Tanker boom breaks every historical benchmark

A benchmark tanker rate has entered seven figures for the first time, marking an extraordinary moment in shipping history as war risk sends earnings across virtually every tanker class to record or near-record levels. Also for the first time on record, 10-year-old VLCCs are commanding greater prices than newbuilds. 

The Baltic Exchange’s TD3C benchmark for a VLCC carrying 270,000 tonnes of crude from the Middle East Gulf to China has pushed through the equivalent of $1m a day. However, the number needs treating with caution. As Splash has reported throughout the conflict, TD3C has become increasingly theoretical as the number of owners prepared to transit the Strait of Hormuz has dwindled and normal Gulf fixing patterns have broken down. Nevertheless, the seven-figure print is a remarkable marker for a sector where $200,000 a day was once regarded as an exceptional, once in a lifetime market.

BRS described earnings as “stratospheric”. The broker argued in a new report that risk appetite has increasingly trumped traditional fundamentals in recent months, with voyages loading inside the Gulf commanding an enormous premium over those starting outside Hormuz.

“Even seasoned veterans are looking at current developments in the market and scratching their heads,” Poten & Partners stated in a new report, putting the current rally into historical perspective. “What is happening is truly unprecedented,” the American broker added. 

VLCC earnings approached $200,000 a day during the final stages of the shipping supercycle in July 2008 and again during the floating storage boom at the start of the pandemic in April 2020. Today’s Gulf numbers are around five times those previous peaks.

Even away from the conflict zone, earnings remain exceptional. Poten calculated last week that VLCCs loading in the Gulf of Oman could earn around $450,000 a day, while West Africa-Far East returns were around $380,000 and US Gulf-Asia about $275,000.

“The current freight system is very tonnage-inefficient, adding on to tightness in effective supply,” broker Arrow noted in a new report issued today. “Crude trade has been predominantly long-haul for six months, and with the AG largely out of commission, tankers have lost the triangulated voyage patterns that normally keep the fleet efficient . As a result, the fleet is burning more sea-days per delivered barrel than it was pre-conflict .”

Moreover, Arrow pointed out that with Arabian Gulf showing signs of life – rejuvenated by shuttle trades – owners have increasingly held ballast tonnage in the region rather than committing it elsewhere, in a wait -and-see posture as they assess whether Arabian Gulf normalisation sticks.

“The sentiment-driven boost we are seeing to the freight rally now is in part due to a resurgence of an urgency premium – particularly for Asian buyers,” Arrow explained, noting in particular the return of China back heavily into a crude buying mood. “With buffers this thin on both the crude and product side, buyers are more willing to pay up for prompt, guaranteed freight . The utmost lack of a supply buffer that would normally let buyers wait out volatility, is dealing a heavy hand in amplifying freight rates.

The extraordinary market is spreading rapidly down the tanker sizes. BRS described the suezmax market at the end of last week as having “gone irrational”. West Africa-East rates had jumped from WS260 to around WS480 in a week, while cross-Mediterranean business reached WS600. Its calculations put cross-Med suezmax earnings at more than $435,000 a day.

Aframaxes are also flying. TD25 surged to around WS500, while BRS calculated earnings on some Mediterranean trades at close to $187,000 a day.

The clean market is joining the party. Middle East LR1 indications have reached WS800 and LR2s around WS750, while owners across multiple segments are increasingly reluctant to commit ships early as rates continue climbing.

SSY described crude tanker earnings this month as being at “all-time highs”, highlighting record Black Sea suezmax returns alongside soaring VLCCs and strengthening aframax and LR markets.

The boom is also feeding directly into asset prices. Braemar estimates a five-year-old South Korean-built VLCC could now be worth around $170m and a 10-year-old ship close to $150m, compared with about $135m for a newbuilding. The broker said this is the first time it has seen 10-year-old VLCC values exceed newbuilding prices.

Another extraordinary marker has come from New York-listed owner DHT, which revealed last night it has fixed the 2016-built DHT Panther for three years at $100,000 a day with a global energy company, starting in October. For perspective, three-year VLCC rates averaged just $58,545 a day in 2008, at the height of the previous supercycle, while Clarksons currently assesses three-year employment at around $80,000 a day. 

Splash understands today that a 23-year-old VLCC has changed hands for $62.25m, underlining the extraordinary asset inflation now gripping the tanker market.

The 309,200 dwt Xi Xiu, built by Samsung Heavy Industries in 2003 and linked to Chinese interests, has been reported sold by brokers at more than double the just-under-$31m price achieved when the ship, then Loggam, changed hands early last year.

The vessel is listed by United Against Nuclear Iran (UANI) as part of Iran’s shadow fleet, although it is not currently sanctioned by the US, UK or EU.

The deal also tops August’s reported $57m sale of the 23-year-old Hellstugutinden, providing further evidence of the remarkable premium now being paid for vintage VLCC tonnage.

Middle Eastern national oil companies (NOCs) are helping drive the scramble for prompt tonnage. ADNOC has acquired six VLCCs since late July, while ships reportedly linked to Iraq have changed hands at incredibly high prices.

Braemar calculates NOC-owned VLCCs have carried around 24% of Middle East VLCC exports since the US-Iran war began, compared with 12% in 2023.

In the short term, few analysts see an immediate end to the squeeze. BRS estimates around 15% of the global VLCC fleet is already involved to some degree in shuttle operations around Hormuz and argues that heightened risk could add further “fuel to the fire” under rates.

Morgan Stanley is more structurally bullish, arguing that longer voyages, floating storage, an ageing fleet and geopolitical disruption could keep tanker capacity tighter than tonne-mile demand beyond 2027.

Braemar, however, has sounded one longer-term note of caution. If Middle Eastern producers keep the fleets they are now rapidly accumulating, more cargoes could ultimately be carried on NOC-controlled ships, reducing liquidity in the regional spot market and lowering the earnings ceiling for independent owners.

Summing up today’s situation, Arrow argued that today’s tanker rally would likely extend deep into Q4. 

“VLCC owners are living through a rare alignment of supply scarcity, fleet inefficiency, depleted inventories, and returning Chinese demand — first manufactured, and now reinforced by the Iran conflict . The ceiling has not been reached, and will shape up to be one of the strongest quarters the tanker market has ever seen, albeit with a finite set – up: a demand-side unwind or an Iran de-escalation both sit on the horizon,” Arrow concluded. 

While tankers have been hogging the limelight this week, many other sectors of merchant shipping are also enjoying incredibly strong spot earnings to the point where the ClarkSea Index has climbed to an all-time high of $56,567 a day.

Clarksons Research’s cross-sector index, which tracks earnings across tankers, bulk carriers, containerships and gas carriers, is now running at nearly three times its 10-year average of $20,366 a day. The latest reading is around 178% above the decade average and surpasses the $53,190/day level reached in March during the first dramatic phase of the US-Iran war. It also comfortably exceeds the previous pre-2026 record of $50,714a day, set in December 2007 at the height of the last great shipping boom.

The strength is broader than tankers, however. Dry bulk earnings are also at multi-year highs, while containership, LPG and car carrier markets remain historically firm.

source : splash247