Global tankers’ freight is expected to be mostly higher in 2025 due to US sanctions and geopolitical disruptions, despite a ceasefire in Palestine. However, the gains will be capped by newbuild deliveries and the ability of dirty tankers to switch to clean and vice-versa in a much shorter duration than earlier.
Recently, more than half a dozen Suezmax ships were exploring options to move clean cargoes in their quest for higher returns, though the plan did not materialize for most as dirty tanker freights also moved up in the bargain. If needed, tankers will now move back and forth between clean and dirty more frequently than they have ever done, market participants said earlier this week at an event of the Singapore Maritime Foundation, or SMF.
Platts’ Global VLCC Index, or GVI 7, which tracks the weighted daily earnings for non-scrubber, non-eco VLCCs across seven key routes using 0.5% marine fuel, averaged $28,277/day from launch date March 1, 2024, through the end of the year. The GVI 7 tracking scrubber-fitted and eco VLCCs averaged $40,641/day, highlighting the vast potential to garner higher earnings by using scrubbers and high sulfur fuel oil, or HSFO.
“The VLCCs are expected to perform better this year while the MRs may be somewhat lower,” said Ole-Rikard Hammer, Oslo-based senior analyst of oil and tanker markets at Arctic Securities. More than 100 new MRs are expected to hit the waters this year, according to brokers’ estimates.
Sanctions
After factoring in both the latest and the earlier announcements, almost 10% of the global VLCCs and Suezmax fleet and 18% of Aframaxes are in the sanctioned list, according to Edward Finley-Richardson, a Bordeaux-based shipping analyst with Contango Research. Now 75% of those Aframaxes, which spend at least half of their time moving Russian cargoes are under sanctions, a dynamic which can even encourage LRs to turn to dirty cargo, he said.
Aframax freight for North China from Russia’s Kozmino port is expected to receive a massive boost, sources said. The rate is already up by almost four times to over $6 million since the latest sanctions were announced, according to S&P Global Commodity Insights data. The route was assessed at $1.625 million Jan. 10.
Hammer said much of the freight direction will depend on the implementation of sanctions, as they can shift more of the oil trade onto the open market, which will be positive for the non-sanctioned fleet.
“They [sanctions] are broader and deeper and look the real deal, at last,” he said. Hammer was referring to Russian energy producers, Gazpromneft and Surgutneftegas, with a total export volume of 1 million b/d last year; and two of the country’s largest insurance companies, Ingosstrakh and Alfastrakhovanie, which have been brought under the American sanctions for the first time.
With pressure tightening on Aframaxes, the replacement tonnage that will move the barrels in the near term are VLCCs, according to Finley-Richardson.
The benchmark Persian Gulf-China VLCC freight has crossed the key psychological barrier of w70, according to Commodity Insights data. The route was assessed at w48.50 Jan. 10, when the latest round of US sanctions was announced.
The new sanctions come at a time when the oil production outlook is positive, said Enrico Paglia, a Genoa-based research manager with shipping brokerage and consultancy Banchero Costa, or Bancosta. Citing the US Energy Information Administration, Paglia said the crude oil output is expected to increase by more than 1.6 million b/d this year, almost three times faster than 2024, to 104.2 millon b/d.
Global oil demand is rebounding after a disappointing year, driven by a recovery in China’s oil demand and imports, added Hammer.
Ceasefire
While the fresh round of US sanctions is supportive for freight, the ceasefire in Palestine can cap gains if more shipments start moving through the Suez Canal, though it is unlikely to happen in the near term.
Israel and Hamas reached a ceasefire deal Jan. 15 after months of intense diplomacy. Any easing of tensions in the Red Sea will allow more tonnage to pass through, thus lowering the ton-mile demand, said Hammer.
“On the other hand, oil demand is likely to be strong on both sides of the Atlantic with the US economy humming along and Europe showing signs of rebounding from a long slump of many years,” he said, adding that the surge in natural gas prices in Europe can boost gasoil imports, supporting the clean tankers’ freight.
A lot will depend on new deliveries and outright scrapping of tankers. More than half of the global tanker fleet is now more than 15 years of age, and over one-fifth is more than 20 years old, said Paglia. There are 200 tankers scheduled for 2025 delivery, double the number from 2024, he said.
The ability of tankers to be “grey” and do both sanctioned and non-sanctioned trades or instead be squeezed due to stringent implementation of sanctions, is a much bigger factor than outright scrapping, added Hammer.
Source: Platts
