Seatrade-Maritime: VLCC cargoes rebound as tonnage overhang pressures rates

Published by Seatrade-Maritime

Both crude and condensate loadings in the Middle East rose sharply in June but tanker supply was too high to prevent a sharp slide in rates.

Traceable crude and condensate loadings from the Middle East climbed 57% last month, up from 7.9m b/d in May to 12.4m b/d, according to latest analysis from Gibson Shipbrokers. VLCCs were the principal beneficiaries – crude loadings from inside the Gulf rose from the 1.7m b/d average recorded in April and May, to 4.3m b/d.

Crude loadings in the Gulf of Oman shot up too – from 2.4m b/d in May to 3.9m b/d in June. Ship-to-ship operations were important in these transactions outside the Gulf. Red Sea exports via Yanbu remained steady, Gibson said, at 4.2m b/d.

Clean product exports from both inside the Gulf and the from the Gulf of Oman followed the same pattern but at a lower level, rising from 1.9m b/d in May to 2.5m b/d last month. The incremental volumes were a welcome relief for some owners but were not large enough to absorb the regional overhang of tanker supply, the broker said.

Owners were keen to reposition vessels to both loading areas. But the influx of tonnage caused spot rates to slip sharply. Gulf of Oman to China (TD34), for example, fell from a high of $275,000 a day to about $140,000 by the end of June.

However, the risk premium relating to Hormuz transits kept rates elevated from inside the Gulf, with the TD3C index (Ras Tanura to Ningbo) remaining up at around $300,000.

Clean tanker rates for both LR2s and LR1s between the Middle East and Japan followed the same downward trajectory to about $100,000 and $70,000 a day respectively, both well above pre-war rates.

Gibson warned that the steady arrival of more tankers is outpacing the slow return of regional cargoes. The resulting supply-demand mismatch will continue to exert downward pressure on rates until the tonnage overhang is cleared by a sustained export recovery. Lingering risk premiums are likely to provide some support, however, the broker said.

The UAE’s position will be interesting. Having pulled out of OPEC, the country is no longer bound by the cartel’s crude oil quotas. It has scope to raise exports significantly. However, as more regional refining capacity comes back on stream, crude could be diverted away from exports for processing in the region.