The freight rates for Very Large Crude Carrier (VLCC) tankers have reached new highs due to changes in oil supply and demand. In the past two and a half months, the average global crude oil exports have reached 44 million barrels per day, which is nearly 5 million barrels per day less than six months before the start of the war.
Impact of Market Changes on Supply and Demand
Although the amount of oil available at sea is historically high, it is relatively lower than the levels seen in the past twelve months. However, we are witnessing a shift in oil supply from sanctioned categories towards more mainstream categories, which has contributed to the increase in VLCC tanker freight rates. Independent Chinese refineries are trying to diversify their oil supply from Iran and Russia.
Risk Factors and Logistics in the Persian Gulf
The freight rate for oil transportation from east to west of Hormuz is about $75 per ton, indicating the difference in freight rates in this region. This situation has been exacerbated by reciprocal attacks between Iran and the United States and the need to move shipments out of the region following disruptions in the east-west pipeline.
Ship-to-Ship (STS) operations in the Persian Gulf have significantly increased, reaching over 6 million barrels per day. These operations require more time compared to other regions of the world and have put significant pressure on fleet capacity due to labor and equipment constraints.
Moreover, the loading of VLCC tankers in the west of Hormuz continues to rise while STS capacity in the east of Hormuz is under pressure. This situation could extend fleet turnaround times and ultimately affect the effective availability of VLCC tankers.
Many players are currently seeking oil shipments in China, other Asian countries, and Europe. Oil shipment rates in the east of Hormuz have reached one and a half times the rates in October. Chinese state refineries are returning to the market as they need to supply oil for smaller refineries.
While the market environment remains supportive, further increases in VLCC rates may pressure refinery margins and lead to demand destruction. VLCC rates in the Atlantic basin are also higher than Suezmaxes, which may lead to the transfer of shipments to smaller tankers.
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