In the lead-up to the Easter holidays, Very Large Crude Carrier (VLCC) spot freight rates on the Middle East Gulf to China route experienced a notable upward trend. Rates rose sharply on April 17th, reaching their highest point in a month. This firming of the freight market was attributed to a combination of increased cargo demand ahead of the holidays and speculative activity driven by the renewed imposition of U.S. sanctions on Iranian crude oil exports, reports Breakwave Advisors.
Supply Chains Stressed
The proposed and implemented sanctions have indeed created stress on global supply chains, leading Asian refiners to seek a wider range of crude oil sources. This shift in sourcing has resulted in longer average voyage distances, increasing ton-mile demand, and consequently providing indirect support to VLCC (Very Large Crude Carrier) earnings. Simultaneously, VLCC spot rates on the West Africa to China route have also experienced modest gains.
On the macroeconomic front, stronger-than-anticipated industrial output figures from both China and India have prompted upward revisions in energy demand forecasts for these key economies. However, the primary oil market reports continue to present a somewhat subdued outlook regarding overall future oil demand growth.
Looking ahead, the crude oil freight market is likely to be influenced by continued volatility in oil markets, driven by ongoing geopolitical instability and disruptions to shipping routes. These factors could lead to fluctuations in freight rates. Additionally, the anticipated increase in oil supply from OPEC+ is expected to provide a degree of underlying support for the crude oil freight market. The upcoming OPEC+ policy meeting in May will be particularly significant, as any potential adjustments to production levels could have a notable impact on VLCC market dynamics in the second quarter of 2025.
Oil Prices Bounce off
While oil prices have shown a modest recovery, currently trading above the $60/bbl level (with Brent Crude around $68.45 and WTI Crude around $64.66 as of late April 2025), the fundamental picture for demand remains weak, and anticipated additional supply doesn’t align well with market balance. Despite this, the evolving geopolitical landscape surrounding Iranian exports and the ongoing trade tensions, particularly between the US and various nations, are perceived to be injecting a geopolitical premium into oil prices.
The International Energy Agency (IEA), the U.S. Energy Information Administration (EIA), and the Organization of the Petroleum Exporting Countries 1 (OPEC) have all revised their 2025 demand forecasts downwards. This adjustment was widely anticipated given the current economic headwinds and the uncertainty that tariffs have introduced into the global economy
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Source: Breakwave Advisors
