West of Suez VLCC rates near 16-month lows amid weak fundamentals

Freight rates for the West of Suez Very Large Crude Carrier market have fallen significantly since the end of August, with market sources pointing to low inquiry levels, OPEC+ oil production cuts until the end of 2023, uncertainty over China's economic prospects, weakness in adjacent markets and a lengthy tonnage list.

Platts, part of S&P Global Commodity Insights, assessed freight on the 260,000 mt West Africa-Far East route at Worldscale 43.5 on Sept. 15, up from a low of w42 on Sept. 13 but below the July average of w53 and August average of w52.

Platts assessed freight on the 260,000 mt WAF-UK Continent route at w45.5 on Sept. 15, higher than its low of w44 on Sept. 15, but down from the July average of w58 and August average of w55.5.

Aside from a brief period on May 10, when freight on the 260,000 mt WAF-UKC route dropped to w41, the last time rates were this low was in May 2022, when they stood at w44 on the 260,000 mt WAF-East route and w51 on the 260,000 mt WAF-UKC route.

By comparison, at the peak of the VLCC market in November 2022, the average freight rate stood at w111.5 on the 260,000 mt WAF-East route and w125 on the 260,000 mt WAF-UKC route.

Low inquiry levels

"We're currently seeing a downwards correction, with the [260,000 mt] Persian Gulf-Far East being done at w37 levels [lowest since March 2022]. This is a product of an extensive quiet period, and there's a lot of pressure on owners," a UK-based VLCC broker said.

Inquiry levels in September were well below the levels seen earlier in 2023 due to Saudi Arabia's oil production cuts, the broker said.

Commenting on the tonnage side of the equation, a second UK-based VLCC broker said: "We had higher levels of congestion than normal in China, and although no one really noticed it at the time, it has resulted in a lot of tonnage returning to the West [at the same time], which is driving down rates."

Possible recovery

Despite the recent downturn, WAF-loading VLCC rates rose for two consecutive days on Sept. 14 and 15, with some market participants cautiously optimistic that the market has hit a bottom.

"I think it's going to pick up a bit. October dates are already being covered and it could be the last [front-haul] voyage of the year [for many vessels], so owners won't want to fix at lower rates," a third UK-based VLCC broker said.

However, any recovery will likely be limited by the OPEC+ oil cuts and a large hangover of vessels, the source said.

A UK-based shipowner cited considerable negativity in the market and "nervousness" around the Chinese economy, but added that "it's not all doom and gloom".

"I think we'll bottom out -- tonnage levels are not dramatically higher than we've seen, and we should see a change in attitude a few weeks down the line."