WAF VLCC market stabilizes following volatile first quarter

The West African market for Very Large Crude Carriers has seen freight rates flatline over the past two weeks following a period of heightened volatility in February and March, with sources pointing to a readjustment of the tonnage dynamics in the Atlantic and Persian Gulf loading regions.

Platts, part of S&P Global Commodity Insights, assessed freight on the 260,000 mt WAF-Far East route at $23.06/mt April 9. Rates have held steady since March 25, remaining within a range of $23.06-$23.60/mt.

The two 260,000 mt WAF-East fixtures reported since the start of April have repeated the rate of w65, equivalent to $23.24/mt based on the Platts basket of port combinations for this route.

By contrast, freight rates for VLCC voyages loading in West Africa fluctuated heavily throughout the first quarter. For example, 260,000 mt WAF-East rates jumped by over $10/mt, or nearly a third, from $20.97/mt on Feb. 5 to an eight-month high of $31.28/mt on Feb. 19. Immediately afterwards, they began to drop to their previous levels, falling to $22.4/mt on Feb. 29 before rebounding again.

Shifting tonnage dynamics

Industry sources have attributed this pattern to a rebalancing of tonnage fundamentals in the Atlantic and Persian Gulf regions.

"It's worth noting the current tonnage profile balance from East/West -- one of the things to consider when we saw such volatility, especially out of the Persian Gulf, was that the tonnage balance was quite off," a London-based VLCC broker said. "We had a large number of the fleet in West positions compared to East, whereas more recently they have been fairly well balanced and tonnage has remained in line with monthly averages."

Another possible reason for the recent stabilization of rates could be the large number of public holidays in recent weeks, including Easter in the West, Clean Monday and Independence Day in Greece and Ramadan and Eid for the Muslim World, the same broker said.

A second London-based VLCC broker agreed that a mismatch in tonnage lists between the Atlantic and Persian Gulf was behind the recent volatility in rates, but argued that the West had been short rather than long.

"There was a period when VLCC rates were coming off, and tonnage was very long during this period, but there was a big drop in vessels ballasting from the Atlantic into the East and this lack of vessels caused rates to go up," the broker said. "The Persian Gulf saw rates going up in the Atlantic, charterers panicked and started reaching forward, while owners managed to keep rates high."

The same broker added that strategical ploys by charterers and owners to move rates in the desired direction could only be effective for so long, however, and that "fundamentals always catch up".

Another factor driving the recent volatility in VLCC rates has been an aging fleet, which means that a larger proportion of vessels have been unable to load certain cargoes, bringing about unexpected tonnage crunches, according to a third London-based VLCC broker.

"The recent volatility has been down to tonnage fundamentals for VLCCs, lots of ships have been coming from dry dock, some haven't been suitable for certain ports," the broker said. "Higher oil volumes from the Persian Gulf in February and March have contributed to the situation, but I think the volatility has been more down to the tonnage than the cargoes."

However, the second broker disagreed with this view, arguing that "defective tonnage hasn't been an issue" and that issues with vessel availability have been quantitative rather than qualitative.