Lingering Over-Supply Tempers VLCC Outlook

Much like the broader macroeconomic news of the past two weeks, VLCC indicators have been seemingly incongrous. An ominous milestone was reached last week when the Baltic Exchange marked five-year double-hull VLCC resale prices at the vessel’s lowest level since their panel started reporting such values almost ten years ago. The number of VLCC fixtures, however, was higher than ever before. Not surprisingly, years of overbuilding continue to drag down rates, largely overwhelming any demand gains. Although there is a case that the supply picture could improve in the medium term, storm clouds remain in the short term, given a final surge in VLCC deliveries in early 2013, combined with stabilising Chinese crude oil imports and rising global crude inventories that could pressure OPEC production levels. Download here