anker experts from AXS write for Splash today on how the VLCC trades are changing.
Recent geopolitical developments continue to impact the VLCC market positively. Notably, the ongoing tensions in the Middle East and strategic adjustments in shipping routes have played critical roles in shaping current market dynamics. Moreover, India’s strategic pivot from suezmax and aframax vessels to VLCCs for importing crude from the US Gulf and West Africa has introduced significant shifts in trade patterns and vessel utilization.
Since mid-September, there has been a marked increase in laden VLCCs in or heading to the Indian Ocean, notably supporting rate enhancements from the Middle East Gulf— a critical hub for VLCC trade.
The primary destinations for these liftings have expanded beyond China to include South Korea and Japan, illustrating a diversification in crude oil flows and an uptick in regional demands that prolong vessel employment and reduce available supply.
Since 2022, the redirection of trade routes, particularly due to sanctions on Russian exports, has necessitated higher utilisation of VLCCs. This fact along with a slowdown in new vessel deliveries has tightened the overall fleet supply, bolstering utilisation rates.
From the end of September to the beginning of October, approximately 1bn ton-miles, previously carried by aframax and suezmax vessels heading to India, were replaced by VLCCs over a 10-day period. This shift represents an additional demand equivalent to around 1.2 VLCCs, when extrapolated over a month. This adjustment marks a significant change in the trend of Indian crude oil imports, which are increasingly being sourced from regions west of the Suez Canal, particularly the US Gulf.
The increased VLCC activity did not occur in isolation. The ongoing tensions in the Middle East have influenced shipping dynamics. Strikes on vessels transiting via the Suez Canal have driven decisions to avoid this route when possible. India’s relationship with Iran, while collaborative, involves a careful balance. The recent agreement to develop and manage the Chabahar Port, signed in May, underscores India’s effort to create strategic alternatives and strengthen connectivity to Central Asia, bypassing Pakistan. Despite such cooperation, India remains cautious, especially given Western sanctions on Iran. Since, a significant portion of India’s crude oil imports comes from Western shipping companies, this shift could reflect an attempt to reduce reliance on transiting through the Strait of Hormuz.
This shift also reflects the growing role of the US as a major crude exporter, especially noted in the third quarter, during the autumn refinery maintenance period.
This, in turn, absorbs significant numbers of VLCCs, despite the drop in year-over-year quarter figures.
Looking ahead, while some market corrections are anticipated in line with seasonal trends, the overall activity level is expected to remain at prolific levels.
Geopolitical risks in the Middle East may necessitate further strategic adjustments in vessel deployment, ensuring sustained support for market rates due to long-haul crude oil exports.
