Insight

What attracted you to Tankers International?

I’m a chartered accountant, and I qualified working in audit for Moore Stephens, with Tankers International being my first audit. Auditing Tankers International every quarter for nearly four years gave me a great sense of the company, and I was genuinely impressed with the entire team, from the senior leadership to operations.

After four years, it became clear that it stood out among the many companies I audited. I was particularly impressed with its IT, which, due to being both bespoke and well supported ensured data could be analysed in a variety of ways and reporting streamlined. This, combined with the tangibility of the VLCC market, its global presence and the pooling model all contributed to it being an interesting business to work for.

After one of my last audits, a member of the Tankers International team invited me for a coffee, and I was offered a role at the company. It wasn’t just a like-for-like role; the fleet was expanding at the time and they wanted me as a person and were prepared to build a role for me. I knew from my experiences interacting with the team during the audit that they treated their employees well and valued relationships.

How does your role support Tankers International?

The role is a real mix that keeps me on my toes. It involves financial reporting at month-end, annual reporting, and treasury management.

Working hand-in-hand with Pool Partners is a key element of my role. We use a mix of accounting software and bespoke reporting tools to ensure timely responses to their requests. In addition, a number of our Pool partners are listed companies which requires more stringent reporting and increased internal compliance which is where my background in audit allows me to add real value.

My role directly supports our Pool Partners’ ability to successfully navigate the decarbonisation of shipping. In 2020, for example, the IMO sulphur cap came into force, directly impacting the Pool from a financial reporting perspective. Due to new fuels, technologies and diverging partner strategies for navigating these regulations we had to adapt the way we pooled vessels to accommodate scrubber fitted vessels. We make absolutely sure that the ramifications of any operational changes are looked after from a financial reporting perspective.

What is coming ahead for the pool?

How our Pool partners choose to reduce their carbon footprint and adapt to global regulations ensures that there are always new and interesting challenges for the Pool. As a chartered accountant, I add most value to my role when interpreting how these may impact our business and how I can work collaboratively with our stakeholders to ensure we continue to produce meaningful and timely reports on the financial data they need.

Take EU ETS for example; we are required to buy EU Allowances (EUAs), which are a type of carbon allowance that allows companies covered by the EU ETS to emit a certain amount of CO2e, on behalf of Pool Partners.

With EU ETS and the EUAs, it’s essential that we take a joined-up approach, both within our organisation and in collaboration with Pool Partners. We need to cooperate closely to understand how partners want to manage their EUA exposure and their holding of EUAs. All of these must be backed up by robust reporting and processes that are transparent for both participants and auditors.

What have been your personal highlights during your time at Tankers International?

A stand-out moment for me during my time at Tankers International has to be adapting to auditing during the COVID-19 pandemic. Prior to the pandemic, we worked in the office five days a week, and the filing system was paper-based. This meant documents were printed out, stamped up for approval, and filed accordingly.

The pandemic then hit, and we had to adapt our processes almost overnight to ensure that all documentation was filed digitally. It was a testament to Tankers International’s culture that there was immediate buy-in to make this happen quickly, plus the talent to make it a reality.

When it came to our first audit with these new processes, the audit went smoothly, with all documents found and shared on time, and no challenges from the auditors. These processes continue to this day, and have been robust throughout every audit, and have allowed us to adapt to a more flexible working environment.

Owen Symmonds, Group Financial Controller

What attracted you to Tankers International?

I’ve always been fascinated by data and turning it into something commercially useful. This interest led me to pursue a master’s degree in business analytics at the University of Southampton. Here, I got to grips with the theory behind how data can make a meaningful impact, in addition to practical data visualisation tools such as Power BI.

Straight from university, I landed a role at AirAsia as an analyst. It was there that I started translating my knowledge of and passion for data into insights that could inform business-critical decision-making. I look back and see many similarities between aviation and shipping, for example understanding performance and trends on vessel and airline routes and creating dashboards that can tell the right story.

It was an initial meeting with Mette Frederiksen, Head of Research & Insight that sold the opportunity to me. I immediately aligned with Tankers International’s mission and values and was excited by not only the volume of valuable data but also the company’s approach to translating and sharing it with Pool Partners for their commercial advantage.

What have been your personal highlights during your time at Tankers International?

