Surge in Atlantic VLCC short hauls supporting Persian Gulf freight rates

A spike in VLCCs carting crude on short haul voyages as Europe pivots away from Russian supplies is again supporting freight rates that have been highly volatile since Russia's invasion of Ukraine, shipping sources said Feb. 20.

Platts assessed the freight cost of moving 270,000 mt of crude on the key Persian Gulf-China route up $5.79/mt month on month at $16.74/mt Feb 17, S&P Global Commodity Insights data showed. The assessed cost fell to $10.95/mt Jan. 16 from its 2022 high of $26.81/mt last Nov. 17, and has been on a steady recovery since.

Changes in both crude trading routes and tanker employment patterns have caused ongoing volatility in the freight market since Russia's invasion of Ukraine last February, including an increasing share of VLCCs being employed for shorter hauls such as Trans-Atlantic trips and West Africa to Europe voyages.

The percentage of VLCCs plying the Trans-Atlantic route jumped to 27% in January from none in 2021, according to Kpler shipping data.

With Middle East cargo nominations for March loading dates now confirmed, VLCCs owners are expecting a further increase in loadings and more ships being fixed to move these stems.

Middle East impact

The shorter Trans-Atlantic and West Africa to Europe voyages are pulling VLCC tonnage away from the key Persian Gulf sector, adding to supply pressure in that region.

"Market fundamentals have changed due to the Russia-Ukraine war for both clean and dirty [segments]. I think we will see more volatile local markets, which will keep [freight] higher than usual," a VLCC broker said.

The sizable number of VLCCs loading from the Atlantic region during the second week of February was having an impact on the overall strength of the sector, market sources said.

The number of older crude tankers employed to move sanctioned cargoes has also increased, the sources said.

With demand for UG Gulf Coast to UK Continental voyages remaining strong, many shipowners were likely to prefer to keep their VLCCs stationed in the West and not return to the East if the earnings in each basin were similar, market sources said.

"The flows have changed. Some ships are locked up in the West market now. Some modern ships, especially companies that have better presence in the West, will stay there," a VLCC broker said.

"As a result, there is something for everyone. Older and compromised ships have Persian Gulf-East runs, modern ships can choose Persian Gulf or West," the broker added.