WEST OF SUEZ DIRTY TANKER QUARTERLY: Freight rates rise on higher Atlantic and Black Sea volumes

The first quarter of 2025 saw the West-of-Suez VLCC market emerge from the prolonged slump in rates experienced during the second half of 2024, with sources pointing to steady demand for Atlantic-basin cargoes, tighter tonnage supply in key loading zones and temporary uncertainty generated by the US Treasury's additional sanctions on grey-fleet tonnage.

Having fallen to a 30-month low of $16.07/mt in late December, the West Africa-Far East VLCC route spiked in the second decade of January on news that the US Office of Foreign Assets Control (OFAC) had added 183 ships for shipping Russian crude to China and India to its blacklist. After reaching a 10-month high of $27.82/mt on Jan. 17, the market readjusted downward, but the quarterly average for Q1 2025 was nevertheless relatively elevated at $22.09/mt.

Looking ahead to the warmer months of the year, market sources said they broadly expect sentiment to remain steady to moderately firm, but did not rule out a traditional summer downturn in activity and earnings.

"We've seen a bit of a push, as tonnage is on the leaner side, so we have a positive outlook, but I'm not saying it will burst up," a Europe-based VLCC broker said. "The US Gulf and Brazil are still active, so ton-miles are there, and ships are coming out of dry dock. In general, I think this is going to be a healthy year, but I'd be conscious about saying I'm bullish."

Regarding the OFAC sanctions, the same broker said that the impact on market fundamentals has been limited despite the initial surge in rates. Chinese charterers have largely been able to continue importing Russian crude by switching to non-sanctioned ships and using tactical ship-to-ship transfers, alleviating the need for extra shipments from the mainstream VLCC market.

"Unipec and other Chinese charterers have been showing more inquiry for WAF, and we're seeing more COAs out of WAF than previously, with the Saudi crude price hike," a London-based VLCC broker said.

The same broker added that higher WAF Suezmax rates have led to more charterers opting for VLCC parcels instead, with monthly WAF VLCC cargo counts rising from the mid-20s to around 30 since the new year. Nevertheless, sentiment could begin to wane closer to the summer, with rates for the Persian Gulf-Far East VLCC route potentially dipping to around the W45 level, having exceeded W55 for most of the first quarter.

"I imagine we will see a summer lull, with China focusing on other products as opposed to just crude, and charterers will often go under the radar and clip ships privately, but things will be inquiry dependent."

CPC length boosts Suezmaxes

The Suezmax market also experienced a recovery in rates in Q1, with freight for the benchmark 130,000 mt WAF-UK/Continent route peaking at an eight-month high of $17.57/mt on March 17 and a 14-month high of $14.86/mt on March 14 for the 135,000 mt Black Sea-Mediterranean route.

One of the main drivers of this firmer sentiment has been the recent expansion of Kazakhstan's Tengiz oil field, which is set to add 260,000 b/d of crude capacity and lift output to around 950,000 b/d, according to a Jan. 24 statement by Chevron. This has resulted in a significantly lengthier stem list for shipments from the Capsian Pipeline Consortium terminal, with 41 Suezmax cargoes for March loading and 38 for April, while in previous years the monthly cargo count had stood closer to the mid-20s level.

However, bullishness has been somewhat tempered by infrastructure difficulties, amid two Ukrainian drone attacks on key facilities on the CPC pipeline running through southern Russia and the temporary closure of two of the three mooring stations at the CPC terminal in Novorossiysk on March 31, reportedly to deal with the environmental damage caused by the collision of two tankers in the Kerch Strait in December.

Although the Consortium reported on April 4 that a Russian court had ruled that the mooring stations should be reopened, the incident highlights the potential instability of CPC volumes. According to a London-based Suezmax broker, any lasting disruption to CPC loadings could lead to a decrease in rates in the wider Suezmax market once excess tonnage in the Atlantic region has had a chance to build up.

Nevertheless, in terms of the outlook for the coming months, market sources were broadly confident that rates should hold at or near current levels.

"CPC will do its thing and keep rates steady in Atlantic, but things will also depend on what the VLCCs do above us," a London-based Suezmax broker said. "I'm still a big believer in Suezmaxes in general - CPC has taken away [cargoes] from Aframaxes, so there's lots of business to be sorted, especially if ships go east."

"The summer is coming, and summers usually are slow," a Europe-based shipbroker broker said. "But currently the market is normal in terms of earnings -- not extravagant but not very low either. I think it will stay at around w100 for WAF-UKC as, based on past years, I don't believe we're going to see something low."