Reflecting on 2024
At the start of 2024, the global shipping industry saw encouraging signs and was optimistic about the year ahead. Key forecasting agencies projected strong oil demand growth, driven primarily by China and other nations East of Suez. At the same time OPEC’s production cuts seemed set to be counterbalanced by non-OPEC suppliers expanding their output, particularly in the Atlantic Basin West of Suez.
The temporary removal of Venezuelan sanctions also reshaped the market going into 2024, integrating previously sanctioned trades into mainstream operations while geopolitical events in other parts of the world caused disruptions and delays.
All these factors pointed to increased tonnemiles and vessel demand – especially for trading routes running West to East. With vessel supply stagnant or in decline, the basic principles of supply and demand suggested an upward trajectory for freight prices. However, the reality of 2024 did not fully align with these high expectations.
Oil demand growth
Throughout 2024, revisions from forecasting agencies downgraded global oil demand growth by approximately 400,000 barrels per day (bpd). This adjustment closely mirrored downward revisions to China’s growth forecasts, which dropped by more than half a million barrels through the year
China’s oil demand remains a key driver of tanker markets and in 2024, the impact on the VLCC sector was twofold: slower-than-expected demand growth dampened overall market activity, and increased reliance on sanctioned oil further skewed dynamics.
Approximately 2.7 million bpd of China’s seaborne imports in 2024 originated from sanctioned countries, including substantial volumes of Iranian crude. We also saw Russian crude following to China, but much of this bypassed the VLCC market, instead utilising smaller tankers. Overall, shadow fleet activity into China diverted around 20 VLCC fixtures per month from the mainstream market.
Despite these challenges, there are signs of potential recovery. In November, Chinese refiners began sourcing more non-sanctioned crude from the Middle East and West Africa. This shift reflects both increasing U.S. sanctions pressure and rising costs associated with sanctioned oil.
As we now enter 2025, agencies forecast global oil demand growth of 1.1 to 1.4 million bpd, aligning with long-term averages. This suggests that, while 2024 was challenging, the broader demand outlook remains stable.
OPEC+ vs. Non-OPEC production dynamics
OPEC+ remains a key influence, with plans to reintroduce 2.2 million bpd of voluntary production cuts over an extended 18-month period starting in April 2025. The phased return of these barrels, primarily from Middle Eastern countries, could add demand equivalent to 55 VLCCs if directed to Eastern buyers.
While OPEC+ kept voluntary cuts in place through 2024, non-OPEC production growth, particularly from the Atlantic Basin, remained robust. However, realised growth fell short of initial expectations due to slower-than-anticipated growth from Brazil and lower-than-expected US exports. Furthermore, with China not drawing as many barrels from the Atlantic Basin, Atlantic exports remained largely within the West of Suez region, leading to shorter voyages and lower tonnemile demand. Looking ahead to 2025, projected non-OPEC production growth of 1.1 – 1.7 million bpd, with the majority expected from West of Suez producers, could drive significant West-to-East oil flows, benefiting VLCC demand.
Tonnemiles and fleet development
2024 saw fluctuations in vessel demand, including an unseasonal dip in September and October, followed by a recovery in November. Overall, spot market demand ended the year around 5% below 2023 levels.
The VLCC supply side continues to be fundamentally positive:
The orderbook remains historically low at just 80 vessels (8% of the trading fleet)
The fleet’s average age has reached 12 years, with over 100 vessels now 20 years or older
Over the next four years, the number of vessels exceeding 20 years will double, representing 21% of the trading fleet.
With only 80 newbuilds in the pipeline, the effective fleet size is poised to decline as older vessels become less efficient. Add to this a large pool of older, exit-ready ships, the medium-term fundamentals are promising.
Looking forward into 2025
The market dynamics of 2024 resulted from a convergence of small events that collectively enforced downward pressure on freight rates. However, the fundamentals for 2025 suggest a more optimistic outlook:
Non-OPEC supply is projected to have strong growth, and most of this is West of Suez
OPEC+ production is set to gradually return to the market, potentially bolstering VLCC demand
Geopolitical challenges remain a persistent factor, contributing to inefficiencies and supporting tonne-mile demand
Fleet constraints could lead to an effective decline in vessel availability, exacerbating market tightness.
The main wildcard remains China. Both the growth of its oil demand and its sourcing patterns will be crucial in determining the trajectory of VLCC demand. If fundamentals align, 2025 could mark a significant turning point for the freight market.
Tankers International remains cautiously optimistic; we believe that 2025 holds the potential for a market recovery driven by robust fundamentals and a balanced fleet dynamic.
Data Source: Tankers International