Geopolitical Volatility Fuels Surge in Tanker Rates

With tensions in the Middle East ratcheting upward again, the tanker market is taking notice.

In a weekly market opinion piece titled “Tankers in Turmoil” from New York-based broker Poten & Partners, top analyst Erik Broekhuizen notes, “While nobody knows what will happen next and how the various parties involved will respond, the uncertainty itself has pushed oil prices and tanker rates higher this week.”

Indeed, reports from Poten and others suggest that spot earnings for VLCCs (measured by time-charter equivalents) on Middle East to Far East runs, which had dipped down to approximately $30,000 per day during the summer months, were now up around $40,000 per day.

Brokers at Fearnley’s, in their Fearnpulse newsletter, highlight the shift in market dynamics, attributing the uptick to the changing geopolitical landscape.

“Recent geopolitical events have changed focus, and still underpinned by a balanced supply/demand picture, will add upward pressure,” Fearnleys said. “The front end of the Middle East Gulf position list of unemployed modern ships free of cargo has shrunk, and tonnage is controlled on fewer hands than seen for some time.” The advantage in the continual back and forth between vessels and cargoes has now shifted to the owners; “With latent volatility being a prized market ingredient, owners are in prime position to take advantage.”

While geopolitical factors play a significant role, demand-side factors are also influencing the market. London-based analysts at Gibsons are looking at bright spots from China—where oil imports have generally disappointed throughout 2024, and are on track to meet 10 million b/d, down from 11.3 m b/d in 2023. The broker’s market-watchers inform that: “Recently crude imports into China rebounded.”

Pointing to ongoing efforts to juice China’s economy, Gibsons’ analysts’ say: “The stimulus packages put more money into the pockets of Chinese consumers, which in theory should lead to an increase in consumption and industrial output, both key drivers of domestic fuel consumption. This in turn, could drive higher oil imports, providing support for the crude tanker market.”

Many of the market analysts have mentioned the export consortium of OPEC+, still planning to lift its exports later this year, of course, subject to politics.

Oil traders and tanker owners have seemingly short memories. In Spring 2024, the same VLCC hires had briefly touched on $90k/day (coincidentally working back to Worldscale rates around “92”) at a time when oil prices were $90/bbl—basis Brent, and analysts were whispering about “triple digit oil prices”. Recently, however, such whispers have re-surfaced.

We don’t know how events will unfold, but the Fearnleys team, looking at the worst case, tells readers: “Many market players have adopted a ‘wait and see’ attitude, but as and when proceedings kick off again in earnest rates could surge exponentially.”

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