Very Large Crude Carrier (VLCC) spot rates began September at their strongest point since early June, primarily driven by strong demand for vessels in the Arabian Gulf headed east. This heightened activity, coupled with a limited supply of available ships, has given owners the upper hand, allowing them to push rates higher. The market saw sharp increases for both eastern and western routes. Despite an increase in ships sailing into the Atlantic, charterers are struggling to cap these gains. The current market strength is supported by uncovered September shipments and a tight tonnage list, but its long-term sustainability will depend on the pace of October’s activity and whether the vessel supply can meet the demand.
Impact of Chinese Stockpiling
A significant factor supporting the tanker market is Chinese stockpiling, estimated at more than half a million barrels per day. This ongoing strategic storage provides a steady demand for long-haul tanker voyages. However, this trend is a “wild card” for the broader oil market because it distorts the true picture of oil demand. While it supports tanker freight, it also means that core oil consumption is not growing as fast as recent supply increases, which could lead to market imbalances.
OPEC+ Production and its Effect on Tankers
OPEC+ has continued to gradually increase its oil production, adding another 137,000 barrels per day for October. While most members are at their production limits, Saudi Arabia and the United Arab Emirates have the capacity to increase output further. This reflects a strategic shift by OPEC+ toward gaining market share, even at the expense of weaker oil prices, which puts pressure on higher-cost producers like U.S. shale oil. For the tanker market, this increase in oil volume is a positive development. The long-haul nature of these additional cargoes is expected to help sustain strong tanker rates, particularly during the traditionally strong fourth quarter.
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Source: Breakwave Advisors
