Freight rates begin to recover from year-plus lows for VLCCs departing the US Gulf Coast

Freight rates for VLCCs traveling on trans-Atlantic routes out of the US Gulf Coast are recovering from year-plus lows brought on by finnicky demand for US crude exports and ample ship availability, a trend seen impacting all ship classes moving oil and refined products, according to market sources.

Platts, part of S&P Global Commodity Insights, assessed the rate for USGC VLCCs headed to the Mediterranean at $3.05 million lump sum on Sept. 23, up from $2.3 million on Aug. 13.

While rates have increased, they remain at levels not seen since September and October of 2023. The lowest level prior to August 2024 was on Sept. 13, 2023, when rates for the route were at $2.5 million lump sum.

Rates for dirty tankers en route from the USGC to the UK showed a similar pattern, assessed at $3.05 million lump sum on Sept. 23, up from $2.3 million on Aug. 13. The lowest level prior was also at $2.5 million lump sum seen in September 2023.

Shipping rates for vessels headed to Singapore and China were assessed at $6.5 and $7.5 million lump sum on Sept. 23, up from $5.8 million and $6.8 million lump sum Aug. 13, respectively. Rates were last lower in May 2023 at $5.5 million and $6.5 million lump sum, respectively.

While rates for crude carriers on trans-Atlantic routes have begun to recover, they are still averaging at lows last seen in October 2023, when ships traveling the Red Sea first became targets for Yemeni Houthis in response to the ongoing conflict between Israel and Hamas.

Market sources have attributed the lows to an ample number of ships in the USGC and depressed crude demand, which has pulled on previously elevated rates that climbed due to limited vessel availability seen most of 2024.

"So specifically, WTI Midland isn't something we track, we just track Aframaxes, Suezmaxes, and VLCC's total, but as a whole everything is down," one shipbroker said, explaining that demand for US oil products overall was down and not just specific crude grades.

"There is little demand and a whole lotta ships," another shipper for dirty vessels told Commodity Insights.

Unfixed demand for US crude leave ample ships in USGC

Demand for US crude exports remain at elevated levels in 2024 despite week to week volatility. US crude exports have averaged around 4 million b/d in 2024 and 2023. In 2022, crude exports averaged at 3.6 million b/d compared to 3 million b/d in 2021, and 3.1 million b/d in 2020, reflecting the impact the coronavirus pandemic had on demand at the time.

A majority of these barrels depart from the USGC, which has the capacity to export at least 6 million b/d of crude according to Commodity Insights analysts. Exports out of the East and West Coasts are largely negligible, averaging less than 50,000 b/d combined so far in 2024.

Still, the increased availability of ships could be a reflection of unfixed global demand, particularly from China. There appears to be a continued lag in the country's expected demand recovery post-pandemic, with recent data suggesting even weaker demand in 2025 from the top oil importer in the world.

Exports out of the Louisiana Offshore Oil Port terminal, for example, have plummeted to less than 100,000 b/d in August and September, compared to upwards of 200,000 b/d to 300,000 b/d seen earlier in the year.

China accounts for a majority of barrels leaving LOOP, having imported 132,000 b/d in June and 198,000 b/d in July. Those imports have dropped to none in August and only 43,000 b/d in September.

Offsetting China's demand for US crude is an increase in barrels coming from Canada.

Chinese imports from Canada rose 6.1% on the month to around 200,000 b/d in August, securing cheaper heavy-grade supplies from Canada via the Trans Mountain Expansion pipeline.

TMX exports have averaged about 360,000 b/d in July and August, with cargo destinations about evenly split between the USWC and Asian destinations according to Commodity Insights data.

Commodity Insights analysts were projecting a slight decrease of 108,000 b/d in crude imports to China during the third quarter compared with the previous quarter, primarily due to a major demand slump seen in July.

Chinese imports have already entered a growth trajectory since August, however, driven by increased runs approaching peak demand season during the Mid-Autumn Festival and the preparations for the seven-day National Day holiday, analysts said, which could be bullish for shipping rates.

Today, however, the combination of uncertainty around global demand has left shippers at a loss, with USGC rates sinking lower as fewer ships are being booked for trans-Atlantic routes.

For instance, only three VLCCs were booked on a USGC-TA route this September so far, compared to nine during the year-ago period. In August, six VLCCs were booked, compared to ten in August 2023.

The trend is not limited to VLCCs, with Aframaxes and Suezmaxes booking half of what they were last year, Commodity Insights fixtures data showed.