- WAF-East VLCC rates drop 29% as rally loses momentum
- Uncertain if China, India will keep importing Russian crude
Freight rates for Very Large Crude Carrier voyages loading in West Africa have slumped in the final decade of January after news of additional US sanctions on the dark fleet drove the market to multi-month highs. Sources noted that supply-demand fundamentals have been insufficient to keep sentiment at the higher levels seen earlier in the month, reports S&P Global.
Cargo demand decline
Platts, part of S&P Global Commodity Insights, assessed the rate for a 260,000 mt West Africa-Far East voyage at $19.75/mt on Jan. 27, down 29% from the 10-month high of $27.82/mt it reached Jan. 17.
VLCC rates had begun to firm significantly after the US Office of Foreign Assets Control announced a new raft of sanctions on the shadow fleet Jan. 10, amid uncertainty about the ability of China and India to continue receiving crude shipments from Russia and the possibility that the Asian giants would need to replace them with extra cargoes from the mainstream, non-sanctioned market.
However, after a week of rapid upward price movement, the market began to rebalance, as shipowners became more willing to fix their ships at the top of the market, and cargo demand declined from the levels seen during the initial glut of fixing activity.
“The whole thing was psychological after the sanctions news; it didn’t really matter immediately as ships with cargo on board could go to China and India anyway, so it was just down to sentiment, and sentiment is back to normal now,” a Greece-based shipowner said.
“It was an electric week, with charterers throwing all sorts [of cargoes] into the market,” a London-based VLCC broker said. “But then a couple of quieter days, better rates on the table, and then a few failed fixtures, and back down we go.”
Uncertain Asian demand outlook
Market sources expressed diverging views on the extent to which they believed that the tighter sanctions would lead to China and India switching their imports from Russian-origin Aframax and Suezmax shipments to VLCC cargoes from the mainstream market in the long term.
“It is my firm belief that India and China will import more crude from the mainstream market and that the main beneficiaries will be the VLCCs,” the shipowner said.
However, it will take months for the impact of this rerouting to be felt by the market, as the sanctions will only come into full force for the next cycle of eastbound Russian-origin shipments, the shipowner said.
A second Greece-based shipowner said: “There is a lot of uncertainty regarding India and China and it’s a tough call, as we hear lots of different things.”
“In theory, they will be replenishing their oil from the west after [183] ships were added to the blacklist, but no one can really say what’s going to happen,” the shipowner said.
A Middle East-based shipbroker said: “I don’t think those higher levels were sustainable, and I believe the Chinese and Indians will sort the situation out in a few weeks or months, and things will calm down …We need to wait for Trump’s next moves [anyway], as there will be some important changes therefore sure.”
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: S&P Global
