August—equivalent to $48,000/day—before softening back to WS104 by late September.
Risks and Watch-Items for Q4
The tanker market outlook carries several key risks heading into the winter season. Shadow fleet segmentation, driven by sanctions enforcement, has reduced the effective pool of vessels accessible to mainstream charterers. Around a third of global crude tanker capacity is over 15 years old, amplifying constraints on available tonnage.
In parallel, the EU has tightened sanctions targeting tankers suspected of circumventing the Russian price cap, limiting access to insurance, classification, and ports. India’s ongoing reliance on Russian crude, despite U.S. tariff threats, adds further uncertainty, with reroutes potentially boosting tonne-mile demand.
FFAs and Forward Signals
While spot fundamentals drove the summer rally, the Forward Freight Agreement (FFA) market has turned moderately bearish. Signal Ocean forecasts flagged this shift as early as September 22. Despite the softening outlook, time-charter equivalent earnings on MEG–China remain above $70,000/day, suggesting strong underlying fundamentals.
Heading into Q4, the forward curve points either to a retracement toward summer highs or a correction as macroeconomic and geopolitical risks intensify. The tanker market thus remains finely balanced, with volatility likely to persist through the year’s end.
Did you subscribe to our Daily newsletter?
It’s Free! Click here to Subscribe!
Source: Breakwave Advisors
