<article><p class="lead">Average freight rates for very large crude carriers (VLCC) operating from the Mideast Gulf slumped to the lowest quarterly level in three years during July-September, in stark contrast to the <a href="https://direct.argusmedia.com/newsandanalysis/article/2119479">record highs</a> of the previous two quarters.</p><p>Rates were supported during the first half of the year by the collapse of the previous Opec+ crude production restraint deal in March, which led to a brief war for market share in April, characterised by aggressive price cuts by Saudi Arabia. This, combined with the reduction in oil demand from Covid-19 restrictions, deepened the contango structure in the oil market, prompting charterers to conclude a rush of floating storage deals. Tanker market fundamentals were subsequently undermined by the new Opec+ deal, which has involved steep output cuts since May. </p><p>The Mideast Gulf to east Asia VLCC rate averaged $8.01/t in the third quarter — the lowest since 2017. The rate fell from $8.44/t at the beginning of the quarter on 1 July to $6.10/t on 30 September, with minimal volatility in between. </p><p>Demand for the class was subdued during the third quarter, leading to a gradual build-up in vessel availability, and competition among shipowners kept freight rates under pressure. Just 88 VLCCs loaded from the Mideast Gulf in September this year, compared with 148 in the same month of 2019. Fixtures were also down in July and August, with less than 100 bookings in each month, compared with 143 and 134 a year earlier.</p><p>There was an influx in time charter demand during September as charterers sought to <a href="https://direct.argusmedia.com/newsandanalysis/article/2140626">renew crude storage deals</a> for VLCCs, which coincided with an uptick in spot market activity as charterers started covering their obligations for October. But momentum in the market quickly faded.</p><p>The tanker market's fundamentals will probably not rebound <a href="https://direct.argusmedia.com/newsandanalysis/article/2146236">until 2022</a>, according to research firm Alphatanker. The firm does not expect global oil demand to return to pre-pandemic levels until the second half of 2022, with demand for seaborne crude transportation following the trend. </p><p>As of now, only 49 VLCCs have been fixed with October loading dates and the standard fixing window is now for beyond 15 October. This suggests that there might be fewer than 100 bookings in October, compared with 161 in the same period last year, creating uncertainty around whether the customary seasonal spike in rates will occur in the fourth quarter. </p><p class="bylines">By Nikos Kokolinakis</p><p><div class="picture"><div><span class="pic_title">Mideast Gulf to east Asia VLCC rates 2020 vs 2019</span> <span class="units">$/t</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2020/10/02/mideastgulfvlccrates2020vs201902102020034711.jpg"></div></p></article>
