The situation in the VLCC (Very Large Crude Carrier) freight market has indeed deteriorated significantly in the past week, presenting a dire picture for owners. The comment that “even Aframaxes are being paid more than VLCCs for USG/transatlantic runs” vividly illustrates the current dismal state of affairs for the larger vessels, reports Fearnleys.
VLCC
The tanker market in the Middle East Gulf (MEG) is currently experiencing a quiet but significant exodus of ships being fixed. Details of these fixtures are largely being kept confidential, leading to an assumption that rates are either on par with previously reported levels or potentially slightly lower.
This lack of transparency and delayed information about booked vessels is creating a skewed perception of available tonnage. When market participants eventually realize that inquiries they believed were still active have been concluded, it exacerbates the problem, contributing to a less clear market picture and potentially further pressuring rates as more available ships suddenly “disappear” from the perceived list.
Suezmax
The market has seen a busier day “above and below the surface.” While tonnage for the early second decade of June remains tight, leading to “punchy numbers” for a couple of outstanding cargoes, a notable trend is charterers reaching forward to secure tonnage for end-June loadings. This proactive booking, while addressing immediate needs, may negatively impact the long-term prospects for the TD20 route (West Africa to the UK Continent), as it could deplete future demand. Furthermore, despite reasonable activity for VLCCs (Very Large Crude Carriers) out of Brazil, their overall tonnage remains ample. This oversupply continues the threat of larger VLCCs “cannibalizing” Suezmax stems (meaning VLCCs are being used for cargoes typically carried by smaller Suezmax tankers), further impacting the Suezmax market.
US Gulf (USG) Market Discrepancy: An “extreme discrepancy” in pricing across all three vessel classes (VLCC, Suezmax, Aframax) is evident in the US Gulf. A striking example is a VLCC on subjects for a USG/UKCM (US Gulf to UK Continent/Mediterranean) voyage at $2.5 million. This rate is reportedly $300,000 better than the last done rate for an Aframax on a similar route. This significant difference makes VLCCs highly competitive, and as such, they are expected to continue poaching stems (cargoes) wherever feasible. While the Aframax and Suezmax markets in the West are tighter in terms of tonnage, these illogical market dynamics, where a larger vessel is more cost-effective per barrel than a smaller one on certain routes, are expected to lead to a cooling of rates across these segments eventually.
Aframax
North Sea
The North Sea tanker market is currently facing a challenge despite strong pulls from other regions. A significant amount of tonnage (vessels) has left the area, drawn by improved rates in the US and Mediterranean markets. However, this outflow hasn’t translated into an increase in North Sea activity.
Consequently, there is still prompt natural tonnage available in the North Sea. These vessels are now facing potential waiting times as the cargo window shifts towards mid-month. This suggests that while supply might be thinning out, demand in the North Sea itself is not strong enough to absorb the remaining prompt vessels, leading to a potential softening or stagnation of rates in this specific region.
Mediterranean
In contrast to the North Sea, the Mediterranean/Black Sea markets slowly climbed this week. This positive sentiment was boosted by the spike in US Gulf rates, which had a ripple effect across European markets. Activity in the Mediterranean was also strong, contributing to the upward trend.
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Source: Fearnleys
