Over the past month we have seen a resurgence in oil tanker freight rates as the Baltic Dirty Tanker Index (BDTI) has risen from lows of 713 in early September to recent highs of 839, suggesting that dirty tankers are back in demand. Historically, tanker rates rise in the first and fourth quarters of the year as demand for oil increases ahead of winter in the northern hemisphere.
The IEA forecast also supports this narrative. In its latest report, the Paris -based international organisation expects a tight market. Demand is forecast to grow by 1.5mbpd in the second half of the year, while supply will only increase by 1.24mbpd. Supply has been consistently below demand by around 1mbpd throughout the year, mainly due to voluntary cuts by Saudi Arabia of 1mbpd until the end of the year, voluntary cuts by other OPEC members of 1.66mbpd until the end of 2024, and restrictions of 300kbpd from Russia. These cuts led to a rally in oil prices to almost $100, putting even more pressure on importers at the start of the heating season. Adding to the already tight market, US stockpiles have been steadily declining to a low of 349 million barrels, the lowest in 40 years. This creates a potential demand-driver that can further stricken the market.
At the moment the market is in a situation where most participants are betting that China will import more oil as its economy appears to be emerging from recession, with oil imports from the top two exporters, Saudi Arabia and Russia, remaining strong since July at 39.5m barrels and 32.5m barrels in September. The two account for more than 20% of China's imports and any disruption to the system could alter current trade routes. China is mainly using its oil reserves to boost refined products, as we have already seen diesel exports soar since the start of 2023.
One possibility is that Saudi Arabian crude will head to the US to replenish historically low inventories, which in turn may divert VLCCs to the US, increasing tonne-miles. Oil towards Europe will be carried by smaller vessels, but this will still limit the barrels available for other destinations.
It is clear that competition for crude oil between China and the United States will soon become a reality, if it has not already begun, for different reasons. This competition for crude oil in different destinations can push freight rates even higher in a tight oil market. It will be interesting to watch the OPEC+ production strategy from now on, as prices are at a critical level and the market is in deficit.