Recent data indicates persistent challenges within OPEC+ regarding quota compliance and shifts in crude export patterns, with significant implications for the VLCC tanker market.
OPEC+ Overproduction
Several OPEC+ members continue to produce above their agreed-upon quotas:
- Kazakhstan is estimated to be overproducing by approximately 400,000 barrels per day (b/d), according to data from the OPEC Secretariat.
- The UAE is estimated by the IEA to be overproducing by about 350,000 b/d.
- Iraq exceeded its April target by 300,000 b/d. These persistent overages by key members collectively undermine the alliance’s market stabilization efforts.
Crude Export Dynamics
Despite recent announcements of crude production increases, crude exports from major producers are showing mixed signals:
- Saudi Arabia’s seaborne crude exports declined slightly in May to 5.97 million b/d, compared to 6.1 million b/d in April, according to Vortexa. This dip could be attributed to higher local crude consumption for summer cooling power generation, a delayed reaction to increased production, or domestic stock building. The precise relationship between Saudi crude output and exports remains largely opaque outside the kingdom.
- Russia’s seaborne crude exports also slipped in May to 4.68 million b/d, down from 4.92 million b/d in April, showing little response to their recent production increase pledge. Exports had remained steady in March.
Implications for VLCCs
VLCCs (Very Large Crude Carriers) stand to be the primary beneficiaries if Middle Eastern seaborne crude exports increase significantly. The Middle East/Red Sea region has consistently accounted for a substantial portion of VLCC liftings, ranging between 60% and 80% since 2016, and notably represented 67% of VLCC liftings last month. Therefore, any sustained increase in exports from this region would provide crucial support for VLCC demand and potentially freight rates.
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Source: Breakwave Advisors
