Gibson: New OPEC Cuts to Extend VLCC Woes

The very large crude carrier (VLCC) market could experience a downturn, which is likely to accelerate in the short term, on the back of OPEC’s extension of production cuts.

OPEC and a number of non-OPEC producers earlier informed of their decision to extend production cuts to March 2018. Cutbacks largely originate out of the Middle East, where most VLCC trade comes from.

During the first five months of this year, VLCC spot earnings on the benchmark trade from the Middle East to Japan averaged USD 27,000/day, less than half the level of TCE returns witnessed over the same period last year, according to a report from Gibson Shipbrokers.

Although USD 27,000/day “is still not bad by conservative estimates,” extending cuts for another nine months will coincide with continued rapid growth in the tanker fleet.

Between now and the end of March 2018, 34 VLCCs are scheduled for delivery, while 25 tankers have already been delivered since the beginning of the year. Although slippage in terms of delivery dates is likely to continue, the market will see a robust growth in the VLCC fleet size.

Furthermore, if OPEC succeeds in its intention to rebalance oil markets, this will translate into a further decline in VLCC floating storage, a big support factor to the market since early 2015, Gibson Shipbrokers informed.

“The next nine months may prove to be not as bad for VLCC owners as some feared. However, as always is the case, the future fortunes do not only depend on the market fundamentals, but also owners’ confidence or the lack of it.”

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