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(Bloomberg) — Spot rates for transporting crude oil using the largest tankers from the Middle East to China, a key trade route, have experienced a significant decline of approximately one-third this year. This downturn is largely attributed to a slowdown in demand from China, the world’s largest oil importer, coupled with ongoing delays by OPEC+ in resuming previously halted production.
Typically, rates for this crucial route, which does not include Iranian loadings, tend to increase in the final quarter due to seasonal demand. However, this year has witnessed a departure from that historical pattern.
Market analysts are closely monitoring the decrease in demand from China, where crude imports have fallen nearly 2% compared to 2023 figures. This decline comes as government officials confront an economic slowdown that has adversely impacted the demand for raw materials. Additionally, a transition towards electric vehicles and liquefied natural gas (LNG) alternatives has contributed to the decreased usage of crude oil, putting further pressure on crude prices and setting the stage for potential consecutive annual declines.
The OPEC+ coalition, which includes oil producers like Saudi Arabia and Russia, has postponed efforts to gradually reactivate idle production capacities three times, indicating a cautious stance in light of the challenging demand landscape and increasing supply from other producers. Consequently, this has led to a reduction in the potential cargo volumes available in the market.
Henry Curra, head of research at Braemar, pointed out that “VLCCs have borne the brunt of this year’s surprise slowdown in Chinese crude imports,” referring to Very Large Crude Carriers that typically transport around 2 million barrels per trip.
According to shipbrokers, the Baltic Exchange’s TD3C Index, which tracks rates for VLCCs on the Middle East-to-Asia route, fell to Worldscale 39.05 last Friday. This represents a drop of roughly 33% year-to-date, equating to nearly $8.50 per ton.
VLCCs on the route from the Middle East to China are also facing increased competition from shadow tonnage originating from Iran, in addition to rising crude flows from Russia’s Far East, as Curra noted.
The declining freight fees present an additional challenge for tanker operators, who are also navigating disruptions in their Red Sea shipping routes due to vessel attacks attributed to Iran-backed Houthi rebels.
Amid the weakened demand from China, the number of supertankers making their way to the nation has reached a one-month low. Charterers are increasingly submitting low bids as they seek to capitalize on the prevailing market sentiment, according to brokers familiar with the situation.
Source
finance.yahoo.com