Bullish potential for crude tankers amid revised OPEC+ cuts


Crude tanker freight rates could garner support from non-OPEC+ production through the summer and later from the announced easing of OPEC+ cuts, following the latest amendments to the group’s policy, according to analysts.

Saudi Arabia and seven other countries have made some 2.2 million b/d in voluntary cuts that were due to end after June, but will now be maintained through September, before being gradually eased by about 180,000 b/d monthly from October to December and then by about 213,000 b/d from January to September, the group said June 2 after ministers convened for talks.

Counterintuitively, the decision to extend cuts and thereby limit global supply was followed by a drop in crude prices. Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $80.18/b May 31, the last trading day before the meeting. It has since declined: Platts assessed it at $76.05/b June 4, the lowest level since January.

Bearishness in crude prices points to higher crude tanker demand and the wind-back of production cuts after the summer also signals this, analysts at ship brokerage BRS said June 3, “particularly for VLCCs in the East in Q4.”

However, the effect could be marginal. “A larger release of the group’s wide cuts will be needed for carry trade to be meaningfully incentivized and offer higher upside in the segment in 2025,” analysts at the brokerage said.

The decision of OPEC+, on paper at least, to gradually increase crude oil production by nearly 2.5 million b/d from October 2024 to September 2025 increases the chances of even weaker oil prices—$60/b or less—at some point in the next year, Jim Burkhard, Vice-President, Research – GSI News & Research Management at Commodity Insights, said June 4. The decline to $60/b is not in Commodity Insight’s base case scenario, he added.

Beyond OPEC+

Until or if OPEC+ cuts have an effect on tanker demand, noticeable impetus to the segment has come in recent weeks from sources outside the oil producing group.

“The rising production from non-OPEC producers like the US, Canada, Guyana, etc. could potentially offset the shortfall from OPEC+ cuts, leading to increased long-haul exports such as from the US to Asia, utilizing VLCC capacity and potentially boosting freight rates,” Anna Koldova, Senior Principal Research Analyst, Oil Market Flows at Commodity Insights, said.

Since early Q2 2024, the number of enquiries for loadings of crude oil cargoes on VLCCs in the Atlantic Basin have continued to rise, surpassing 70 per month, data from S&P Global Commodities at Sea showed. This increase is being driven by the growing contribution of non-OPEC producers to global oil supply and underscores the Atlantic Basin’s expanding role in the large tanker markets, according to Commodity Insights analysts.

Commodity Insights data shows that around half of VLCC loadings in April and May were destined for China. This indicates a significant uptick in demand from Chinese refiners following the spring maintenance season. The round trip from the Atlantic Basin to China, taking roughly 120 days, contributes substantial demand to the VLCC sector, bolstering the market outlook.

In West Africa, the continued ramp-up of refinery activities, particularly at Nigeria’s 650,000 b/d Dangote refinery, has started to influence tanker demand and create new trade routes within the Atlantic Basin. Dangote has secured crude supplies at 300,000 b/d out of its maximum capacity of 650,000 b/d from Nigeria’s national oil company, NNPC, analysts at Commodity Insights said May 24. “This shortfall is expected to be supplemented by other light grades, including imports from the US,” they added.

Since the beginning of the year, at least four VLCCs and one Suezmax have been booked to import US crude to Dangote.

Throughout May, VLCC routes from the US Gulf Coast experienced a steady increase in rates, reaching a three-month high. The month began with the lumpsum price to carry a 270,000 mt cargo of crude on the USGC-China run at $8.9 million, which quickly rose as charterers sought to cover outstanding cargoes amid a shrinking tonnage list and reaching $9.8 million May 20, Platts data showed.

Platts assessed it at $8.7 million June 4, against a five-year average of $7.5 million.

Source: Platts