I wanted to find a role that allows me to make a tangible, meaningful impact. At Tankers International, I felt I had this opportunity right from the start. For instance, I’ve been able to translate data into insights that have made a genuine economic difference to the Pool’s performance. As part of TI’s in-house data team, we are building dashboards from scratch and on demand. It’s not just a ‘nice to have’ for TI; the qualified data is used across the organisation, from the chartering desk to the operational team, to assist sound decision-making.

How does your role support Tankers International?

Data is at the very heart of Tankers International. But, raw data alone does not provide meaningful insights. As a data analyst, my role is to act as the bridge between data and insights.

On a typical day, requests come in from across the organisation. On the commercial side, these requests can be anything from comparing and contrasting the performance of different vessels or routes, to understanding how trade patterns change over time. One example is a Time Charter Equivalent (TCE) tracker dashboard that we’ve developed, which helps the team monitor the TCE throughout the voyage and understand the performance of a vessel.

We also get requests from the finance department. Currently, we’re working on a tool that will enable the team to review the Pool’s financial performance from different dimensions. Using digital tools, we can pull together information from several siloed platforms into one dashboard to create a single view from which decision-makers can view all relevant information.

What can we expect to see from Tankers International in 2024 and beyond regarding the use of data and digital tools?

It’s a case of Tankers International continuing to walk the walk when it comes to the use of data and digital tools. Being wholly focused on the VLCC segment and collecting 40+ data points for every VLCC fixture in the market puts us in a unique position to collate and share genuinely transformative insights. Much of this is to the benefit of our Pool Partners through more efficient trading of our own fleet, but it also allows us to continue the development of our VLCC fixture app to add more transparency to the VLCC market as a whole. This follows recent updates to the app, such as the introduction of Baltic Exchange data and Carbon Intensity Index (CII) data.

How does Tankers International differ in its approach to data?

Data and technology alone can’t deliver maximum institutional value. It requires the human touch, which is why TI has invested heavily in a dedicated research and insights team. As a company, we have also invested in internal solutions, including digital technology, that bring together data streams from various platforms to present an integrated data visualisation tool for decision-makers across the organisation. It’s the human knowledge and experience combined with the software, tools and technology that sets Tankers International apart when it comes to data intelligence.

As the first half of 2024 draws to a close, the VLCC market presents a picture of moderate improvement without the dramatic boom witnessed in other tanker segments. While freight rates have exhibited a steadier trajectory compared to the volatility of 2023, peak levels haven’t quite reached the heights anticipated. But at the same time, the lows haven’t dipped as drastically either. That being said, all the right factors are in place, and the VLCC segment taking part in the super cycle is a question of when, not if.

Fundamentals

The underlying fundamentals supporting the VLCC market remain largely unchanged since the beginning of the year. The key driver continues to be a lack of fleet renewal, with minimal new deliveries offset by a significant number of vessels exceeding their traditional 20-year lifespan. Scrapping activity and other forms of vessel retirement have remained subdued due to a period of relatively strong returns and optimistic market outlooks. Additionally, the growth of the “dark fleet” persists, providing an alternative outlet for these older ships. Comparing an orderbook-to-fleet ratio of just 7% to an older fleet representing 21% of the trading fleet, the fleet profile is supportive of a tightening tonnage balance.

The recent effective closure of the Suez Canal and the wider Red Sea area, which significantly impacted product tanker markets, has had a relatively muted effect on the VLCC sector. The inherent nature of the VLCC market, where historically only a limited number of vessels utilise the Suez Canal, has meant limited disruption to the segment and a mere 4 VLCCs equivalent increase in demand due to the rerouting. This is where the product tanker segment has found surging support over the past 6 months.

The ongoing Russia-Ukraine conflict continues to play a crucial role in shaping all tanker markets, including VLCCs. Russian oil continues to be diverted to buyers outside Europe, prompting Europe to source supplies from alternative sources like the US, West Africa, and the Middle East. This dynamic translates into more inter-Atlantic trading, where VLCCs become competitive when freight economics permit. This does not necessarily mean longer tonne miles, but these routes provide access to more creative trading opportunities and allow owners to triangulate vessels and optimise their fleets.

OPEC+

The Middle East to Far East route remains the backbone of the VLCC market. While OPEC+ production cuts have restrained oil flow from the Middle East region, positive signals are on the horizon. Recent announcements from OPEC+ on their production management strategies pointed to a gradual phase-in of previously curbed production volumes starting in October. The group plans to add 2.5 million barrels per day over the following 12 months. This includes bringing back 2.2 million barrels of voluntary cuts and allowing the UAE to raise production by 0.3 million barrels per day. Additionally, the market anticipates a rise in incremental supply from Atlantic basin producers such as the US, Canada, Brazil, and Guyana. As incremental demand is expected to remain concentrated in the East, this scenario translates into long tonne mile demand for VLCCs.

