China’s demand for US crude exports has significantly dropped from levels a year ago, contributing to a decline in dirty tanker freight rates in July, according to analysts.
May and June saw the lowest monthly volumes of US crude shipments to China in VLCCs since early last year, according to the Signal Group.
“This decline is notable, especially after reaching its peak in VLCC US tonne-miles just before the end of May,” said Signal analyst Maria Bertzeletou.
The US and Latin American market has been the driving force behind the resurgence in the VLCC sector as the reshaping of global oil markets encouraged more long-haul voyages.
The US to China route is the world’s longest, and increased demand from China had contributed to improved earnings for the sector.
Time charter equivalent earnings for VLCCs on the route peaked at $87,736 in November last year, according to Baltic Exchange figures.
Rates have been volatile but have largely trended downwards since March. VLCC rates on the US to China route have declined more than 20% in July to $27,398, according to Baltic data.
The 314,000-dwt scrubber-fitted Yasa Scorpion (built 2013), operated by Turkey’s Yasa Shipping and chartered by China’s Unipec, was fixed on subs at $34,536 for 120 days on Wednesday on the US to China route, according to VLCC pool Tankers International.
“The second week of July has witnessed a sustained decline in crude tanker freight rates, which is further compounded by the challenges posed by the summer season on the market,” said Bertzeletou.
The declines followed a strong increase in long-range rates for VLCCs in June as Chinese buyers stocked up on Middle East crude before production cuts this summer led by Saudi Arabia.
Buying spree
The Chinese buying spree included heavily discounted Russian and Iranian barrels, said the International Energy Agency (IEA).
A recovering Chinese economy had been expected to drive VLCC rates in 2023, with more than three-quarters of China’s seaborne crude delivered by the largest tankers.
But overall oil demand has grown less strongly than expected this year owing to global economic headwinds, according to the IEA.
“China’s widely anticipated reopening has so far failed to extend beyond travel and services, with its economic recovery losing steam after the bounce earlier in the year,” it said in its monthly oil report published on Thursday.
Overall tanker demand to China has declined almost 25% since May, led by a drop in VLCCs, but suezmaxes and aframaxes have also been affected, said Vortexa.
China has set its official growth target at around 5%, up from 3% last year, which was the second-weakest since the 1970s.
