Positive sentiment in the VLCC tanker market should remain, although turbulence is expected

Jhe VLCC tanker market is expected to maintain its positive momentum as the year ends and even more into 2023. In its latest weekly report, ship broker Gibson said “VLCC earnings have been remarkably strong over the past few months. despite the prospect of OPEC+ production cuts that are largely focused on the Middle East. With cuts expected next year will also coincide with increases in regional refining cycles, fundamentals suggest earnings will ease into 2023. However, changing trade flows and changing fleet make this result far from certain”.

According to the ship broker, “first, it is important to take stock of the supply side. Gibson has 876 VLCCs on the water, however, the actual number of vessels available to the non-sanctioned consumer market is actually lower, with 15% of the fleet engaged in sanctioned or non-conventional activities. Additionally, a further 15% of the fleet (excluding those engaged in questionable activity) is over 15 years old, putting almost a third of the VLCC fleet beyond the reach of many charterers. Coincidentally, the number of VLCCs over 15 years old sold to relatively unknown owners nearly matches the number of new VLCCs delivered by shipyards to date, suggesting that available fleet supply is largely unchanged. from one year to the next”.

“Secondly, global VLCC export volumes increased steadily from April to August, as Middle East exports hit a 6-year high (excluding April 2020), West African VLCC market share also increased, Latam exports remained near a 12-month high and total Gulf Coast exports reached record highs.However, due to the lag effect between loading and unloading , ton-miles peaked in October, while ballast time to next port of loading should keep the market stable for now.It’s also important to note that OPEC cuts from November are from the October target, which despite a marginal reduction of 100 kbd from September, is up nearly 2.2 mbd since January.Indeed, OPEC is cutting from a high reference level, which provides coverage e against VLCC earnings returning to lows seen earlier in the year,” Gibson said.

The shipbroker added that “Looking forward, the fundamentals on the demand side for VLCCs are mixed. Assuming OPEC+ cuts are adhered to, Middle East export volumes could fall by nearly 1mbd. Additionally, with 3 new refineries in the region planning to increase operating rates in 2023, rising domestic crude consumption is also threatening export volumes. U.S. crude exports could also come into question in the coming months. As the SPR release schedule appears to be winding down, coinciding with the end of the U.S. Gulf refinery maintenance season, it would be logical to assume that some downward pressure on regional exports could be expected. materialize. However, not everything is negative. VLCCs could continue to benefit from volatility in the Aframax and Suezmax markets. Indeed, VLCCs have increased their market share across the US Gulf, Latin America and West Africa to Europe from almost nothing to 20% this year. Although this route is not as long as the one to Asia, it keeps the supply of VLCCs blocked in the Atlantic market, which means that these vessels never appear on a list of positions in the Middle East. As long as VLCCs continue to offer a higher $/tonne than the Aframax and Suezmax sector, they can expect to continue enjoying increased market share.”

“Finally, it is impossible to examine the VLCC market without understanding the dynamics in India and China. Both markets have increased their consumption of Russian barrels, however, VLCC import volumes into China have increased steadily since the summer, especially in parallel with the granting of crude import quotas for 2023; while in India, VLCC volumes were flat year-over-year, with the strongest growth seen in Aframax volumes. Going forward, imports from Russia into these countries may have peaked, suggesting that additional barrels will need to come from elsewhere, perhaps supporting larger crude carriers. Combining these factors, the VLCC market has reason to remain optimistic, even though current freight levels are likely to be overvalued. Broadly speaking, the market should expect earnings to decline in 2023, but remain firmly above 2022 average levels, until the next black swan event emerges.” concluded Gibson.
Nikos Roussanoglou, Hellenic Shipping News Worldwide