The positive news continues, with forecasting agencies all projecting a rise in oil demand over the year and, in particular, during the second half of 2024 compared to the first. Much of this hinges on China fulfilling the robust demand projections predicted for the nation. China’s leadership has set itself an ambitious economic growth target and is taking proactive measures to achieve this. Historically, this proactive approach is closely linked to growth in oil demand and, importantly for the VLCC segment, a rise in oil imports. Furthermore, the optimistic demand outlook from the forecasting agencies point to growth in the Call-on-OPEC, which aligns with OPEC+ plans for a phased production increase.

The VLCC market has shown resilience in the first half of 2024. While not experiencing the dramatic boom of other tanker segments, it has exhibited steady growth with positive indicators for the remainder of the year. Stronger demand growth, the return of some OPEC+ production and continued geopolitical influences are all factors to monitor as the market navigates the second half of the year. We remain optimistic that the VLCC segment will find its moment to enter the stage and take an active part in this year’s super cycle.

As we wrap up the first quarter of 2024, the VLCC freight market continues its upward trend amid rising tension in the Bab-el-Mandeb, tightening of sanctions on companies involved in Russian oil trade, and the OPEC+ group announcing an extension of the supply curbs that were put in place at the start of the year. Yet, with Baltic freight assessments and sentiment improving, the VLCC market is on the up. So, how have these developments impacted the VLCC market, and what is the outlook for the next quarter?

While the crude tanker market looks set to face a slowdown in global oil demand growth, the outlook for growth in 2024 remains in line with what we have seen in previous years, and the outlook for the year keeps improving. This is reflected in the IEA forecasting an additional 1.3 million barrels of growth in 2024, which matches the average between 2000-2019.  We also need to remember that the fast-paced demand growth we experienced in the last couple of years was the market playing ‘catch up’ following the demand destruction of the Covid years. Demand growth will be driven by economies in the Far East, with China and India leading the way.

The OPEC+ alliance is also driving oil headlines by announcing a voluntary tightening of supply going into 2024 and a further declaration to extend the production curbs into the second quarter. There have been reports of lax quota compliance from some alliance members, and the voluntary nature of the production cuts supports this theory. Meanwhile, producers in the Atlantic basin are set to continue to add incremental supply and this will compensate for some of the tightening of supply from OPEC+ alliance, and will satisfy the demand gap in the Far East. Preliminary data from our VLCC fixture database, does not show any significant drop in fixture volume, and this is across all the major load regions.

The escalation of the tension in the Bab-el-Mandeb strait through the first quarter, with further attacks on oil tankers, has seen a significant decline in international tonnage of all types transiting the strait and the Suez Canal. The alternative trade route via the Cape of Good Hope adds considerable tonnemile to the oil trade, and there is no sign that this will change in the near future. Looking specifically at the VLCC segment and the 6-8 monthly liftings from the Middle East to Europe that historically have passed the conflict area, the majority of owners and charterers are now opting for the longer, safer transit route via the Cape. This adds around 15 days to the laden leg of the voyage, and apart from delaying crude supplies reaching Europe, it also increases tonnemile demand for the VLCC segment.

The start of this year has also seen tighter enforcement of Russian sanctions, and this threatens to once again transform the commercial framework around the trading of Russian oil. The Russian market is becoming increasingly difficult for mainstream industry players to get involved with and Russia continues to rely on the dark fleet to move its barrels. Only a few VLCCs are involved in lifting Russian cargo, and the commercial implication for our segments remains with the shift in general trade flows whereby Europe is taking more crude from the Atlantic Basin, and from the Middle East.

One of the biggest stories from this quarter has been a resurgence in VLCC tonnage ordering. The first three months of the year saw the orderbook double in size, and historically an expansion of this scale would pose a huge disruption to the freight market outlook. However, the orderbook-to-fleet ratio remains historically low even with the addition to the orderbook. The full orderbook holds 51 orders to be delivered over the next five years, equivalent to 6% of the fleet. But this compares to an ageing fleet profile of more than 200 vessels that will reach the age of 20 or older within the same time period. This means the potential for fleet exits by far exceeds additions.

