- VLCC tonne-days continue to decline, reflecting a weakening market, while dirty tonne-days saw a brief recovery before dropping again.
- Crude shipments to China are rising, offering potential market support as winter demand approaches.
- Oil prices rebounded in Week 38 following a U.S. interest rate cut, though weak demand from China continues to exert downward pressure.
Week 38’s analysis highlighted contrasting trends between dirty tonne days and VLCC tonne days. The VLCC segment experienced a noticeable decline since the end of Q1 this year, contrasting the growth observed in dirty tonne days, reports AJOT.
VLCC Segment Faces Decline
Week 38’s special analysis focused on the dynamics between dirty tonne days and VLCC tonne days.
The data revealed a distinct downward trend in VLCC tonne days, particularly after the first quarter of this year, suggesting a weakening in the VLCC segment due to broader market challenges.
Short-Lived Recovery in Dirty Tonne Days
In contrast, dirty tonne days showed signs of recovery in early September, but this rebound was short-lived as recent estimates point to a renewed downward trend.
The decline in VLCC tonne days contributes to a generally bearish market sentiment.
On a brighter note, August concluded with a significant upward trend in seaborne crude oil shipments to China, a trend that is expected to continue as winter demand approaches. This uptick could provide some support to the market in the coming months.
VLCC AG Sector and Vessel Supply Challenges
Week 37’s analysis of the VLCC AG sector highlighted the ongoing difficulty of matching vessel supply to market demand. Cargo activity in the VLCC AG remains well below the desired benchmark, indicating challenges for the market as we approach Q4.
Despite a few positive indicators, the overall market outlook for VLCC remains cautious due to persistent supply-demand imbalances.
Oil Market Rebound Amid U.S. Interest Rate Cuts
In the oil market, prices resumed an upward trajectory in Week 38 after the U.S. Federal Reserve cut interest rates. Brent crude, which had dipped below $69 to a year-low, rebounded to above $74. At 1303 GMT, Brent crude futures were up 90 cents, or 1.2%, reaching $74.55 per barrel.
WTI crude futures for October followed suit, rising by 88 cents, or 1.2%, to $71.79 per barrel.
Economic Stimulus and Labor Market Concerns
The interest rate cut by the U.S. central bank, a half-percentage point drop, was a key driver behind the oil price recovery.
While lower rates typically boost economic activity and energy demand, the move also signals potential concerns about the U.S. labor market, which could slow economic growth.
China’s Weak Demand Exerts Downward Pressure on Oil Prices
In contrast, weak demand from China continues to weigh on oil prices. Chinese refinery output slowed for the fifth consecutive month in August, and industrial output growth hit a five-month low, coupled with declines in retail sales and new home prices.
SECTION 1: FREIGHT – Market Rates (WS)
‘Dirty’ WS – Firmer
Sentiment in the dirty freight market remained strong in the third week of September. Optimism for Q4 continued, with:
- VLCC MEG-China freight rates rose to 55 WS, up 3% weekly and 30% compared to last year.
- Suezmax rates from West Africa to Europe holding steady at 78 WS, showing similar momentum as last year.
- On the Suezmax Baltic-Mediterranean route, rates grew to 88 WS, marking a 20% increase year-over-year.
- Aframax Mediterranean freight rates remained steady at WS120, a 37% increase over last year.
‘Product’ WS – LR2 Firmer
- LR2 AG rates hovered around WS138, reflecting a 10% increase from Week 37 and aligning with last year’s levels.
LR1 Steady
- Panamax Carib-to-USG rates held steady at WS148, showing an 11% increase compared to the same period last year.
‘Clean’ MR Mixed
- MR1 Baltic-to-continent rates held steady at WS180, a 24% rise over the past month and a 30% increase compared to last year.
- MR2 Continent-to-USAC rates rose to WS135, a 4% increase over the last month, though 20% lower than last year.
- USG-to-Continent MR2 rates have dropped, aligning with the Continent-to-USAC rates, but still reflecting a 60% year-on-year increase.
SECTION 2: SUPPLY – ‘Dirty’ (# vessels) Mixed
VLCC Ras Tanura: The number of VLCCs on the Ras Tanura route increased to 70, nearly 10 more than the Week 37, though still below the annual average.
Suezmax Wafr: The Suezmax vessel count remained below the annual average for the second half of September, with 55 ships reported.
Aframax Med: Aframax numbers on the Mediterranean route fell to just 5 ships, marking a nearly 50% decrease compared to two weeks ago.
Aframax Baltic: On the Baltic route, Aframax numbers rose from two weeks ago but remained 7 vessels below the annual average, totaling 26 ships.
‘Clean’ LR2 (# vessels) Decreasing
- Clean LR2 Jubail: Vessel activity continued to decline in the third week of September, dropping to just 6 ships, below the annual average for the month.
MR (# vessels) Mixed
- Clean MR Skikda: Numbers slightly exceeded the annual average of 32 vessels in the third week of September, though this figure is down by 7 compared to the end of Week 34.
- MR2 Amsterdam: MR2 activity has steadily increased since the end of week 34, reaching 50 vessels, around 20 above the annual average.
SECTION 3: DEMAND – (Tonne Days)
‘Dirty’ Mixed
Dirty tonne-days growth for VLCCs continued to decline in the second half of September, with weakening market sentiment expected for Q4. Suezmax tonne-days also trended downwards, though Aframax tonne-days showed signs of growth, albeit still below the annual trend.
‘Clean’ Decreasing
- Panamax tonne days: The downward trend persisted, with growth remaining below the annual average in the second half of September.
- Clean MR: Both MR1 and MR2 tonne-days continued to decline, remaining below the annual average and reaching one of the lowest levels of the past year.
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Source: AJOT
