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VLCC Freight Rates Make a Move

Oct. 14, 2016

VLCC owners are benefiting from the recent uptick in spot rates as export activity out of the Arabian Gulf and West Africa has increased.  Back-to-back weeks of strong demand have opened fixing opportunities and helped absorb excess tonnage, creating positive sentiment as the winter season ramps up.

Increased Arabian Gulf volumes led to a surge in fixing during the last week of September and first week of October with 88 reported fixtures, almost double the activity seen in the two weeks prior.  Lower activity to the East was initially expected by some market players, given the Chinese Golden Week beginning October 1; however, nearly 40% of the week’s fixtures were done by Chinese charterers.   Although the increased opportunities drew ballast vessels into the region, ample cargo volumes quickly absorbed disadvantaged vessels as well as a fair number of modern ships, leaving only 11 ships crossing from September to October.  Since September 26, rates for Westbound shipments have gained 14.5 WS points, while Eastern voyages nearly doubled to WS 65.  The TCE for TD3 surged 240% to US $45,590/day, while a triangulation voyage AG/USG/West Africa/China gained over US $22,000/day to last reported at US $42,680.  

Activity in West Africa has also increased due to a return of production following militant attacks, which when combined with a rising Arabian Gulf, gave owners the opportunity to push for higher rates.  Similar to the Arabian Gulf, Chinese charterers fixed 50% of the stems since September 26 and rates climbed from below WS 50 to last done at WS 67.5.  Across the pond, the early October tonnage list in the Caribbean thinned amid lower AG/West flows and the attraction of the West African market.  The remaining owners pushed rates on the Carib/Singapore trade above US $4 million.

Going forward, VLCC rates will likely follow a seasonal uptick as China’s domestic production declines to under 4.0 million b/d, while at the same time demand rises by 300,000 b/d. The crude deficit in China will increase to 7 million b/d, the highest on record, resulting in higher imports when factoring in SPR buying.  Additional crude supply in the Atlantic Basin may remove the pricing advantage of Dubai-linked crudes, which could result in more West to East flows balancing the fleet and adding ton-mile demand over this period.