Freight for the benchmark VLCC 270,000 mt Persian Gulf-China route tumbled to w29.5 on Aug. 28, marking the first time the route fell below the psychological level of w30 in the past five years.
This was the third time the route fell below w30 in the past 15 years.
VLCC PG-China route rate fell below w30 earlier on Aug. 24, 2015, when it was assessed at w29.5, according to S&P Global Platts data. Before that, the rate on the route fell below w30 in April and May in 2009, the data showed.
The dwindling loading demand started to drag down the VLCC market since OPEC+ 9.7 million b/d output cuts came into effect in May.
The number of total spot VLCC fixtures for loading in the Persian Gulf is expected to be less than 100 in September, marking the fourth consecutive month when fixtures will be below that level.
In June, July and August, they were estimated at around 91, 94 and 93, respectively, compared with 160 and 127 in April and May, according to brokers.
So far only 36 cargoes have been covered with tonnage for loadings in the Persian Gulf in September, the estimates showed.
"As the market examines whether this summer week will be seen as the bottom, we still hear the general cry of 'where are all the cargoes?' echoing in the market as we have only seen 33 fixtures so far for September," the shipbroker Charles R. Weber said in a note.
VLCC demand was eroded further after oil companies were seen nominating less quantity as a result of the coronavirus pandemic.
"Many regular VLCC charterers are opting for smaller liftings, the likes of Suezmaxes, despite paying higher freights per barrel," the broker house Fearnleys said in the latest weekly report.
At this juncture, divergent views were heard surfacing regarding the market outlook.
While some market sources said the market is unlikely to fall further given the already low time charter equivalent, or TCE, rates, others cautioned that "the market is likely to have further room going down given the time charter equivalent is not at the lowest level yet."
The TCE was at the $11,000/day-$12,000/day level on Aug. 28, while the lowest level in 2019 was around $6,000/day, a broker said.
Looking forward, a VLCC source said "the limited availability of import quotas left for Chinese independent refiners this year is having a deep impact on the crude loading demand and it is also part of the reason leading to the congestion in Zhoushan, Qingdao, Rizhao, Yingkou, Jinzhou ports."
Going forward, if the loading demand does not show improvement, the rates will depend on whether charterers want to further bargain on the freight cost, he said.
He further said, "the current market is still met with strong resistance from owners due to the owners' earning eroding with higher bunker cost."
