This week’s analysis focuses on VLCC net supply trends in the Arabian Gulf (AG), current Baltic rates performance, and cargo demand projections over the next month. These elements contribute to understanding the macroeconomic context for global crude oil consumption, particularly in relation to China, and how changes in vessel supply levels might influence Baltic rates. The first graph showcases the historical trends of VLCC net supply in the AG, represented by the blue line, alongside the TD3 Baltic Rate index indicated by the red line.
The data reveals notable fluctuations in supply levels that correlate with periods of volatility in TD3 rates, particularly seen in mid-2023 and early 2024. A significant spike in net supply during early March led to a decrease in TD3 rates, but recent adjustments indicate a potential easing in supply, which could pave the way for an increase in freight rates if the trend continues. Looking ahead, the second graph tracks gross supply against projected cargo demand over the next 30 days.
Presently, gross supply is exceeding demand, revealing a relatively loose market. This disparity suggests that, unless demand experiences a significant uptick, freight rates may struggle to rise. However, unforeseen supply chain disruptions could quickly change this scenario, resulting in a tighter market and possibly supporting increased rates.
China’s influence on crude oil imports remains paramount. Fluctuations in refinery operations and economic strategies directly affect the VLCC freight market. Current forecasts hint at a moderate recovery in Chinese crude demand by Q2 2025, which could enhance cargo movements and spur stronger freight rates, especially if vessel availability becomes constrained.
In market rates, VLCC rates for MEG-China routes linger below WS60, akin to last year’s levels. Conversely, the Suezmax sector shows signs of improvement, particularly for West Africa to Europe routes, which increased by 11% monthly. Aframax rates have declined significantly, reflecting an ongoing downturn.
Regarding vessel availability, crude tanker numbers remain relatively stable for VLCCs and Suezmax vessels but are decreasing compared to earlier peaks this year. The number of Aframax vessels, however, has diminished. The total ship count for VLCCs around Ras Tanura is about 50, while Suezmaxes in West Africa are under 50.
Additionally, Aframax numbers dipped below annual benchmarks, suggesting further downward trends. Overall, demand metrics indicate a mixed picture. While VLCC tonne-days have been sluggish, Suezmax freight has shown recovery.
The clean market sees similar trends of decreasing vessel counts and varying demand strength across different categories. The dynamics of supply and demand will continue shaping the outlook in the VLCC space in the coming weeks.