Looking ahead into Q2 and beyond, the VLCC freight market looks set to continue to build on the solid foundation of cargo volumes that has persisted from last year and into this year. Recent headlines also point to both China and the US – the world’s biggest oil consuming nations – signalling the need for more oil than expected this year, driven by rising manufacturing activity and stronger-than-expected economic conditions. There is further upside ahead if the OPEC+ alliance begins to unwind production cuts, which many analysts and forecasting agencies see as a likely scenario going into the latter part of the year. Until then, the geographical mismatch between where oil demand is growing and where new supply will arise will continue to add to the tonnemile equation and to the demand for VLCC tonnage.

Tankers International’s Head of Research and Insight, Mette Frederiksen, shares her thoughts on 2023 market trends based on the Pool’s proprietary fixture data, and how oil and freight dynamics reshaped the VLCC market over the last 12 months.

In 2023, the VLCC market navigated many changes – from oil production cuts to sanctions being tightened and lifted, and as we publish this piece, serious disruption in the Red Sea, which sets to join the COVID-19 pandemic and EverGiven blockage as a historical disruptor for global shipping. However, 2023 also proved to be a highly lucrative year, with China’s oil demand boosting VLCC demand as crude oil exports from the US continued to reach new records.

Yet, beyond the sweeping trends and statements, it’s in the detail that an interesting story emerges. Total liftings revealed an average of 282 spot VLCC cargos per month in 2023, an increase of 17 from the previous year. This 6 percentage-point growth surpasses the historical average of 4% from 2010 to 2019 (the pandemic period is ignored). Considering tonne miles as a measure of vessel demand, this also rose by 6% over the year. In the context of several rounds of OPEC+ production cuts, this sustained growth showcases the VLCC market’s resilience, with these supply cuts offset by increases elsewhere in the Atlantic basin.

Go East, crude oil flows

It’s clear that tonne mile development pushed global VLCC demand up in 2023.  A closer look at individual trade routes uncovers where this trend emerged – from significant changes. The biggest rise in cargo counts came from the West to East route, with an additional 10 liftings each month in 2023 compared to 2022. This added demand for 26 VLCCs in full-time employment. This trend reflects developments in Atlantic basin-based crude export markets, where we saw suppliers in the US with exports reaching new records compared to 2022 of 4.21 mbpd, according to the EIA. Meanwhile, the likes of Brazil and Guyana continue to release more crude oil, combined with incremental demand growth being centred east of Suez.

Atlantic basin suppliers have also played a key role in developments on the West-to-West trade route, which includes increasing crude volumes going into Europe following Russia’s invasion of Ukraine. Cargo counts on the West/West route have increased from circa 3 per month in 2021 to 8 per month in 2022 and an impressive 14 per month in 2023. In the final quarter of 2023, monthly liftings from the US Gulf to Europe reached double digits for the first time, totalling 11 cargos.

Our fixture data shows that the combined liftings from the US Gulf and South America (to all destinations globally) have surged by 17 per month, totalling 55 and accounting for 20% of the total cargo count in 2023. This is a 6 percentage-point increase in market share compared to the previous year.

OPEC + drama

By comparison, the Arabian Gulf (AG) share has dipped from 66% to 61%. The monthly AG cargo count for 2023 stands at 173, a decrease from 176 in 2022. As the OPEC+ alliance has been cutting supplies, fewer barrels have been available to lift in the VLCC market. We have seen liftings to Europe and the Red Sea decline, while cargo volume to the Far East marginally increased.

The AG to the Far East trade route continues to dominate the VLCC market in terms of total cargo volume. The liftings peaked in the first quarter of 2023, when Beijing officially ditched its zero-COVID policy. However, several rounds of OPEC+ production curbs have impacted the fixture count ever since. As the alliance has announced sustained production cuts going into 2024, we may see cargo counts plateau for the time being.

Black Swans

2023 was a year where geopolitics took us by surprise, with Venezuela back onto the scene towards the end of 2023. The release of the US sanctions on Venezuela in the last quarter drove VLCC activity out of the country to 11 cargos in December, from an average 2-5 liftings per month through the rest of the year. Chinese teapot refineries have been driving this development. We also note a rise in cargoes from Venezuela to India, signifying that Indian refineries are coming back to the market since the secondary sanctions were imposed in 2020. They now vie with Chinese teapots for the discounted oil.

