Inside the VLCC freight market – a review of Q1

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.


How 2023 became the year of VLCCs

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.


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2023: a rollercoaster year for tanker markets

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.

Sanctions no more: A new era for the tanker market?

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:

Miles and smiles: the west to east trade is providing VLCCs with long tonne-miles as market fundamentals rebalance

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

Good news for shipowners as VLCC Inter-Atlantic trade remains strong

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.

Tankers International launches CII update for popular VLCC fixture app

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.

The Year of the Rabbit brings good tidings for VLCC market

China is a key driver of the VLCC market. The sheer scale of the country’s need for oil and an infrastructure system built to accommodate large crude oil tankers means that shipping crude oil in the largest possible parcel sizes ensures economies of scale and a more cost-efficient transportation solution.

On the flip side, this also means that when the Chinese economy and the country’s demand for oil reduces, we see an immediate effect in the VLCC market. This demand slowdown was, in effect, what happened during the first half of 2022. While the smaller tanker segments benefitted from freight market shocks early in the year on the back of the conflict between Russia and Ukraine, in fact, the conflict did not directly impact the VLCC segment as this large vessel group rarely is involved in loading Russian oil.

In the early months of 2022 the VLCC market was significantly impacted by declining oil demand in China. The country was struggling with a resurgence in Covid-19 infections that caused new lockdowns and more travel restrictions. In addition, a slowdown in manufacturing activity caused industrial production decline, which reduced oil demand even further.

As a result of demand slowing and lockdowns impacting its industry, throughput in Chinese refineries collapsed to two-year lows as state-owned and integrated independent refineries ran at nearly 75% of capacity in April, while some private plants operated at just 50%, according to Platts. Intelligence from data provider Kpler shows that the reduction in refinery throughput boosted inventories in China which remained elevated through May, June and July before declining into the autumn.

This decline in refinery activity and resulting inventory build-up slowed down the country’s crude oil imports. At the same time, the price of oil was rising which did nothing to encourage more buying. As a result, we saw Chinese demand for VLCC tonnage decline. While we counted 107 monthly liftings destined for China in 2021 and a similar count in the first four months of 2022, this number dropped to an average of just 95 liftings in May, June and July.

In late summer, China began to re-emerge from its Covid restrictions. Increased industrial activity and greater freedom of movement both added to a demand surge in the second half of the year. This growth was further supported by new product export quotas that required refiners to demand increased volumes of crude oil. With oil demand improving and refinery runs increasing, we noted a significant impact on VLCC cargoes booked for discharge in China. In fact, we counted as many as 132 liftings in October, with an average of 125 monthly liftings in the final quarter of the year.

Looking back at historical data, we find an almost perfect correlation between both Chinese oil demand and VLCC liftings and refinery runs and VLCC liftings. It is, therefore, reasonable to expect this trend to continue. We can look at projections for oil demand and refinery runs in China to understand what we may expect going forward regarding VLCC activity bound for the country.

The latest estimates for China’s oil demand in 2023 peg growth levels at close to 6% on the back of the continued easing of Covid measures and economic recovery. We have seen a recent surge in infection rates in China and a temporary decline in demand. Yet, expectations are that this will be managed, and that demand will resume its growth trajectory from the second quarter. Likewise, China’s crude runs will initially be affected by the weaker demand picture, but this is also expected to reverse. We are therefore optimistic that China will continue to provide strong support to the VLCC market throughout the year.

We already count 120 global VLCC liftings destined for China in January and February, with approximately 60% emanating from the Arabian Gulf and the remaining from the Atlantic basin. While it is difficult to predict the exact number of liftings we will see in the VLCC space, the correlation theory indicates we can expect numbers to rise by around 5 cargoes per month compared to 2022 actuals. The great benefit to the VLCC market will come from the continuous pull of crude from the Atlantic basin, which comes with extra long tonne miles.

As one of the key drivers of the VLCC market, we continue to closely monitor China and the country’s energy data. The current outlook is positive with an economy in recovery mode, rising oil demand and a refining industry that is forecast to remain strong. The current crude trade flow mix into the country already supports a healthy VLCC market, and we look forward to a year of continuous growth from the economic powerhouse that is China.

2022 in review: the year of the VLCC market recovery

Now that we have closed the books on 2022, we are looking back at a year of ups and downs. The year began with high expectations of a long-awaited VLCC market recovery, and although the recovery was slow to kick off in the VLCC space, the year ended on a high. 2022 also brought added complexity to VLCC trading strategies, as a result of changing trade patterns and new regulatory requirements around the Carbon Intensity Indicator reporting.

We used our detailed VLCC fixture database to digest last year’s events and analyse how they helped to reignite the freight market for the largest tanker segment.

Join us as we review our internal cargo count dashboard.


First, we need to look at absolute growth in VLCC cargo numbers. Counting cargoes fixed in the spot market, we noted an average increase of 41 liftings per month in 2022 compared to the previous year – this represents a growth level of 19%! To provide greater context, this compares to an annual growth rate of circa 4% across the last 10 years, before the pandemic impacted the market. We saw a huge drop in oil movements during 2020 as Covid restrictions kept global mobility and productivity at a minimum. While we experienced some recovery in 2021, it was not until 2022 that the world truly began practicing “living with Covid”, and the effects of this are now mirrored in oil demand and thus tanker markets.  The year’s significant rise in VLCC cargo numbers resulted in a higher demand for VLCCs, as measured by days employed, which increased by 7%. This is in line with the 10-year average, excluding the two years impacted by Covid.

