- The latest edition of the Breakwave Bi-Weekly Tanker Report, published on March 12, 2024, provides valuable insights into the dynamics of the crude tanker market, highlighting fluctuations in the Atlantic market and China’s rising demand for crude oil.
- One significant observation from the report is the short-lived spike in VLCC (Very Large Crude Carrier) rates in late February, primarily driven by the Atlantic market’s support to the broader crude tanker segment.
- However, this surge was not sustained, as the Middle East VLCC market experienced a downturn due to a tapering off in cargo flow and a subsequent loss of leverage for owners.
Despite this setback, the report notes a firmer sentiment in March compared to February, with spot prices for VLCCs in the Middle East Gulf (MEG)-China crude oil shipments rising by nearly 8% by the end of the first week. The optimism for continued firmness stems from the need to cover remaining March cargoes and the potential for increased activity to drive rates upward, given the reduced availability of ships.
Factors Driving Market Dynamics
The report emphasizes the ability of the crude segment, especially VLCCs, to rally on even the slightest imbalance between supply and demand. This resilience is attributed to the sector’s strong underlying fundamentals, including limited new vessel supply amidst steady demand. While OPEC+ production has remained at a reduced pace, any uptick in demand leading to increased oil flows is expected to support the crude tanker market.
However, broader macroeconomic factors need to improve globally for a sustained recovery in the crude tanker market. For now, small-scale spikes driven by positional imbalances are expected to characterize the market, supporting a robust average spot market.
China’s Crude Oil Demand
Another significant aspect highlighted in the report is the positive trend in China’s crude oil imports. Official customs data revealed a 5% increase in Chinese crude oil imports during January-February 2024 compared to the same period in the previous year. This rise in demand reflects early signs of strength in China’s economy.
Despite the increase in demand, OPEC+ decided to extend last year’s production cuts through the second quarter of 2024, indicating a better-balanced oil market. Oil prices have remained relatively high, reflecting tightening global oil balances, favorable macroeconomic data, and ongoing geopolitical disruptions in oil supply, such as Red Sea tanker divergences.
Long-Term Outlook
The report concludes with a long-term view of the tanker market, suggesting a recovery from a prolonged period of staggered rates. With a historically low order book and favorable demand fundamentals, increased spot rate volatility is expected to be supported by ongoing geopolitical turmoil, ensuring medium to long-term freight rate stability.
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Source: Breakwave Advisors