Another interesting development is an additional 5 cargoes per month on the Singapore to China route. This route covers the so-called “Malaysian Blend”, which is reportedly masked Iranian barrels being re-branded and sold. The majority of these cargoes are carried by the “dark fleet”.

VLCC resurgence

It’s clear that the VLCC market has shown resilience and adapted to an ever-changing trading environment throughout 2023. The above-average increases in cargo counts and vessel demand reflect an oil market that has now recovered from the Covid crash, with demand back to pre-pandemic levels. While we may not see the same level of expansion in 2024, we can look forward to a year with a solid foundation in terms of VLCC cargo volume coupled with near-zero fleet growth. This means that any growth in cargo demand will see the tonnage supply/demand balance tighten and the freight market improve accordingly.

To stay updated on the latest market data and insight, register for the Tankers International app here: https://app.tankersinternational.com/

2023 will be remembered for many reasons. For the tanker market, it was the year that VLCC freight finally remained within positive territory for a full 12 months. But it wasn’t a smooth ride. The market had increased volatility, and earnings swung dramatically, from barely covering operating expenses to highs of $100,000 per day.

The story of the VLCC tonnage profile remains optimistic, especially when considering the limited size of the orderbook. In 2023, the global VLCC fleet took delivery of 22 new vessels, a record low number in its own right, but what is truly remarkable is that only a single VLCC is scheduled for delivery in 2024. Owners have been, and still are, reluctant to lock in new orders. This is understandable, given the prevailing record-high newbuilding prices and the uncertainty surrounding future emissions and fuel requirements. Even the most cynical observer would have to predict a bullish trend for VLCCs for the next couple of years.

Looking back, many of the same factors that drove 2022’s tanker market trends remained relevant in 2023, including Russian oil displacement to Far Eastern markets, the OPEC+ alliance curbing global oil supplies and a “dark fleet” of often older tonnage continuing active trading, when in the past they would have exited the market years sooner.

The dark fleet and sanctions

While the conflict in Gaza is causing regional disruption, the ongoing war in Ukraine is still one of the most significant factors impacting the maritime sector. Russia’s actions and subsequent sanctions redirected the country’s crude to eastern buyers, reshaping trade patterns for the VLCC segment. Europe, pushed to seek oil supplies elsewhere, turned to the US, West Africa, and the Middle East, altering tradelanes and boosting VLCC competitiveness in the Atlantic basin. With no sign of a resolution to the conflict, these newly evolved trade routes are here to stay for the foreseeable future.

The so-called “dark fleet” provokes mixed emotions. The reason for the lack of vessels exiting the trading fleet can be attributed, almost entirely, to these vessels. Given the large amount of sanctioned oil utilising this fleet at lucrative freight rates, it is easy to understand why some owners are taking this risk, especially on ships that would otherwise be certified scrap candidates. While the dark fleet does draw tonnage away from the mainstream trading fleet, many of the vessels are old and the ownership structure is unclear, which poses big questions about maintenance, safety and regulatory compliance. To change this situation, authorities would need to intensify their commitment to enforcing sanctions. Recently, Western governments have been taking action by sending letters to individuals engaged in sanctioned trades, while the European Union’s latest round of places is requiring owners in the bloc to report any vessels sold to Russian entities, for use in Russian trade, and groups that may seek to avoid the G7 oil price cap. These developments do suggest the start of a more substantial effort to enforcement as we approach 2024.

At the other end of the scale, a country that has had its sanctions eased in 2023 is Venezuela. We now see Venezuelan cargoes lifted on mainstream VLCCs, which displaces the need for dark vessels. At the end of 2023, these cargoes are currently being lifted at a premium to US Gulf cargoes. We should keep in mind that sanctions have been eased with certain conditions in place, and any untoward actions by the Venezuelan government could see restrictions reimposed. The current tensions between Venezuela and neighbouring Guyana could impact the status quo, should they escalate.

Oil and the pull from the Far East

In oil markets, the OPEC+ alliance agreed at its latest meeting to making additional voluntary production cuts in the first quarter of 2024. While there is some uncertainty around the real size of the cut and headline numbers talk of 2.2 million barrels removed from the market, the reality is that 1.3 million barrels were already off the market stemming from Saudi Arabia and Russia’s voluntary cuts already in place. The voluntary nature of these cuts, combined with recent disagreement between some member states, puts a question mark over adherence. We have also seen in the past how member states react when OPEC+ does not align with its strategic objectives, such as Saudi Arabia’s actions in 2020 and recent announcements from Angola to reject any further production cut.

