The VLCC market in the Arabian Gulf weakened in the second week of February. Despite expectations of increased activity following the Lunar New Year, demand remained subdued. This lack of cargo volume has led to a decline in rates, and their sustainability in the coming weeks will depend on the emergence of new demand.
VLCC Under Pressure
The commencement of the March program has led to an increase in tonnage availability, providing charterers with greater options and exerting downward pressure on rates. Market participants are closely monitoring U.S. crude exports and West African loadings to assess their potential impact on market dynamics.
A key development in recent weeks has been the significant influence of U.S. trade policies on market sentiment. The implementation of tariffs on Chinese goods, coupled with China’s retaliatory tariffs on U.S. oil, has created uncertainty within the market. However, the actual impact of these measures on U.S. crude oil exports to China remains subject to debate.
Tanker Market Challenge
The tanker market is currently facing a dual challenge on the demand side. Firstly, the introduction of tariffs on various goods from multiple countries has disrupted established crude oil trade flows. Refineries are often optimized for specific crude grades, making substitution more complex and challenging than initially anticipated.
Secondly, this crude oil substitution is leading to shifts in trade routes, creating uncertainty regarding tonne-mile demand. The volume and destination of crude oil shipments are becoming increasingly unpredictable. Furthermore, OPEC+ production targets and subdued Chinese demand add another layer of uncertainty to the market.
Simultaneously, the risk of supply disruptions has reached an all-time high. With rapid changes in global trade policies, including tariffs and sanctions, uncertainty has become the defining characteristic of the broader oil market.
While traditional supply and demand models remain crucial for long-term market rebalancing, it is the fluid and dynamic nature of government policies that will significantly influence prices, spreads, and relative energy costs in the near term.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: Breakwave Advisors
