Clarksons Securities has issued a bullish forecast for big VLCC rate rises in 2025.
Middle East Gulf to China spot earnings are currently $35,700 per day, down 9% over the past week and 41% in a month.
And while the analyst consensus for next year suggests a rise to $63,000 per day, analysts led by Frode Morkedal see “potential” for rates to climb to $90,000 per day.
Clarksons Securities is also upbeat about the rest of 2024.
“Historically, the tanker market has shown weaker performance during the second and third quarters. However, this year could be different,” it said.
“We expect VLCC rates to rise significantly this year, driven by rising Atlantic oil production, high oil prices, strong refinery margins and ongoing Middle Eastern unrest.”
The investment bank also points to fleet growth dwindling to near-zero.
According to the International Energy Agency, oil demand is expected to increase by 2m barrels per day from the first to the third quarter.
And rising production from the US, Brazil, Canada and Guyana could boost long-distance volumes, which is beneficial for tonne-miles, Morkedal and his team argued.
There is also the possibility of stricter US sanctions against Iran, which could raise demand for VLCCs.
IEA data indicates that Iran produced 3.2m bpd of crude in the first three months, up about 800,000 bpd from 2021 and 2022.
Twenty more VLCCs needed?
These barrels could be lost, leading to replacements being provided by Saudi Arabia, the analysts said.
“Because Iran has its own restricted fleet while Saudi Arabia relies on the international charter market, the net effect could be an increase in demand for 20 VLCCs, or slightly more than 2% of the total fleet,” they added.
They believe a rise to $75,000 per day is possible this year due to these factors, although the reimposition of US sanctions against Venezuela could reduce tonne-miles by 0.5%.
This assumes that Venezuela’s crude exports to India, which increased by 150,000 bpd following the temporary lifting of sanctions, will fall back, the company added.
It also said listed tanker owners’ average stock pricing is 91% of net asset values.
Shares of John Fredriksen’s Frontline shares have increased 28% this year, including dividends, but it is trading at 15% above NAV, down from its historical 30% premium.
“We believe the ship values used to calculate this NAV are conservative,” Morkedal and colleagues said.
Based on broker estimates for five and 10-year-old VLCCs, Clarksons Securities assesses that rates of $49,000 and $41,000 per day respectively are implied over the ships’ remaining lifetimes.
Although VLCC spot rates have been relatively flat over the past six months, with an average rate of around $50,000 per day, this still exceeds current ship value hurdle rates, ie the minimum rate of return required on a project, it said.
