Gloom has descended on VLCC owners in the Middle East as freefalling rates have seen a key Baltic Exchange measure turn negative for the first time in a year, according to analysts.

The Baltic’s average time charter equivalent for the largest crude carriers — based on routes from the Middle East to the US Gulf and China — hit minus $1,374 per day going into the weekend, down $1,861 on the day.

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Big cuts in production by Opec+ countries aimed at lifting oil prices and addressing global economic uncertainty have affected tanker rates out of the Middle East.

Saudi Arabia has led the way with a 1m-barrel-per-day (bpd) production cut from July but has yet to reveal if it will continue beyond the end of September.

Its exports were down sharply last month to 5.3m bpd, the lowest level since June 2020, when global economic activity was hit by the coronavirus pandemic, according to Kpler data.

The Baltic last recorded negative TCE figures on 4 August 2022 at the end of a 19-month period in the doldrums for owners hit hard by the impact of the global lockdowns.

The war in Ukraine sparked a recovery for the sector, with rates topping $77,000 per day in March this year, according to the Baltic measure, with a ban on Russian oil forcing buyers in Europe to look further afield for supplies, affecting tonnage supply and lifting rates.

“The freefall in VLCC rates continued as the week progressed,” said Gibson Shipbrokers about the situation in the Middle East in its weekly report. “VLCC owners seem to have lost all hope and optimism.”

It said the impact is also being felt in the US Gulf and Latin America. “The fall in rates in the US Gulf just adds another nail to the coffin.”

Clarksons Securities said the weak market, owing to an oversupply of tonnage, meant that VLCCs were looking to take business from suezmaxes. It assessed average earnings for a modern, fuel-efficient VLCC at $26,700 a day, down 3.6% from Friday.

Mette Frederiksen, head of research and insight at VLCC pool operator Tankers International, said despite the Opec+ cuts, the demand outlook remained strong particularly from customers east of Suez.

“If OPEC+ keep their restrictions in place these customers will continue to pull more oil from the Atlantic basin, which is very positive for tonne miles,” she said.

Tankers International reported that a scrubber-fitted VLCC, the 316,373-dwt Daba (built 2012) was fixed on subs on Friday at just $316 per day for 58 days from the Arabian Gulf to Brazil, via the Cape of Good Hope. The breakeven rate for the voyage was nearly $29,000 per day, according to the Tankers International app.

Frederiksen said the voyage was a positioning route where the owner took an initial hit to get the vessel into a more profitable region in the Atlantic basin.

“When you combine the earnings of the positioning voyage followed by a voyage from for example Brazil or the US Gulf to the Far East the overall earnings would be profitable,” she said.

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