Tanker Freight Rates Pull Back After Weeks of Record Highs

Tanker freight rates retreated on October 15 across most of the Baltic Exchange's main indices, with the exception of Persian Gulf-origin assessments, which rose due to an increase in attacks on vessels crossing the Strait of Hormuz. The decline was attributed to lower chartering activity and uncertainty over the future of the shadow fleet.

Rates for VLCCs carrying crude from the Gulf of Oman to China fell to around 776 points on the Worldscale scale, down from 841 points the previous week, which had been the highest level since that index was launched this year. According to a Kpler analyst, demand on that route eased as higher rates in the Persian Gulf and lower export volumes reduced use of that lane. A Sparta Commodities analyst added that comments from the Trump administration about a possible lifting of sanctions on part of the shadow fleet also put downward pressure on rates.

Freight futures weakened on the possibility of more vessels becoming available if sanctions on the shadow fleet are lifted. According to cited estimates, 43 tankers could rejoin the conventional fleet if the United States withdraws sanctions, although the impact on rates is expected to be marginal. Doubts also persist about the safety of those vessels, given their opaque insurance arrangements and questioned operating standards.

Days later, around October 19, the correction deepened across nearly all segments. The Oman-China VLCC index stood at $790,181 per day, 13% below its early-October peak and the lowest level since September 14, while the West Africa-China index fell 16% and the U.S. Gulf-China index dropped 19%. Suezmax and aframax indices also retreated, with the latter falling by as much as 39% on some routes from their record highs earlier in the month.

U.S. Energy Secretary Chris Wright explained at a forum that the plan is not to lift sanctions across the board, but rather to convert part of the so-called irregular fleet into vessels authorized to operate legally, a process he acknowledged will take time. Analysts and brokers consulted believe the plan would have a limited effect on rates unless the United Kingdom and the European Union also lift their own sanctions.

At the same time, rates for VLCCs loading in Brazil also showed a sharp decline from their record levels, in a calmer market that allowed charterers to negotiate rates down, with fixtures reported for vessels from Delta Tankers and Koch.