- US sanctions, spike in PG market drives up WAF VLCC rates 55% YTD.
- Long-term growth will depend on Chinese and Indian demand for VLCC shipments.
Freight rates for VLCC voyages loading in West Africa have soared since the US Treasury announced on Jan. 10 that it was tightening curbs against Russia’s Gazprom Neft and Surgutneftegas and blacklisting over 180 tankers, in a move which could force China and India to replace Russian crude imports with extra shipments from the mainstream VLCC market, according to Platts.
Platts, part of S&P Global Commodity Insights, assessed the rate for a 260,000 mt West Africa-Far East voyage at w70 on Jan. 14. This is the highest level for the route since May 2024 and represents a 55% increase since Jan. 2, the first trading day of the year.
In addition to the sanctions news, which has increased demand for eastbound VLCC voyages and bolstered ship owners’ ideas, the WAF market has drawn support from a rapidly firming Persian Gulf market, an uptick in inquiry levels following a quiet post-holiday period and the erosion of a previously lengthy tonnage list.
Firmer sentiment
“I think it [the current spike] is a combination of the sanctions news, tonnage tightening in the Atlantic, and some owners now realizing that ballasting from the UK-Continent to WAF/Brazil isn’t such a bad idea, since TCEs are now more in line with USG-Far East earnings,” a London-based VLCC broker said. “That and the spike we have seen in the Persian Gulf will cause owners to hold stronger resistance towards charterers.”
“The market is being driven largely by sentiment — earnings were at all-time lows, and they had to give at some point,” a second London-based VLCC broker said. “We saw plenty of ballasters head west in recent weeks too, higher than normal numbers, which has tightened dramatically the front end of the Persian Gulf list.”
Although the near-term outlook for the VLCC segment remains bullish, supply and demand fundamentals will have to keep pace with sentiment in order to keep rates near current levels, according to the first broker.
“I think we will likely see rates tick up, for the remainder of this week, but I do see a correction coming at some point, [possibly] within the next two weeks,” the broker said. “I think the panic of these sanctioned vessels is causing a spike — things will depend on how many barrels are seen going to China and India within the next few weeks and months, but the outlook is now fairly strong for VLCCs this year.”
Suezmax spike lags VLCCs
The rapid rise in WAF VLCC rates has also boosted sentiment for WAF Suezmax voyages, although the pace of growth has been less pronounced, as the primary export destination for WAF Suezmax cargoes is Europe rather than Far East.
Platts assessed the freight rate for the benchmark 130,000 mt West Africa-UKC voyage at w80 on Jan. 14 — an increase of 36% from a low of w59 on Jan. 9, which was the lowest level for the route since February 2022.
“[The WAF Suezmax market] is sentiment-driven right now, rather than being based on pure fundamentals,” a Middle East-based Suezmax broker said. “This whole OFAC thing [i.e. the recent sanctions] has been the bull argument driving VLCCs, and a story goes a long way in this market.”
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Source: Platts
