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Crude Oil Trade: VLCC rates in the Middle East Gulf, moving up and down but remaining below WS45

24 April 2019 Fotios Katsoulas

There were some marginal improvements observed in the last couple of weeks in freight rates for VLCCs, supported by steady charterer interest and a slight increase in activity in the Atlantic. However, this alone cannot push the freight market levels much higher, at least for now. Once again, volatility seems to have stacked around USD 10,000 per day for VLCCs, exactly as it happened a year ago. We are still only a couple of thousand above this year's lows and much lower than the average earnings of the first quarter.

In the Middle East Gulf, last VLCCs heading to Asia have been fixed around WS43 which translates into daily rates of about USD 13,200 for China or USD 16,500 for Singapore. More charterers seem to have been active in this region lately, with Chinese and Taiwanese names absorbing most volumes, with South Korea and Singapore still maintaining their market shares for late April loadings.

The balance across the market seems to have been supported due to several ballasters switching back to the Atlantic, with fresh cargoes announced in the US Gulf and Brazil, while West Africa remained almost muted. Overall, overcapacity is still there for VLCCs, but the sentiment is now slowly starting to work in favour of shipowners, as demand looks much stronger than earlier anticipated. The last decade of April is now full, with at least 55 VLCCs fixed to load cargo in the Middle East Gulf. However, the market seems to have already fixed a lot for May, with the first decade of May already standing at 39 liftings, with four more liftings fixed so far for the second decade. This might not prove enough though, since more fixtures recently agreed caused more ballasters to approach the American coast wishing to secure employment even if they must wait a week.

TD3C will most probably not manage to surpass WS45 in April, levels last seen in late March. It's been of great interest that shipments to South Korea have been fixed at a discount relative to China, typically closer to WS40. Meanwhile, some owners only agree to carry cargo to Singapore, as they expect the performance to improve during the next couple of weeks and therefore avoid taking on longer voyages. This might be another sign that VLCC owners are not willing to go any lower. Especially as West Africa performs much better, driven by some charterers being relatively tight in terms of loading dates, pushing overall levels higher. This made some charterers postpone any action in the Middle East Gulf for a couple of days, as more ballasters will be added to the list of available vessels during the next couple of days.

It's interesting that for most of April's first decade, the VLCC fleet has been primarily discharging cargo than loading, as data recently made available by Commodities at Sea suggests. Meanwhile, total volumes of crude oil carried by the VLCC fleet has dropped significantly, currently standing closer to 600 million barrels, much lower than the levels achieved in mid-March, when VLCCs carried more than 650 million barrels.

Posted 24 April 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit

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