Crude Tanker FFAs: Evaluating The Dominance Of VLCCs

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  • Recent FFA prices indicate a favorable outlook for VLCCs compared to Suezmaxes and Aframaxes in the crude tanker sector.
  • Despite temporary disruptions and shifts in market dynamics, VLCCs are poised for a resurgence in performance due to factors such as fleet growth, demand trends, and regional developments.

Current FFA prices project robust market conditions for crude tankers, particularly VLCCs, in the years leading up to 2026. While Suezmax and Aframax markets show signs of backwardation, VLCC pricing suggests a positive trend in earnings potential for the foreseeable future.

Factors Favoring VLCCs

Historically, VLCCs have demonstrated superior performance compared to smaller tanker classes, and recent market dynamics support a return to this trend. As temporary disruptions such as pandemic-related impacts and geopolitical events fade, charterers are expected to prioritize economies of scale, favoring larger vessels like VLCCs.

Fleet Growth Dynamics

The upcoming fleet growth trajectory favors VLCCs over Suezmaxes and Aframaxes, with fewer newbuildings scheduled for delivery in the VLCC segment. This disparity in fleet expansion rates, coupled with potential delays in scrapping older vessels, further strengthens the market position of VLCCs.

Regional Developments and Demand Trends

On the demand side, VLCCs stand to benefit from growing crude oil needs in the East, particularly with anticipated shifts in crude trade patterns favoring ultra-long-haul routes. Factors such as geopolitical tensions, production changes, and infrastructure developments also influence demand dynamics, with VLCCs positioned as key beneficiaries.

Considerations for Market Dynamics

While current projections support the outperformance of VLCCs, various regional events and geopolitical factors could impact market dynamics unpredictably. Factors such as China’s economic outlook, pipeline developments like TMX, and geopolitical tensions pose both risks and opportunities for tanker segments.

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Source: Break Wave Advisors