Crude Oil, Maritime & Shipping

November 27, 2024

Growth of Iranian exports reduces mainstream crude tanker demand: Frontline

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HIGHLIGHTS

Weakened Chinese appetite for oil dents carriage demand

New vessel deliveries to come in force in 2026-27

Increasing crude trading sanctions mean older fleet

The higher call on sanctioned tankers to carry Iranian exports is weighing on mainstream fleet demand, crude tanker firm Frontline said Nov. 27.

Iran's crude exports climbed from below 400,000 b/d in 2019 to 1.56 million b/d in October 2024, according to ship tracking data from S&P Global Commodities at Sea. Most of Iran's heavily sanctioned, discounted crude goes to China, which has been willing to look past sanctions.

The surprising growth in Iranian exports comes alongside softer Chinese demand growth and is "further reducing transportation demand in the compliant market, and softening the balance of the entire global oil trade," Frontline said in a statement accompanying its Q3 interim financial results.

The National Iranian Oil Co. is set to boost oil production by up to 250,000 b/d within four months and has already met 60,000 b/d of the target since August, the company's managing director Hamid Bovard said Nov. 20, as reported by state television.

The company's forecast is to reach around a 200,000-250,000 b/d of oil production increase by the end of the current Iranian year, March 20, 202, Bovard said.

This comes amid softer demand growth from key importer China, which can to "a greater degree" be explained by weaker economic activity, rather than rising electric vehicle uptake, Frontline said.

The weakness caused by ships in the so-called shadow fleet carrying more Iranian oil and by weaker Chinese growth comes amid lower Time Charter Equivalents. Frontline's VLCC TCE in Q3 was $39,600/day, down 6% on the year. The Suezmax TCE in Q3 slipped 13% on the year to $39,900/day.

Platts, part of S&P Global Commodity Insights, assessed its non-scrubber-fitted and non-eco VLCC index at $24,912/day Nov. 26, down from $31,699/day when the assessment was launched in March.

Platts assessed the rate to carry a 145,000-mt cargo from the US Gulf Coast to UK/Continent at an average of $13.94/mt in Q3, stable on the year.

The mood among market watchers for the winter is bearish. Weaker-than-expected winter oil demand and a delay to OPEC+ production increases have been casting a shadow over crude tanker demand.

A rise in oil cargoes from the Middle East was meant to bolster tanker demand, but postponed plans by OPEC+ to unwind voluntary crude production cuts through December dashed hopes that boosted exports would lift freight rates.

Tonnage increasing 2026-27

Looking ahead, Commodity Insights analysts lowered their 2025 Dated Brent price outlook by $4/b to $71/b because of a projected crude oil surplus, they said in their Global Crude Oil Markets Short-Term Outlook for November.

Things could get bleaker for shipowners thereafter. Based on expected overcapacity of refined products, the International Energy Agency forecast that some 1 million-1.5 million b/d capacity could be at risk of closure in Europe by 2030, dwarfing a previous average 220,000 b/d of closures annually.

This will come when more shipping capacity appears, presenting the prospect of increasing competition between shippers for cargoes and sustained pressure on freight rates.

The current tanker order book for the asset classes owned by Frontline constitutes 17% of the existing global fleet, with orders amounting to 67 VLCCs, 95 Suezmax tankers, and 167 Long Range 2 tankers. "Most of the growth in the order books is attributed to deliveries scheduled in 2026 and 2027," Frontline said.

From H2 2026, a "huge number" of vessels are getting delivered, especially from 2027 and particularly large vessels like VLCCs, Commodity Insights shipping analyst Fotios Katsoulas said.

In the meantime, the global tanker fleet continues to age as vessels remain on the water despite the efforts of US, EU and G7, Frontline said. "With such a large part of the overall trade employing questionable actors, an astonishing 6% of the global VLCC, Suezmax tanker and Aframax/LR2 tanker fleet is reported to be sanctioned by the US Office of Foreign Asset Control (OFAC)," the company said.

The average age of the tanker fleet continues to rise, with 16.5% of the above-mentioned asset classes above 20 years of age normally not used for oil transportation by compliant actors, Frontline said.


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