Very large crude carrier (VLCC) rates on the AG/Japan route tumbled by nearly w10 points within a day to w60 on Tuesday, according to Ocean Freight Exchange (OFE).
The drop comes on the back of S-Oil placing its tanker Australis on subs for an AG/Onsan run at w54.75, as charterers “went for the jugular,” with at least 4 older vessels fixed within the range of w55-w58 for an AG/East voyage.
“We believe that VLCC rates will remain depressed in the short term due to the upcoming refinery turnaround season in Asia, diminishing floating storage inventories that will free up more tonnage as well as OPEC production cuts,” OFE said.
Asian refinery maintenance over the next two months is expected to lower March cargo flows out of the AG, weighing on VLCC rates. At least 2 mmb/d of refining capacity in the East of Suez is expected to be offline in March, more than double that of last year.
China’s state-owned refiners account for around 50% of overall shut capacity in Asia in March, which will reduce AG-loading cargo volumes.
Additionally, the overall impact of OPEC’s production cuts “is evident from the fall in VLCC fixtures from the AG.”
The number of fixtures is estimated to have dropped by 9% m-o-m to 145 in February.
According to OPEC, compliance reached over 90% in January with Saudi Arabia shouldering the bulk of agreed cuts.