The VLCC market spent the past week retreating from record highs, but it has not softened by much. Lloyd’s List describes crude tankers as in correction after the Hormuz-driven “super spike”, with spot rates still at levels unheard of before the crisis and no floor yet found. Clarksons reported VLCC spot earnings down almost 25% on the week to $541,000/day for eco-scrubber units. Braemar research has US Gulf-China at $452k/day, down from a $638k/day peak two weeks ago, and Gulf of Oman-China down from $913k/day to $657k/day.
The main driver is demand destruction on long-haul Atlantic voyages. Clarksons notes that November US crude bookings to Asia are running at about half of last month’s volume. Moving crude east on a VLCC costs roughly $29/bbl from the US Gulf to China, against $15.6/bbl from the Gulf of Oman and about $15/bbl for the same volume on three Aframaxes to Europe. TradeWinds reports that traders are switching to smaller tankers for US exports as VLCC costs become prohibitive. Asian refiners are leaning on shorter-haul Middle East barrels, which is bearish for tonne-miles.
Breakwave Advisors sees limited downside, because the fleet is running far below its normal efficiency. Shuttle voyages out of the Gulf have lengthened from 11.5 days in August to 13.6 days since September. About 40% of Yanbu-origin crude bound for Asia is going around the Cape, and roughly a quarter of the non-sanctioned fleet is tied up in the Hormuz shuttle or heading to the Middle East. Easing sanctions would add little, since the 170 sanctioned VLCCs average 22 years old and only 25 hold valid class certificates.
Crude prices carry the same risk premium. Brent settled at $116.72 on 23 October, its highest close since late April, then eased to $113.88 on 27 October after Saudi, Pakistani and Turkish officials met Iran’s president in Tehran. It was back above $115 on 28 October after the Houthis claimed a missile strike on Ras Tanura. The physical picture is more mixed. Middle East exports excluding Iran are back at or above pre-war levels, yet Hormuz carries only about 19 commodity vessels a day, against more than 100 before the war. The market is pricing risk to infrastructure and transit, not a shortage of barrels.
Geopolitics remains the dominant swing factor. Iran has attacked at least 30 tankers since the start of October, and the true number may be higher because owners are reluctant to report incidents. Iran’s Persian Gulf Strait Authority says it will take legal action against all Sinokor vessels from 1 November, its first blanket warning covering an owner’s entire fleet. Sinokor’s VLCCs account for around half of VLCC transit through Hormuz. The Korea Shipowners’ Association says the vessels at issue were sub-chartered rather than Sinokor-owned, and the form of the “legal action” remains unclear.
Freight futures and asset markets are not signalling a collapse. Clarksons cites 2027 US Gulf-China FFAs at $213,000/day and VLCC resale prices at $245m, up from $145m at mid-year. Separately, TradeWinds reports that Mercuria fixed VLCCs out of Hormuz before suing the Baltic Exchange over a route it called “hypothetical.” The next three weeks are event-heavy. Iran’s Sinokor action and the OPEC+ meeting both fall on 1 November, US midterms follow on 3 November, and the EIA outlook is due on 10 November. The Wall Street Journal has reported that the US has told Gulf states to prepare for a possible short, intense campaign against Iran after the vote, though no final decision has been made. We expect volatile rates with a high floor. A longer Gulf of Oman position list is the main downside risk, and any fresh disruption that sends Asian buyers back to Atlantic cargoes is the main upside risk.