Very large crude carrier (VLCC) freight rates from west Africa to China have reached their highest this year, reflecting a general pick-up in the global VLCC market.
Rates climbed consistently last week, reaching $12.95/t or WS42.5 on 27 September, the highest this year in a general pick-up in the global VLCC market, rather than any specific west African factor.
Loadings in the Mideast Gulf and in the Atlantic basin have been robust, with the
Crude flows on the west Africa to China route are slightly up this month, with around 28.7mn bl travelling to China so far, compared with 24.8mn bl and 24.1mn bl in July and August, respectively, according to data from Vortexa. But they remain well below the monthly average in 2020 of 36.1mn bl and even further below pre-pandemic monthly levels of 39.5mn bl in 2019.
BOCI Global Commodities’ head of commodity markets strategy Amelia Xiao Fu expects a in Chinese oil demand from the fourth quarter, with more refinery capacity coming on line to keep China’s crude import growth on an upward trend. This should buoy VLCC demand in most markets, including west Africa, as China is one of the major players in the VLCC complex.
The outlook for VLCC rates is mixed. Shipbroker Fearnleys said that competition between the Mideast Gulf and Atlantic for VLCCs could continue in the near term. And market participants including Mele Kyari, managing director of Nigeria’s state-owned oil company NNPC, have urged Opec+ ministers to endorse a when they meet in early October to decide on November quotas.
Another Opec+ production increase would translate to more barrels coming out of the Mideast Gulf, with more than half of Opec+ seaborne exports historically carried on VLCCs, according to Vortexa. West African production quotas would also increase, although they make up a minority share of the Opec+ total compared with Russia and the Middle East.
But it remains to be seen whether the recent pick-up can be sustained and extended. Higher demand on , such as from the Mideast Gulf to east Asia, does not contribute tonne miles to the VLCC market to the same extent as a pick-up in long-haul trade.
And US shale production, which could drive more structural trade on the very long-haul US Gulf to east Asia route, has been capped this year with producers exhibiting a disciplined approach to investment. US independent Hess’ chief operating officer told Platts‘ Asia-Pacific Petroleum Conference (Appec) that lower investment and capital discipline are holding the pace of drill rig additions at just 50pc of rates in the 2015-16 downturn.
Shipowners across the dirty tanker market will be watching keenly. Weakness in the VLCC market creates top-down pressure for smaller classes, so a sustained pick-up could be the sign of a long-awaited recovery for the sector.