Iran-Israel missile war sees ship owners withhold tonnage, fuels VLCC market rally

The East of Suez VLCC market surged sharply at the start of the new trading week June 16, with sentiment swinging bullish as owners held back tonnage in anticipation of further upside.

S&P Global Energy assessed the benchmark Persian Gulf–China route at w60 on June 16, marking a sharp w12 point gain, or a 25% increase from June 13.

This translates to a freight cost of $13.27/mt to transport crude from the Persian Gulf to China, the same level last seen on May 27.

Market participants cited the Israel-Iran war as a key driver of uncertainty, leaving many unsure of where rates will ultimately settle.

"Everyone's waiting -- nobody knows what's going to happen," said a VLCC broker.

"We're holding back our ships for now; the strategy is to wait," said one VLCC owner.

Another owner added, "I honestly don't know what the market level is -- it could be anything right now. Some cargoes are quietly being fixed under the radar."

Owners were also heard to be hesitant about sending their ships through the Strait of Hormuz.

While the market has yet to receive a definitive list of which owners are willing to go, participants said some owner are keeping their options open and reviewing the situation on a day-to-day basis, noting that the situation could shift overnight.

What's also supporting the freight market is the start of a fresh loading cycle in the Persian Gulf, with more charterers actively seeking VLCCs for early July laycans stems.

Hyundai Oilbank was heard seeking a VLCC for July 1 loading of 270,000 mt crude from the Persian Gulf to South Korea, which may help establish the next done level, according to market sources

Hellenic was also heard in the market for a July 5 loading of 280,000 mt from Basrah to Malta and Pachi.

Meanwhile, market participants are also closely watching for any updates from insurance underwriters, as the escalating Israel-Iran war could drive insurance premiums higher.

The Suezmax and Aframax markets also saw similar upward movements out of the Persian Gulf, as owners held back tonnage from fixing, market sources said.

"Ships still need to find employment -- it's a question of who blinks first," one broker noted.