The VLCC earnings climb since June has been christened the most impressive summer rally in the sector on record by Castor Analytics in the US.
From early June until the middle of August, time charter equivalents (TCEs) for non-eco tonnage rose by $65,000 per day, finally dragging the sector out of its loss-making habits, which had been impossible to shrug off throughout the first half of the year. Non-scrubber VLCCs are now earning more than $40,000 a day, a remarkable, unseasonal turnaround.
Although lower bunker prices contributed about 15% to the higher TCEs, the most important contributor driving the rally has been what Castor described as an unprecedented increase in vessel demand.
Since the middle of June, cargo volumes have risen 27.1% with vessel demand up 24.4% but most remarkably, during the same period US Gulf exports almost doubled. Gains were recorded in almost every single export and import regions but two import regions stand out; Europe and China. The large increase in European imports is the direct consequence of the Ukrainian war but the even bigger rise in Chinese imports was because of a rebuild of inventories, not an improving economy.
Never has so much crude oil been imported by Europe on VLCC tonnage
“Never has so much crude oil been imported by Europe on VLCC tonnage and for the first time since the 1990s, European imports are now a significant part of VLCC global demand,” Castor stated in a new report, adding: “This has caused a geographic fragmentation of the fleet and much tighter position lists east of Suez, a development which has driven charterers’ ‘Fear Index’ higher.”
“Enquiry for tanker tonnage across the board is rife, but with values moving upwards and differentials between buyers and sellers is making it difficult to transact,” a new report from tanker brokers Gibson observed.
“VLCCs have seen their trading patterns shift and have been increasingly employed on voyages from the Americas and Africa to Europe as charterers seek to optimise their $/tonne freight costs,” Gibson pointed out.
Clarksons said that owner sentiment has firmed, pushing the VLCC market to levels not seen since the first half of 2020.
Looking ahead, Gibson said the fundamentals in the near term appear to be supportive with firm Chinese crude demand and low US oil prices expected to remain attractive to international buyers. Simultaneously, Europe will have to substitute even greater volumes of Russian crude as the year progresses, before ceasing all seaborne imports on December 5.
Longer term, the orderbook is a source of great hope for VLCC owners expecting a protracted bull run.
“What is remarkable against this backdrop of a recovering tanker market is the almost complete lack of ordering,” Poten & Partner pointed out in its most recent weekly report. The last time a shipowner placed an order for a VLCC was in June 2021, 14 months ago. One month later, in July 2021, the last suezmaxes were contracted. The last VLCC that was ordered 14 months ago cost $93m. Now, Poten is assessing the contract price for the same vessel at $119m, a 28% increase.
