· VLCC Freight Market Struggles Amid Weak Demand; Hopes Pinned on China's Import Rebound – The VLCC (Very Large Crude Carrier) dirty freight market experienced significant challenges in late November, with rates in the Arabian Gulf (AG) dropping to new annual lows. This decline was primarily driven by an oversupply of vessels and subdued demand, particularly for loading windows in the second half of December. While shipowners remain optimistic that the market has reached its floor, a meaningful recovery appears distant, with uncertainty persisting in the near term. In contrast, the West African VLCC market displayed some resilience, supported by increased activity. However, rates in this region also faced downward pressure as eastern ballasters redirected to the Atlantic, seeking to escape the weaker markets in the East. Looking ahead, the VLCC market's prospects may gain support from a recovery in Chinese crude oil imports. China recently issued an additional crude oil import quota of 5.84 million metric tons (approximately 116,800 barrels per day) for independent refiners, targeting deliveries through late 2024 and early 2025. These quotas are expected to bolster import volumes, particularly with competitive pricing from Iraq and Saudi Arabia. The anticipated rebound in Chinese imports could improve market sentiment and offer some relief to owners looking for a rate recovery in the months ahead. Despite these developments, current crude tanker rates remain exceptionally low for the winter season. And any signs of tightening tonnage availability in the critical AG market could trigger a rapid increase in spot rates.
· All Eyes on OPEC+ Meeting as Chinese Tepid Demand Makes Expected Productions Increases Tricky – Despite an anticipated increase in China’s crude oil imports in November—largely attributed to low oil prices from three months prior—we believe that China’s crude oil demand has likely reached its peak. While overall oil demand in the country is expected to grow next year, this growth will be driven primarily by oil-related gas products rather than crude oil. The two main contributors to crude oil demand—diesel and gasoline—are projected to experience gradual but modest declines. This trend reflects the structural shift toward electric vehicles (EVs) and the adoption of more fuel-efficient vehicles, which are beginning to impact crude oil imports. Globally, while oil consumption is expected to remain above 100mbpd for the foreseeable future, the pace of growth is slowing significantly. OPEC+ faces a challenging decision in this environment. Our assessment suggests that the organization may adopt a strategy similar to the 2015–2017 period, prioritizing market share over price stability. This approach is unlikely to involve abrupt or dramatic shifts but could lead to a gradual decline in oil prices as OPEC+ increases exports. Such a move would pressure high-cost producers—particularly in the U.S.—to reduce production in response to lower prices. Furthermore, we anticipate the oil futures curve to flatten and eventually shift into contango, a price structure that could benefit crude oil tankers.
· Our Long-term View – – The tanker market is recovering from a long period of staggered rates as the growth in new vessel supply shrinks while oil demand remains elevated in line with the global economy. A historically low orderbook combined with favorable shifting trade patterns should continue to support increased spot rate volatility, which combined with the ongoing geopolitical turmoil, should sustain freight rates in the medium to long term.
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