VLCC market to benefit from more tonne-miles – but by how much?

Saudi Arabia will hike December crude prices for customers in Asia to levels last seen in 2013 or 2014, according to a Reuters survey this week. OPEC-led output cuts and robust demand are re-balancing markets for the commodity.

Arab Light’s December official selling price will be increased to at least 90 cents a barrel above Oman/Dubai quotes, which would be the highest premium seen since September 2014, when it was $1.65, according to Reuters data.

Heavier grades may see a bigger boost in price during December, with Arab Heavy’s OSP set to rise to at least $1.30 below Oman-Dubai quotes. That would be the narrowest discount for Saudi heavy crude since minus $1.05 in December 2013, the survey showed.

While Saudi crude is due to become more expensive for Asian customers, new research has highlighted how China has been sourcing its oil from further afield.

China imported 13.0% more crude oil (around 0.9m bpd) during the first nine months of 2017 than it did during the same period last year.

BIMCO research says Angola, Brazil, the Republic of Congo, the UK, the US and Venezuela have all exported higher volumes of crude to China during 2017 than they did in 2015 and 2016.

By the end of this year, Angola is expected to overtake Saudi Arabia as China’s biggest crude supplier in terms of volume.

Because these producers are located further afield than Saudi Arabia, this has translated to more tonne-miles for VLCCs. (This has been reflected in a very mediocre year for spot rates on the MEG-China (TD3C) route).

Tonne-miles have surged by 18.0% because the crude has been sourced from further afield than the Middle East, according to the BIMCO research.

BIMCO estimates the average distance per tonne of crude oil imported by China was around 7,500nm so far this year, which has grown from 7,200nm in 2015.

This is all very welcome news. However, tanker supply continues to outstrip demand and will do so for the foreseeable future.

The fleet on the water currently comprises around 732 vessels, with an average age of 6.5 years. A further 97 vessels are on order, equivalent to just over 13.0% of the live fleet. Of these vessels, around three-quarters are due to arrive by the end of 2018.

This large addition of tonnage in a relatively short space of time means that fleet overcapacity will continue to be a challenge for the sector, unless commodity markets change radically in the next 12 months.

The one positive – even if it’s only a small one – is that Saudi price hikes should add to the impetus behind Chinese imports of crude from far-flung lands.

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