Charter rates for ultra-large crude carriers (VLCCs) on key routes have surged to their highest levels in over five years, as buyers seek alternatives to sanctioned Russian crude amid increased supply from Middle Eastern and U.S. producers.
Benchmark rates for VLCCs, capable of transporting up to 2 million barrels from the Middle East to China, soared to nearly $137,000 per day last week, marking a 576% increase this year. This is the highest since late April 2020 and surpasses the previous peak reached just two weeks ago. The VLCC rate index on certain routes also hit a five-year high of $116,400 per day.
According to a note by Jefferies LLC analyst Omar Nokta, this surge coincides with increased output from the U.S. and OPEC+ nations, particularly Middle Eastern producers, who are ready to supply more crude to buyers.
The shift in demand became evident as more fixtures were made last week for late November and December, with about a dozen vessels booked to lift crude from the Middle East. This further boosted earnings for VLCCs.
The higher freight rates also benefit the broader tanker fleet, with smaller vessels enjoying elevated earnings. Suezmax tankers, which carry about half the cargo of VLCCs, have been repositioned to the Middle East to load cargoes on routes typically served by VLCCs, according to Ioannis Papadimitriou, Vortexa’s lead freight analyst.
Earlier this month, a record number of product tankers, which typically transport refined products like jet fuel and diesel, switched to carrying crude oil to chase higher profits.
