The rate for a bellwether very large crude carrier (VLCC) shipment from the US Gulf coast to China hit its highest level on record today of over $14/bl on strong Asia-Pacific demand, driven by the escalation of hostilities between the US and Iran at the start of Hormuz.
Commodity trader ST Shipping put the VLCC Helios on subjects for a US Gulf coast to Asia-Pacific voyage loading from 13-16 October at $29.75mn lumpsum, including $250,000 load-port fees, equivalent to $14.29/bl, boosting the rate for a US Gulf coast-China voyage by $1.15mn day-over-day to that level. This represents the highest level since Argus began its US Gulf coast-China assessment in November 2017.
That deal came after Japanese commodity trader Idemitsu put the Maran Apollo on subjects for a US Gulf coast-Japan voyage at $29.25mn, including load-port fees. Norway state-owned refiner Equinor and US independent producer Occidental both put VLCCs on subjects for elsewhere in Asia-Pacific at $27.65mn each, including load-port fees. Charterers have put at least 10 VLCCs on subjects for US Gulf coast to Asia-Pacific voyages since 31 August, including the four from today.
Asia-Pacific demand was also high this week for Brazilian crude, with at least eight VLCCs provisionally hired by charterers in that spot market. This was largely driven by strong Chinese restocking demand to keep up with high refined product demand from elsewhere in Asia-Pacific, as Chinese refiners burned through crude stocks, with no end in sight to largely cut-off Mideast Gulf crude flows. The higher competition for Brazilian shipments from these buyers since mid-August likely contributed to the increase in US-loading VLCC demand from Asia-Pacific buyers outside of China like Japan and Taiwan.
Midsize rates climb on VLCC spillover
The surge in freight rates for the largest crude carrier segment has helped to boost rates for Suezmax and Aframax tankers, with the former in particular benefiting from split cargoes from VLCCs in some instances.
The rate for a Brazil-Europe Suezmax voyage jumped by 16.5pc day-over-day to Worldscale (WS) 245 today, while US Gulf coast-loading Suezmax shipments into Europe rose by 11pc to WS202.5 from Thursday.
Rising freight rates for VLCCs in the west Africa spot market, which shares a tonnage pool with the Brazilian market, encouraged charterers to explore splitting these 2mn bl cargoes onto two 1mn bl Suezmax tankers on 2 September, according to a shipbroker.
Meanwhile, Aframax shipments of WTI crude from the US Gulf coast into Europe have been trading at, and even below, parity with VLCC-sized shipments of WTI on the same route on a $/bl basis. Aframax tankers typically trade at a premium to VLCCs in this context given the greater number of ports the smaller tanker can access and its ease in loading and unloading compared to VLCCs. The last time Aframax-sized shipments of WTI into Europe were cheaper than VLCCs on the same route was in February 2021.
The surge in VLCC demand from Asia-Pacific will likely encourage US Gulf coast buyers globally to increasingly consider the midsize segment in the near term, maintaining the upward pressure on rates for Aframaxes and Suezmaxes even after the long holiday weekend for US traders.
