China’s return as a big buyer of crude is helping to firm the outlook for a recovering VLCC sector, shipping analytics company Vortexa believes.

Senior freight analyst Ioannis Papadimitriou said earnings have now managed to surpass the levels achieved in the second quarter following the invasion of Ukraine, hitting two-and-a-half year highs.

“The surge in rates is partially tied with China’s comeback in purchasing more crude after a very weak summer period,” he said.

He puts this down to lower prices, in particular, the sharp correction in the Brent/Dubai spread, lifting shipments from the Atlantic Basin during the past two months.

Papadimitriou calculates that China’s imports of US barrels have boosted VLCC tonne-miles by 50% from the US Gulf, compared with the first seven months of this year.

Similarly, he added that VLCC employment has been supported out of the Middle East, contributing an additional 100m tonne-miles for the fleet on a daily basis.

Vortexa explains that voyages from the US into Europe have declined as a result of an increase in Chinese trips.

“This signals that European imports for US barrels in October might end up on a lower level on a month-on-month basis, in response to the autumn refinery maintenance schedule,” the analyst said. “But overall, the crude supply side is now simply more ample than earlier in the year.”

And Middle Eastern flows into Europe are steadily rising, evidently, as a direct quality-for-quality replacement of Russian crude, Papadimitriou said.

He also noted a strong comeback in African supplies, partly as a function of Libya resuming normal activity, but probably also reflecting collapsing differentials of West Africa grades versus the Brent price.

China and the US are key

Looking ahead, the recent announcements from the two strongest economies — the US and China — paint a positive picture, not only for VLCCs but for crude tankers in general, the analyst said.

China will likely issue a fifth batch of product export quotas amounting to as much as 15m tonnes.

“In the current diesel-thirsty world, and with the prospect of Russian diesel volumes being removed from the market following the EU product and shipping insurance ban, this provides an excellent opportunity for China to place its barrels,” Papadimitriou said.

“This development will inevitably trigger higher crude purchasing from refineries, thus continuing the recent tonne-mile trend, with VLCCs being the ultimate beneficiaries.”

More oil to be released

Meanwhile, the US Department of Energy announced that it will offer an additional 10m barrels of Strategic Petroleum Reserve crude into the market in November.

Papadimitriou argues that these supplies are poised to head towards Europe, as refineries will return from scheduled maintenance.

He said this will come at a time where high refinery runs for diesel production will be key to satisfying heating as well as power generation demand into a challenging winter.

The result is a likely resurgence of US Gulf to Europe flows towards the end of the year, providing support for suezmaxes and aframaxes, with VLCCs primarily heading to Asia, Vortexa concluded.