- VLCC Volatility Returns as Middle East Gulf Market Weakens.
- Suezmax and Aframax Rates Remain Firm.
- Owners Face Sudden Spot Market Reality Check.
The crude tanker market is still holding strong overall, but there was a significant dip in VLCC spot rates on Monday. Rates for the Middle East Gulf to China route took a big hit, showcasing the wild fluctuations typical of the VLCC segment. The Baltic Exchange’s TD3C time charter equivalent index dropped a staggering 20% from Friday, landing at $87,711 per day. This is the lowest TD3C level we’ve seen since October 27 and marks the biggest one-day percentage drop since June 26, when the geopolitical risk premiums tied to the Iran-Israel-US conflict started to ease, reports Lloyd’s List.
Historic One-Day Decline in Nominal Terms
On Monday, the drop of $22,357 per day represented the steepest single-day nominal decline in over five and a half years. The last time we saw a similar fall was on May 1, 2020, during the unwinding of the floating storage boom from the Covid era.
“Not the start to the week that owners would have wanted, with TD3C dropping like a lead balloon this afternoon,” wrote brokerage Braemar on Monday. “With four market quotes today, two of which collected 10-plus offers, and with lists opening up, this was likely to happen, but not many expected this much of a drop-off.”
Quiet MEG Market Pressures Rates
Brokerage BRS pointed to a lack of cargo activity in the Middle East Gulf as a key driver behind the downturn. “Despite the expectations and hopes of a strong first decade as of January, the MEG remained mostly quiet the whole of last week, which prompted the start of a downturn in rates as prompt available tonnage started to grow. As of today [Monday], it had fallen even further. “Cargo counts are still low for the first decade, so many are questioning if all these cargoes have really been covered privately already or will at some point pop back up to steady the ship.”
Global VLCC Indices Follow TD3C Lower
The sharp decline in the TD3C index pulled down the Baltic Exchange’s global weighted average VLCC index to $83,882 per day on Monday, marking its lowest point since October 16. Other important VLCC routes also saw a downturn. The Baltic’s TD15 West Africa-China index fell 11% from Friday to $84,001 per day, while the TD22 US Gulf-China route dipped 3% to $79,935 per day.
Executives Highlight Inherent Volatility
Industry leaders have repeatedly warned that strong VLCC markets come with significant volatility. “Large tankers will always be a volatile sector,” said DHT chief executive Svein Moxnes Harfjeld during a Capital Link crude tanker roundtable on December 16. “When you are in a strong market like we have now, the volatility in nominal terms can be quite scary numbers — you can have things flipping $20,000 or $30,000 per day. But that should not be a reason to be worried.”
Frontline chief executive Lars Barstad also cautioned against overconfidence ahead of the holiday period. “I’m always afraid of jinxing things, but December is a short month because charterers and owners go on holiday too. “The Baltic index doesn’t print between Christmas and New Year, so there is a chance that we can still have some hectic days as the January stems in the Middle East need to get covered, and that’s basically going to start happening any minute now.” That anticipated pre-Christmas surge in January failed to materialise.
Strong Market Context Remains Intact
Even with this sharp correction, VLCC earnings are still exceptionally high compared to historical standards. Before the rally that kicked off in September, the Baltic Exchange’s global average VLCC index hadn’t hit Monday’s levels since April 30, 2020. The broader crude tanker market continues to show resilience, with both the Suezmax and Aframax segments remaining strong.
Suezmax and Aframax Rates Stay Elevated
The Baltic Exchange’s global weighted average Suezmax index climbed to $91,465 per day on Monday, reaching its highest level since November 27. This puts Suezmax earnings $7,583 per day above VLCC rates, marking the widest premium since early September. Aframax rates are also holding up well, with the Baltic’s global weighted average Aframax index closing at $61,978 per day, the highest it’s been in nearly two years, last seen in January.
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Source: Lloyd’s List