On the flip side, we observe a surge in oil production from non-OPEC producers, including an additional 1 million barrels a day from Atlantic basin producers expected in 2024. Brazil is now aligning themselves with OPEC+, and this adds a downside to current production outlooks. But this does not change the fact that the tonnemile effect from increased Atlantic Basin supply most likely heading to demand centres in the Far East helps to more than offset the potential loss in vessel demand driven by the OPEC+ curbs.

Another market driver that we must highlight is China. Whilst it is difficult to ignore the noises of a bleaker economic outlook, oil demand continues to grow, nonetheless, and monthly crude imports reached new records in 2023. The country’s economy is transitioning away from being based on manufacturing and construction. Instead, China is expanding its petrochemical capacity, aiming for greater self-sufficiency in feedstocks such as LPG, ethane, and naphtha, which now drive demand more than the traditional gasoline, jet, diesel, and gasoil. China’s oil demand is set to continue to expand in 2024 and the country is the main contributor to global growth next year.

Finally, we always need to factor in the bigger picture: the global economy. So, whilst VLCC fundamentals and the wider tanker markets look bullish, the macroeconomic picture is far less certain. Beyond geopolitical conflicts, the hot topics remain energy prices, inflation, and national debt. Most importantly for the shipping markets, a lot of nations continue to teeter on the edge of recession. Historically, the impact of a recession on oil demand varies widely from one crisis to another, with the Covid years being the worst in recent memory. Nobody knows the exact impact of a potential global recession, but it appears that the VLCC market is reasonably well-equipped to deal with one.

As we look ahead to 2024, the tanker markets are lined up with strong fundamentals. Demand continues to grow, even if at slightly more muted rates, but there is a geographical mismatch between oil demand and supply growth. This will continue to drive tonnemiles and therefore VLCC demand up. We expect much of the same as we have seen this year, with a strong upside potential supported by zero to negative supply growth.

In an unexpectedly lenient move, the US announced last week that sanctions against companies trading in Venezuelan oil will be dropped. This provides an opportunity for a reshuffling of oil movements, particularly in the Atlantic basin, and with that comes a renewed focus on VLCC employment and impacts on the ‘dark fleet’.

As its sanctions are removed, Venezuela can produce and export its oil freely. Discounts on the price of its crude will likely disappear, turning a significant amount of oil away from the dark trade and into mainstream markets. The sanctions are not lifted indefinitely, however. There is currently a time limit of six months in place on the sanctions relief to ensure that the Venezuelan government lives up to its end of the bargain to allow free and fair elections next year.

The oil sector in Venezuela has been heavily impacted by the sanctions, which have been in place since 2019. Oil production has dropped from highs of 2.5 million barrels per day to current levels of around just 800,000 barrels per day. The sector has suffered from years of under-investment and mismanagement, and any production ramp-up is unlikely to be quick. Forecasting agencies anticipate a limited recovery in oil production, but most agree that we will see a significant change to the flows from Venezuela.

We have seen around 400,000 barrels per day of seaborne crude and condensate flows from Venezuela this year. Just over half of these barrels are lifted on VLCCs, albeit with a portion of this marked as estimated liftings, as much of this happens on dark or grey vessels that are not all trackable via AIS. The Tankers International fixture data counts 5-6 liftings from Venezuela per month this year, most performed on dark fleet vessels with an average age of 18.3 years. Much of the sanctioned crude has been going to China, where teapot refineries have benefitted from the price-discounted supply. The recent easing of the sanctions has seen some supply head to the US and a small amount go to Spain.

As full sanctions relief is implemented, more Venezuelan crude is expected to flow to the US and Europe, with many US refineries built specifically to run on Venezuelan molecules. This could replace current US imports from the Middle East. However, the volume on that trade has not been substantial to the tonne-mile equation through 2023, and the VLCC segment accounts for roughly 3 liftings per month. The increased flow of crude from Venezuela to the US and Europe will boost demand for the Suezmax and Aframax segments.

A more significant impact on the VLCC market will come from current Venezuelan crude receivers having to find alternative supplies. Smaller Chinese independent refineries will lose access to cheap Venezuelan oil and may attempt to increase purchases of discounted Iranian and Russian barrels. As this is already a saturated market, supplies from Brazil and Colombia will likely satisfy any shortfall. This is a positive side effect, as the trade route from Brazil to China is predominantly a VLCC route.

