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A month is already gone and the first messages we have received
for 2019 might not be as promising as some shipowners would have
earlier wished for. After a very good performance during the last
quarter of 2018, demand for VLCCs seems to have slowed down
quickly. However, we can't forget that seasonality must have had a
significant impact as well, with the Chinese New Lunar Year.
Focusing on total volumes loaded on VLCCs, the month-on-month
change reached - 2.3%, the lowest since September 2018. The
situation looks even worse based on readings of the year-on-year
change with a drop of 7.5% to report. The market seems to have
returned to levels last seen in March/April 2018, with 628.3 Mn bbl
loaded on this size class last month in total.
The main driver behind this slowdown has been without doubt the
decreasing volumes exported from most OPEC members. As we can see
in the chart below, the market share of exports originating in the
Middle East Gulf and Red Sea remained below 70% for a fourth
consecutive month, falling further down to 67.8%. During 2018, the
region was responsible for around 72% of all crude oil loaded on
VLCCs. The major drop in VLCC loadings has been experienced by
Iran, while the United Arab Emirates and Iraq reported rather
negative results as well. Saudi loadings on VLCCs, in contrast to
market expectations, seem to have expanded last month, by 8%, but
only after decreasing by 10% and 13% in November and December 2018
respectively. Year-on-year, however, VLCCs loaded 14% less than
they did than a year ago.
Of great interest has been the response of VLCC operators and
the changes caused across the crude oil tanker market. Most owners
realised early enough, that the activity in the Middle East Gulf
would not be satisfying, several of them targeted and in many cases
secured cargoes from Western Africa. In January, the region's
exports loaded on VLCCs increased by almost 30% month-on-month,
having reached 72.3 Mn bbl, much higher than last year's average
monthly exports of 60 Mn bbl. Nigeria dominated the interest of the
segment, with slightly more than 20 Mn bbl of crude oil loaded on
VLCCs in total during January. This translates into a massive
increase of 43% month-on-month. Angola is still leading the local
market for VLCCs with 36.4 Mn bbl loaded last month, but with a
much lower month-on-month growth to report. However, this increase
of 14% is rather strong to simply ignore.
This development might prove rather positive for the freight
market, as more loadings from Western Africa and the Atlantic coast
of the Americas, instead of the Middle East Gulf, could push the
average distance for laden VLCCs to increase as well. As a result,
the employment rate could move upwards, even if actual cargo loaded
might be less.
Finally, we should make a reference to VLCC loadings in the US
PADD 3, which surpassed the previous record high of 24.9 Mn bbl
observed back in July 2018, before the country's trade war with
China, the major crude oil importer globally, started affecting
global crude oil trade flows. Having exported 25.6 Mn bbl, US PADD
3 now represents more than 4% of the global exports on VLCCs, while
US market share stands at 4.6%, including exports from other US
regions on VLCCs. As the US crude oil output is expected to further
increase in the coming months, we'll have to wait and see how much
of this additional cargo could be lifted by VLCCs.
Overall, the market seems to need more time to adjust to so many
changes developing in parallel, as we approach 2020, but this size
segment still looks rather promising.
Posted by Fotios Katsoulas, Maritime & Trade
Principal Research Analyst
Posted 05 February 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit