At the end of the third week of May 2025, an analysis of the dirty segment’s VLCC tanker market, focusing on Arabian Gulf (AG) growth in tonne-days and the supply trend from Ras Tanura, reveals several factors contributing to the persistent downward pressure observed in the AG-China freight market sentiment, rpeorts Breakwave Advisors.
Concerning Trend
The VLCC market is currently exhibiting a concerning trend, with tonne-days (a measure of demand incorporating both cargo volume and distance) showing a steady decline since late April, as indicated by a 7-day moving average. Current estimates of nearly 61 million tonnes are significantly lower than the 70 million tonnes recorded during the same period in both 2023 and 2024. This weakening demand comes amidst persistent drops in oil prices and OPEC+’s plans to increase supply, casting uncertainty over a possible recovery during the upcoming summer season. Growing concerns about economic prospects in China and the U.S. further compound this uncertainty.
Simultaneously, the latest weekly change in net vessel supply (spot-relevant vessels available to load from Ras Tanura within 30 days) has stabilized around 128. This follows a significant rise to 190 vessels in mid-March, indicating a relatively ample supply of available VLCCs. Despite this, TD3 (Middle East Gulf to China) rates have not yet shown signs of recovery. An increase in TD3 rates is considered likely only when net supply drops below 100 vessels, and even further if it falls substantially lower, as was observed in mid-January when TD3 rates exceeded WS70 under similar supply conditions.
Despite the ongoing economic and trade headwinds, the International Energy Agency (IEA) adjusted its 2025 oil demand growth forecast in its May report, increasing it to 740,000 barrels per day from the previous estimate of 730,000 barrels per day in April. However, this upward revision does not alleviate the challenges posed by heightened trade uncertainties affecting the global economy and oil demand. The IEA has also emphasized that demand growth is expected to decelerate for the remainder of the year, suggesting a cautious outlook for the crude oil market.
Mixed Picture
The crude oil tanker freight market presented a mixed picture, with some routes experiencing declines while others showed slight recovery.
VLCC Market:
- Freight rates for VLCCs on the Middle East Gulf (MEG) to China route experienced a decline in momentum, dropping to WS 60. This reflects a 4% weekly increase, suggesting that despite the overall decline in momentum, there was a slight uptick in the weekly reported rate for this specific route.
Suezmax Market:
- Suezmax rates from West Africa to continental Europe fell below WS80, indicating a significant 10% weekly decrease.
- Rates on the Baltic–Mediterranean route for Suezmaxes also dropped, falling below WS110, and standing 20% lower than rates observed a month ago.
Aframax Market:
- Conversely, Aframax freight rates in the Mediterranean showed signs of rebound, reaching WS130 and reflecting a 10% weekly increase.
Product Tanker Market (LR2 and Panamax):
- LR2 (Long Range 2) freight rates from the Arabian Gulf (AG) rose to WS155, indicating a strong monthly increase of 20%.
- Panamax Carib-to-USG (Caribbean to US Gulf) rates decreased to WS170, signifying a weakening trend compared to the prior week. This level is also 15% lower than the rates seen a month ago.
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Source: Breakwave Advisors
