• Uncertainty Looms for VLCCs as Activity Slows Down – Another rally in spot VLCC rates ended up being just a short-term spike, as spot rates are back to mid-August lows after hitting multi-month highs. Activity lost its initial strong momentum for the core AG-East VLCC market and quickly charterers took advantage of the imbalance, driving spot rates down. Consequently, owner’s sentiment deteriorated, with Charterers fixing well below last done levels. The sudden decline has highlighted the market's fragility, where only a few quotes have been enough to expose underlying weaknesses. While these lower rates might entice Charterers to release more cargoes, overall market activity remains muted. AG/China routes are currently hovering around 10% weaker than a month ago, and although rates are still ~20% higher than a year ago, the fading momentum at the end of the summer season leaves little hope for a near-term rebound. In West Africa, the market is similarly subdued, though different dynamics are at play. The past week has been quiet, with Chinese Charterers continuing to favor the more competitive rates from Brazil over those from West Africa. This shift has redirected most West African cargoes to European destinations rather than Asia. Furthermore, the recent downturn in the AG market has now begun to impact freight levels in West Africa, leading to a gradual decline in rates. However, this trend is partially offset by the firmness of rates from the US Gulf, which remain strong and provide Owners with alternative opportunities. Overall, the VLCC market is lagging momentum and without some measurable change in oil flows which rely a lot on OPEC production, the next few months will most likely remain choppy and directionless before the winter market brings some much-needed stability.
• Oil Prices hit the low-$70s before Recovering on Renewed Geopolitical Uncertainty – The global oil markets continue to be driven by two major themes: From one hand, fundamentals seem soft as Asian demand continues to suffer and China remaining under pressure and showing little appetite for additional barrels. On the other hand, the Middle East conflict persists with daily developments that potentially could affect energy security when it comes to oil flows. Globally, inventories remain at comfortable levels, and although the week-to-week statistics might show draws or builds, there is ample margin of safety when it comes to oil storage. Last week, the recent resurgence of geopolitical uncertainly in the Middle East pushed oil prices back to the high $70s, erasing the previous steep decline, and once again confirming that the $70-$80 range is the level that most market participants remain comfortable with for now. As we approach the winter months, when OPEC is planning to gradually increase production, oil prices should refocus on the global market balance where the divergence between the IEA and OPEC remains wide with only a few months left till the end of the year.
• 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 is recovering in line with the global economy. A historically low orderbook combined with favorable demand fundamentals should continue to support increased spot rate volatility, which combined with the ongoing geopolitical turmoil, should support freight rates in the medium to long term.
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