The number of VLCCs ballasting from Asia to the Middle East Gulf is on the rise, potentially bearish for VLCC rates given no expectations of any rise in bookings from the Middle East, reports Breakwave Advisors.
Rise In Ballast Counts
This rise in ballast counts comes partly because of a seasonal uptick in China’s crude imports from the Middle East the previous month, and the corresponding rise in TD3C freight rates
➔ Voyages data show 82 crude/condensate-laden VLCCs departed in August from the Middle East for China, the total highest since April
➔ Nevertheless, total Middle East crude/condensate on water remains at historically low levels
Middle East VLCC rates could come under more pressure
➔ Recent announcements by OPEC+ to delay any lifting of production cuts to December limits the prospect of any increase in cargo availability
➔ Additionally, the recent narrowing in the Brent-Dubai spread could create opportunities for some VLCCs to load their next crude cargo from the Atlantic Basin
Voyage Mileage Declined
Global clean tanker average voyage milage declined 10% m-o-m, because of declining LR voyages East-to-West, as well as a higher rate of short-haul intra-Northeast Asia MR voyages and fewer LR arrivals in East Asia
However, sharp declines in average voyage mileage for ballast vessels (see chart) have contributed the most to the decline in clean tanker voyage mileage
➔ This is mostly due to declines in ballast LR voyages Europe East, and to a lesser extent LRs discharging in NE Asia and staying in the region instead of returning to the Middle East
➔ Additionally, fewer MRs have ballasted from Brazil to Russia as Russian diesel arrivals have declined
The decline in ballast LRs from Europe to the Middle East stems from lower arrivals of middle distillates in July and August due to weak European demand, and therefore vessels ballasting to the MEG
➔ However, we are also seeing early signs that some LRs are choosing to remain in Europe after discharge, likely due to vessel oversupply in the Middle East
A Bright Spot
A bright spot in the current freight market can be found in Suezmax tankers, where mainstream voyages (excluding Russian bbls) are at the top bound of the seasonal range
However, the structural shift of voyages heading towards Europe instead of Asia (excluding Russian bbls) and the rise of shuttling/lightering activities have resulted in a drop in mileage, in turn putting a cap on rates
Pockets of strength from the seasonal ban of VLCCs out of Guyana from September to at least January can provide support in the short term
➔ Up to 5 VLCCs/month have loaded from Guyana, primarily heading to Europe
➔ This could potentially be replaced by Suezmax tankers, adding up to an additional 10 voyages and increasing the segment’s utilisation out of the Atlantic Basin
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Source: Breakwave Advisors
