The past week has seen an intensely volatile period for Very Large Crude Carriers (VLCCs), with freight rates in the Middle East Gulf (MEG) to East routes experiencing dramatic spikes in response to escalating geopolitical tensions. While quoted rates for these crucial voyages briefly touched triple-digit Worldscale (WS) levels, actual confirmed deals predominantly settled in the WS 70s.
VLCC
The VLCC market experienced a dramatic surge in rates, reaching triple digits for MEG/East routes at one point, seemingly in direct correlation with recent missile activity. However, very few deals were confirmed at these peak levels, with most executed in the WS 70s. Reports suggest a new deal has already been concluded in the WS 70s today as the ceasefire appears to hold and the associated risk premium begins to dissipate.
Looking at the paper market, there’s a bearish outlook, with TD3c July futures currently at WS 52.25 bid against WS 52.5 ask, suggesting further potential for rates to decline. This implies that market participants are quickly adjusting to the reduced geopolitical risk. A silver lining for owners is the synchronized tumble in bunker (ship fuel) prices alongside falling oil prices.
Suezmax
The TD20 route saw a new test yesterday with a Bonny/Pembroke deal on a 2006-built vessel at WS 90 on subs. The tonnage profile has tightened significantly overnight, and while a good portion of second-decade July volume is still expected, charterers are likely to be cautious about fixing vessels beyond the July 15-20 window. This hesitation stems from the expectation that the tonnage list will open up again over the weekend, and a stable geopolitical environment should lead to more grounded sentiment. For now, Suezmax rates are anticipated to remain steady.
In the US Gulf, despite a substantial tightening of tonnage, owners have seen minimal gains in rates. The high number of vessels taken on subs suggests that most first-decade July cargoes have already been covered. With Aframaxes now reaching into the July 5-10 window, the latter part of the week is expected to be quiet for Suezmaxes on the Atlantic side.
Overall, the cooling geopolitical sentiment in the Middle East is primarily impacting the larger VLCCs with a softer outlook. However, recent strong activity in the Suezmax market has cleared out the immediate tonnage, leading to a fundamentally stronger market for them, although rapid changes can still occur.
Aframax
North Sea
Stems for the first five days of July are steadily being covered, though actual market activity in the North Sea Aframax sector hasn’t been exceptionally busy. The market remains relatively steady, with prompt vessels likely to face a fair amount of waiting time. A premium paid for a somewhat unusual fuel oil cargo has provided a slight uplift in owner sentiment. As the July 5-10 window doesn’t appear to be fully booked with stems, the market is expected to remain on an even keel for the immediate future.
Mediterranean
Activity in the Mediterranean Aframax market has been consistently strong, with rates moving sideways under some upward pressure. However, fixing dates are now extended quite far forward, suggesting a potentially quieter couple of days towards the end of this week. While some replacement jobs might be needed for tight fixtures, there are still enough vessels available to manage the demand.
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Source: Fearnleys