A further implication will be that the trade route reshuffle will mean a return to the mainstream tanker fleet to lift the crude. The US and Europe will not welcome dark fleet vessels, and the same is the case for any additional VLCC loadings in Colombia and Brazil. A VLCC roundtrip from Brazil to China takes around 95 days to complete, so each additional monthly lifting on this route would employ 3 VLCCs full time. This means that if the current 5-6 monthly cargoes from Venezuela to China shift to load on mainstream VLCCs from Brazil, it will add demand for 15-18 mainstream vessels. This shows the potential scale of the impact of moving these oil flows into the conventional tanker market.

As Venezuelan sanctions are lifted for the first time in nearly 5 years, the market will be impacted in new and multiple ways. To stay informed on the latest market insight and data, download our app here: https://app.tankersinternational.com/

The Atlantic basin is providing massive support for the VLCC tanker market. Growing supply from the region means long tonne-miles across the Atlantic as much of the oil is being shipped to the Far East. In the Far East, we continue to see demand from China ramping up after COVID lockdowns. While the market’s expectations for China were perhaps too optimistic to begin with, we are still seeing signs of recovery, and oil demand remains healthy and likely to improve progressively. Furthermore, despite weaker economic data and somewhat depressed market sentiment in recent weeks, major reporting agencies have not made significant downward revisions to oil demand forecasts yet.

Low vessel supply growth is adding to the good news for shipowners. Despite an ageing fleet, shipowners remain reluctant to place newbuild orders, with not a single VLCC to be delivered in 2024 and only one ship in 2025 and one in 2026.

This shortage in newbuilds is allowing market fundamentals to rebalance after the massive drop in demand of the COVID years. Even the production cuts announced by OPEC+ nations such as Saudi Arabia have not dampened the mood. Rather, the capped volumes are expected to be filled by producers such as Brazil, resulting in more long tonne-miles for VLCCs across the Atlantic to Asia. The Chinese market is huge and is one of the key drivers of the VLCC market, and the resumption of trade there is countering other market concerns.

Historically in the freight market, we have seen VLCC rates putting pressure on Suezmax rates, which have then put pressure on Aframax rates. However, since the invasion of Ukraine, this trend has largely reversed. Aframax and Suezmax rates spiked initially when some owners took the risk of shipping Russian crude. As freight levels in the smaller tanker segments rose to historical highs, the VLCC segment became competitive in markets that it has not traditionally traded in, such as West Africa and US Gulf to European destinations. This has given VLCC owners optionality. They can choose to keep their vessels local in the West or trade them longer-haul on the traditional routes to Asia, depending on their views on the freight market.

The VLCC market has been seasonal in the past, with high rates in winter and lower rates in summer. However, this pattern has weakened over the last few years, and this year in particular, we are experiencing sound second-quarter results that have kept the market buoyant amidst the borderline recession in some parts of the world and the lingering macro-economic effects of the pandemic.

In 2023, Brazil introduced a new freight tax, which caused oil exports to drop dramatically. Oil companies reduced or halted their VLCC export programmes rather than paying the additional costs. This decision appears to have coincided with an increase in West African VLCC fixtures to meet part of the demand, particularly from China, with West African fixtures in June increasing by at least 50% month-on-month.

The demand for high oil volumes from Africa over long tonne-miles to China has been good news for VLCCs. The oil export tax in Brazil is due to end in July, and the Brazilian market is likely to resume, and while this may remove some VLCC trade from West Africa, it is still long tonne-miles for VLCCs.

The prominence of the Atlantic basin trade for VLCCs is therefore set to continue to keep shipowners smiling well into the next quarter.

Source: Tankers International

It’s clear that trading patterns for VLCCs have changed significantly over the last 12 months. European oil markets have seen a clear shift away from Russian crude since the start of the Russia-Ukraine conflict.

Official sanctions by the EU on Russian crude in place today mean that we now see virtually no Russian crude flowing into Europe and other Western economies. In June 2022, the EU Council adopted a sixth package of sanctions that, amongst others, prohibited the purchase, import or transfer of seaborne crude oil and certain petroleum products from Russia into the EU. The restrictions applied from 5 December 2022 for crude oil and from 5 February 2023 for refined petroleum products.

Europe has therefore had to find alternative crude supplies from other sources. We have seen Europe increase its imports from the Middle East, as well as Atlantic based oil suppliers including West Africa, the US and South America.

