The surge in the VLCC market is likely to benefit smaller crude carriers with a “trickle-down effect” as charterers look for alternatives in the tight market, said shipbroker Lorentzen & Co.
The Baltic Exchange reported that average time charter equivalent rates for VLCCs have nearly doubled this week to reach $71,234 on Thursday.
Lorentzen chief shipping analyst Nicolai Hansteen said the “ferocious upturn” in the market was driven by demand from China.
“This upturn will not be confined to VLCCs, carrying 2m barrels of crude oil,” said Hansteen.
“Most likely, oil majors and traders acting as charterers will be seeking out available ships in the next asset class… in a classical trickle-down effect.
“The fact of the matter is that there are too few ships around to move all the cargo being required.”
Suezmax rates have been declining in March but brokers said they expected to see the 1m-barrel tankers trend upwards from next week.
The VLCC surge will probably “stop the rot” for suezmaxes, said Robert Boles, global suezmax head for Simpson Spence Young.
“It’s premature to say it’s happening right now,” he said. “But I do anticipate a rebound next week.”
By Friday afternoon, eco VLCC rates had smashed through the $100,000 per day barrier.
Clarksons Securities assessed earnings at an "impressive" $105,900, the highest level since November last year.
This is up a “significant” 19% from Thursday, the investment bank said.
“The Middle East is showing the most activity, resulting in a widening earnings gap to the Atlantic basin,” Clarksons Securities said.
Middle East Gulf to China runs are paying $102,800 per day, up 20.5% in 24 hours, while US Gulf to China trips are 7.5% higher at $66,500.
“We believe that rates in the Atlantic will catch up going forward, given that US crude is much cheaper than Middle East crude grades,” analysts led by Froke Morkedal said.
Rising demand from China has combined with longer voyages caused by sanctions against Russia to limit ship supply and drive tonne-miles upwards.
VLCC pool operator Tankers International said earlier this week that it had counted 120 global VLCC liftings destined for China in January and February, with about 60% coming from the Middle East Gulf and the rest from the Atlantic basin.
“The great benefit to the VLCC market will come from the continuous pull of crude from the Atlantic basin, which comes with extra-long tonne-miles,” it said.
Tanker owners say that a low orderbook is giving security for tanker owners over the next three years with the global fleet not expected to increase.
