The VLCC market — very large crude carriers, the largest class of oil tanker in widespread service, each carrying roughly two million barrels of crude — has moved into overdrive, with freight rates climbing simultaneously east and west of Suez as Chinese crude buying, tightening tonnage lists and the crisis around the Strait of Hormuz combine to produce one of the most extraordinary tanker markets in years.

"We're in 'stop the press' territory now with VLCC rates galloping in all areas in tandem with the Suez- and Aframax segments," Norwegian broker Fearnleys said as it opened its latest tanker commentary.

The Atlantic has been particularly explosive. According to Fearnleys, a Brazil-China cargo was fixed on Wednesday at WS197.5 — on the Worldscale system that benchmarks tanker freight, close to double the nominal WS100 baseline for the route — shortly after another fixture concluded at WS182.5. The broker also cited an unconfirmed West Africa-East deal at WS210, while Fujairah/Oman-East cargoes are testing WS200 and above.

Fresh US Gulf business reinforces the picture. A VLCC linked to major Greek interests went on subjects on Wednesday — in chartering parlance, agreed in principle pending final conditions — at around $24.8m lump sum for the US Gulf-China run, equating to roughly $260,000 per day, according to Tankers International. That deal followed a Sinokor vessel going on subjects on Tuesday at approximately $22.2m, or $252,000 per day.

Shipping analysts at SEB, a Scandinavian bank, observed that the physical market is moving dramatically ahead of published assessments. On Wednesday the Baltic was assessing US Gulf-China at only around $146,000 per day, leaving a gap of more than $100,000 per day between the benchmark and the levels at which owners are actually putting ships on subjects. The bank argued that if the latest fixtures confirm, tanker assessments and consensus fourth-quarter earnings forecasts look too low, providing further potential upside for tanker equities.

China sits behind the Atlantic spike. Higher Chinese crude imports are pulling vessels onto long-haul voyages — and because longer passages tie a ship up for more days per cargo, they absorb tonnage as well as employ it — at the same time as the effective VLCC fleet available elsewhere is being constrained by the extraordinary conditions around Hormuz, the narrow Gulf chokepoint through which roughly a fifth of the world's oil normally passes.

For oil buyers, the surge reaches beyond shipping economics: freight is a direct component of the delivered cost of crude, so rate moves on this scale feed into what refiners and importing countries pay for cargoes once they are landed.

Inside the Gulf, returns remain even more spectacular. Middle East-China earnings reached around $510,000 per day earlier this week, according to Baltic Exchange data, while individual owners willing to accept the security risk have achieved returns approaching $550,000 per day.

The Hormuz crisis is also changing the strategic value of tanker ownership. Modern VLCC prices have pushed above $130m as Gulf producers seek greater control over the ships needed to keep exports flowing. ADNOC Logistics & Services has just spent $1.3bn buying six VLCCs and five VLGCs, nine of them secondhand vessels acquired for rapid deployment.

The rally is being amplified by a shrinking pool of straightforward trading tonnage. Hundreds of tankers are concentrated around the Gulf, with many ships operating without transmitting AIS — the position-broadcasting transponder system that vessels are required to carry — and a declining share of Hormuz transits associated with transparent mainstream owners. The result is enormous negotiating power for owners with ships in the right place.

Fearnleys reckons position lists are thinning "by the hour" both east and west of Suez, warning that a fixture regarded as expensive today could quickly look cheap. The broker signed off its assessment with an appropriately maritime flourish: "Time and tide wait for no man."

Source: Splash247