Smaller tankers have traditionally serviced the routes from these Atlantic basin suppliers to Europe, but in 2022 we saw a marked increase in the use of VLCCs. There were 28 VLCC loadings destined for Europe in August alone. This compares to just 1-4 monthly liftings prior to restrictions on Russian barrels.

Several market factors have aided this development. Firstly, we have simply seen more seaborne oil imports into Europe as Russia’s pipeline network and short haul shuttle shipments were no longer an option.

While the smaller tanker segments – Suezmax and Aframax – saw freight rate spikes in the immediate aftermath of the war breaking out, the VLCC segment had no direct links to Russia, so the freight environment for this group of ships remained flat and relatively low. This relatively weak VLCC freight market allowed VLCCs to compete with the smaller segments on the inter-Atlantic routes that in the past they had zero involvement in.

From the second quarter of 2022 onwards, we saw a sharp rise in inter-Atlantic VLCC liftings, and this elevated level of activity has persisted since. Our proprietary fixture app data does show a short-lived dip in VLCC activity in September and October last year. This was partly due to a drop in crude flows into Europe, according to data from Kpler. This was also the time when the VLCC freight market began its strong recovery, and we saw a proportional increase in the use of smaller tankers compared to the record month of August for the VLCC segment.

Since then, it appears that the inter-Atlantic trade routes have found a new balance and that they are here to stay. The use of VLCC tonnage has increased to 21-23 liftings per month over the last four months.

This trend is a positive development for shipowners. It allows vessel owners to keep their ships in short-haul business in a relatively high market and to be able to load another cargo while freight is high. This can be more lucrative than locking the vessel in on a long-haul trade and risking that the market may have fallen by the time of the next load.

This dynamic creates more volatility in the market with uncertainties around discharge times and with more frequent port operations that shorter voyages inherently carry. The result is the port to sailing time ratio goes up. This new dynamic also allows for increasingly creative trade combinations, and by triangulating a vessel, a shipowner can maximise their earnings compared to a standard Middle East to China trade route, which carries an equal amount of laden to ballast days.

On 25 February 2023 the EU adopted its 10th package of sanctions against Russia and is expected to announce more new sanctions in the coming weeks. We continue to monitor the situation, but we expect the current VLCC market conditions to persist throughout 2023, and beyond.

Our Head of Research & Insight, Mette Frederiksen, takes us through the development process behind the latest update to our popular VLCC app that provides an indicative CII rating and score for every voyage fixture based on Tankers International’s world-leading VLCC market data.

The volume of data that we all work with on a daily basis, coupled with the latest regulatory updates, means that it has never been more important to ensure that information is shared to enable transparency and collaboration. Therefore, introducing indicative voyage CII scores on the Tankers International VLCC Fixture app was a clear next step to supporting charterers in understanding their CII options and assisting shipowners and managers in understanding how others are – or aren’t – achieving good ship ratings.

Since the CII regulation entered into force in January 2023, there have already been some challenges with the regulation and concerns about how transparent this data will actually be. Our latest app update aims to allow shipowners, charterers, and regulators to openly see what issues they can identify using vessel CII scores and ratings. In turn, this can help to build informed policies and help regulators understand if and where reform may be needed.

The indicative CII scores are calculated based on internal speed and consumption data from vessels that have traded in our pool and dates back to 2000. This covers more than 250 VLCCs, of different ages, designs, and constructions. Where no version of a particular VLCC has previously been entered into the Tankers International VLCC Pool, the app uses the nearest possible match based on parameters including age, build yard, and engine design.

The CII feature also includes a ‘feedback’ tab for each fixture listing so that users can report any additional information or errors. This information can only be seen by the Tankers International team, and the messages sent cannot be seen on the app. Shipowners or ship managers who believe there is an error in our calculations should use this feature to report the error, and they can choose to provide a breakdown of actual representative data for the vessel.

The Tankers International app development team will verify this data before updating the vessel’s statistics, to provide the most accurate information possible.

This, alongside other data points like market demand and fixture frequency, is used by Tankers International to create an industry-wide benchmark speed. The Tankers International benchmark has been used and honed over two decades and provides incredibly accurate indicative figures for bunker consumption.

Given the ever-changing landscape of our industry and the uncertainty that these regulations have caused, it is now more critical than ever before that industry members have access to quality data, faster to support decision making for all stakeholders. This latest CII feature will allow users to integrate even more quality data and analysis into negotiations and strategic direction.  This additional layer of insight and market transparency will benefit the entire VLCC sector.