If we consider the various trade routes and how they have changed through the year, it becomes evident that significant growth was driven by the Arabian Gulf (AG) market. This load region saw an additional 35 monthly liftings across the year. This development runs parallel to the OPEC+ commitment to gradually add oil supply back to the market throughout the year. Following the announcement that the alliance would cease gradual additions, we noted a slight drop in cargo numbers from 186 monthly liftings in 3Q-2022 to 174 monthly liftings in the fourth quarter. This level of activity remains much higher than pre-Covid cargo counts of 160 in the fourth quarter of 2019, and it provides a solid baseline of activity for the VLCC market.

The second largest trade route in the VLCC market is West to East. This route encompasses all of the load regions in the Atlantic basin, excluding West Africa. Our fixture data indicates a monthly average of 38 liftings on this route – a slight decline from the previous year. This relatively low average, however, is marred by very low activity in the second quarter when we counted just 32 liftings per month. The driving force behind this was mainly at the receiving end, as China experienced a period of significantly reduced crude purchases.

Contrary to most other countries, China continued its zero-Covid policy through much of 2022 and lockdowns remained in place for longer than the rest of the world. China began to emerge from these restrictions over the summer months, and in combination with new product export quotas, the market saw renewed crude demand from Chinese refiners. This was the real catalyst for the buoyant VLCC market we have today. Not only did Chinese crude demand return, but China was sourcing much of the incremental barrels from the Atlantic basin. Tankers international recorded 46 liftings on the West to East trade lane each month in September, October and November.

The corresponding change in vessel demand on the West to East route indicates an overall decline. This is due to a more efficiently traded VLCC fleet, as more AG to West volumes emerged. VLCC owners were able to increasingly triangulate their trading between the AG, Europe and the Far East, reducing their overall ballast leg and, consequently the time that vessels are employed on the West to East route. The increase in vessel demand on the AG/West routes makes up for most of the decline on the West to East route.

Another game changer in 2022 was the resurgence of inter-Atlantic trading on VLCCs. On our dashboard these trades are listed as “West/West”. Europe has been pulling crude oil from new suppliers in the US, Brazil and West Africa, and on some of these routes, it became more economical to employ tankers from the largest segment. Since May, we count an average of 11 monthly liftings on these routes. The pull of VLCCs into Europe both from the Atlantic basin and the AG has given shipowners the ability to become more creative in the trading of their vessels, devising increasingly complex strategies to maximise the utilisation of their assets. This has been a welcome development!

Although the VLCC market was slower to recover than the Suezmax and Aframax markets and remained lacklustre through most of the first half, it has since returned with full force. It has been encouraging to see the market quickly adapting to added trading complexities and changing trade flows. We will continue to count cargoes and analyse any changes to trade flows through 2023. While we may not see the same uptick in absolute fixture numbers this year, tonne miles are set to continue on an upward trend with more oil moving long-haul. Given that development, we will see demand growth in the VLCC segment remain robust.

The thrill of Brazil – how record-breaking exports from the South American giant are boosting the VLCC market

Brazil Exports Tankers International November 2022

As the VLCC market goes from strength to strength, we’re exploring some of the factors that are driving this trend.

Oil demand across the world remains robust and is closing in on pre-Covid levels. At the same time, production levels are improving, and while OPEC and its allies have recently announced a small reduction in their quotas, alternative producers are posting record high production and exports that are resulting in fairly balanced oil markets. Brazil is one of those producers.

Firstly, on the demand side, a fresh round of product export quotas has recently been released by the Chinese government. This, combined with fewer Covid-related restrictions, has sent the country’s demand for crude surging. Refineries are taking in more crude to utilise the new export quotas and VLCC shipments into China have increased as a result.

The strong recovery in VLCC rates towards the Far East in the past month is driven both by this increase in Chinese demand but also by where in the world China is sourcing its crude supplies. Oil price spreads have supported the buying of Atlantic Basin crudes over Middle Eastern crudes, and we have seen a significant increase in West to East movements in the VLCC segment over the past couple of months. Many analysts talk about the US Gulf and how the release of Strategic Reserve barrels has driven the VLCC market, and this is not untrue. However, in addition to this, we have seen a great support from Brazil.

Crude exports from Brazil have risen to new highs amid the strong flows to China, and China remains the biggest buyer of Brazilian seaborne crude. During the months of September and October, data from Kpler indicates that oil tankers loaded 1.7 million barrels per day of crude in Brazil – an increase of 23% compared to the average exports during the first eight months of 2022. Flows to China comprise about 30% of the barrels exported via ship.

Translating this development into VLCC demand presents an equally impressive increase. In October, our Tankers International proprietary data counted a record 19 VLCCs loading in Brazil. This is a huge jump from a monthly tally of 10 VLCC loadings from January to August. With two thirds of these VLCC shipments destined for China, this drives a drastic increase in tonne mile demand for the segment. An average round voyage from Brazil to China takes 100 days to perform, employing a VLCC for significantly longer than the same cargo from the Middle East to China, which takes around 60 days on a round voyage basis (from load to discharge and back to the load region.)  So far in November, we count 15 VLCCs booked to load crude in Brazil and the month has only just started.

As oil supplies are tightening in other parts of the world, this increase in Brazilian output and exports is a key driver of the currently buoyant VLCC market.