Despite some mid-May signs of rate stabilization that briefly lifted sentiment, the end of May 2025 paints a decidedly negative picture for the VLCC freight market across both Eastern and Western routes. This reflects a broader bearish trend as the market transitions into the traditional summer demand lull, reports Breakwave Advisors.
Fleet Utilization
Attention in the VLCC market is now turning to the recently announced OPEC+ decision to increase production by 411,000 barrels per day (bpd) in July, marking the third consecutive monthly hike. If these additional barrels indeed materialize in the physical market, they could provide much-needed support for VLCC fleet utilization, which has remained flat. Consequently, a tightening of the tonnage list is not expected in early June. However, this OPEC+ output decision introduces a potentially supportive factor for vessel demand in the coming weeks.
In related developments, recent reports have highlighted the more competitive pricing of Saudi Arabian light crude, which could stimulate Chinese demand in the near term. A Reuters survey of four Asian refining sources indicates that Arab Light prices are expected to drop by $0.40–$0.50 per barrel, settling at $0.90–$1.00/bbl lower than the previous month. This anticipated reduction would represent the lowest pricing level for Arab Light since January, reflecting, in our view, a weaker demand outlook that necessitates price concessions from producers. Nevertheless, in the immediate term, the persistent mismatch between vessel availability and demand continues to weigh on VLCC earnings across the board.
Stable Prices
Despite underlying weak fundamentals in the oil markets, prices have surprisingly stabilized around the mid-$60 per barrel range for Brent crude. This resilience can be attributed to several factors, notably increased geopolitical uncertainties and the first significant supply increase by OPEC+ in several years.
The escalation of the Russia-Ukraine conflict and ongoing negotiations between the U.S. and Iran remain key drivers influencing the market. Currently, the additional OPEC+ supply volumes and the subdued demand outlook from China appear to have taken a backseat in traders’ immediate considerations, suggesting that geopolitical risks are the more dominant influence.
The past few years have been characterized by unforeseen and highly impactful events in the oil market. This volatility makes it prudent for energy investors to adopt a cautious stance rather than making definitive forecasts about future price direction. While the ongoing increase in OPEC+ supply is indeed a concern given the generally weak demand environment, this information is widely known and is already clearly reflected in current market prices.
Consequently, the primary source of uncertainty in the market now lies in potential unexpected supply disruptions. These potential disruptions are what continue to sustain the geopolitical premium currently embedded in oil prices.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: Breakwave Advisors
