“IF you had asked me 12 months ago what the VLCC market would do in 2024, I would have been incredibly positive,” said Mette Frederiksen, head of research at Tankers International, during the Breakwave Day online forum on Thursday.

“I probably would have said we were on the cusp of something great. This, of course, did not play out as we expected.”

Sentiment on very large crude carriers worsened through the second half of this year and has continued to deteriorate. The winter upswing is nowhere in sight.

“The market still feels very bearish right now,” said Richard Matthews, research director at Gibson Shipbrokers. “I sit in the office right next to the VLCC broking desk. I hear what they’re talking about today, and there’s definitely a feeling that people have given up now for the year, and they’ll worry about it next year.”

What went wrong in 2024

Analysts speaking during the Breakwave Day event summed up what went wrong for VLCCs this year: demand, in particular Chinese demand, disappointed; China replaced longer-haul Atlantic basin barrels with sanctioned crude from Russia and Iran, as well as more non-sanctioned Middle Eastern crude; Opec kept production cuts in place; and Brazilian crude production fell short.

Global demand growth estimates for 2024 have declined by around 400,000 barrels per day since the beginning of the year, “with revisions to the global demand growth outlook correlating very strongly with revisions for Chinese demand growth in 2024”, said Frederiksen.

VLCC tonne-mile demand in 2024 (excluding sanctioned trades) is down 3.5% in 2024 versus 2023, she added.

According to Matthews, “Chinese crude imports fell by about 200,000 bpd this year. China has also taken more Middle Eastern crude and more sanctioned crude, and they’ve cut their imports from the Atlantic basin. That means that as their demand has fallen, the tonne-mile demand impact has been even greater. That’s why this year underperformed in my mind.”

Frederiksen said China has sourced 2.7m bpd of seaborne crude this year from Russia, Iran and Venezuela. Russian crude goes to China and India onboard suezmaxes and aframaxes, displacing VLCC demand, while Chinese imports from Iran and Venezuela are shipped by shadow tankers “so we don’t see the benefit in the mainstream tanker market”, she said.

“The most significant impact this year has been the big rise in Iranian oil flow into China,” she continued, whether directly to China or via Malaysia.

This trade averaged 1.2m bpd in 2024, she said. “On an annualised basis, we see 250 VLCC fixtures going into China with sanctioned oil. That is about 20 fixtures per month taken away from mainstream tanker markets.”

Meanwhile, VLCC demand for Atlantic basin loadings took a hit from production issues. “Much lower production growth in the Atlantic, mostly from Brazil, meant we had less crude exports out of the Atlantic basin,” said Anastasia Zania, lead tanker analyst at Energy Aspects.

Frederiksen noted that 2024 non-Opec production growth has been revised downward from 1.2m bpd to 700,000 bpd currently “with most of that adjustment coming from Brazil not realising the expansion plans we expected a year ago”.

“And with China not drawing as many mainstream barrels from the Atlantic basin, that left Atlantic exports staying within the region west of Suez, which of course means shorter distances, and for the VLCC segment, it means more competition with smaller tankers that traditionally operate within these more localised markets.”

Positive sign in November

Several speakers pointed to a hopeful signal for the VLCC market in November: China imported less crude from Iran and more from non-sanctioned sources.

“One of the more encouraging developments we’ve seen in the last month or so is more Chinese buying of other Middle Eastern grades, and also a bit more buying of West African grades,” said Frederiksen. “I also saw a big spike in fixtures in November into China from the US and from Brazil.

“We have heard reports in the last few weeks that Chinese refiners are facing more pressure to reduce their reliance on Iranian oil, due to tougher US sanctions and also, because of rising costs.”

According to Jonathan Staubo, oil tankers advisor at Fearnleys, “We’ve seen the Chinese teapots [refineries] starting to buy oil from other sources than Iran more recently, partly because the discount for Iranian oil is so much smaller now than it has been in the past, so it’s not worth taking the risk anymore.”

Tankers International tracks VLCC tonne-miles of Chinese imports both excluding sanctioned trades and including them. For most of the year, there was a large spread due to heightened Chinese sourcing from Iran. In November, the gap narrowed sharply.

“This coincides with all the reports we’ve been hearing about China pulling away from the sanctioned Iranian business and utilising more mainstream vessels,” said Frederiksen.

“Whether this is purely down to price points, or whether they are indeed trying to align themselves with Western sanctions, remains to be seen. This is just one data point, so we can’t draw any final conclusions yet.”

What could go right (and wrong) in 2025

Analysts were generally optimistic that 2025 will be better for VLCC rates than 2024, citing risks to both the upside and downside.

The big downside risk is obvious: weak demand in general and from China in particular. “One crucial element in any scenario is that we need the demand base to come back, especially in the Far East. What has disappointed in 2024 is the demand base,” said Frederiksen.

According to Matthews, “When we get into next year, Chinese demand is going to be key, and I’m not hugely optimistic when I see the structural changes taking place in China, be that LNG [fuelled] trucking or EV penetration. My biggest fear factor next year is on the Chinese demand side, particularly when we’re talking about VLCCs.”

The biggest source of optimism among the analysts was on the supply side, specifically, projected growth in Atlantic basin production.

“I think the main difference we see going into next year is much higher expected production growth,” said Staubo. “Historically, production growth is the driver of crude tanker demand. Yes, there are potential downside risks for the supply forecasts for non-Opec but… I think there will be a much bigger tanker demand ‘push’ next year than we had this year.”

Matthews said, “The oil supply is going to increase substantially, and when I look at the balances in the oil market for next year, it doesn’t balance. It doesn’t add up. There’s too much oil coming. There’s not enough demand.

“So, demand either has to be higher than expected, oil supply has to correct lower, or we see a contango and we see storage opportunities. The supply still has to go somewhere. Whether that means it forces prices lower and we revise our demand estimates up because of lower prices, or whether that goes into storage, that’s all potentially additional seaborne tanker flows.”

According to Frederiksen, “Looking ahead to 2025, current projections put non-Opec production growth at 1.6m bpd, and about 1.3m bpd of this is located west of Suez, while demand is centred in the east-of-Suez markets.

“This in theory should drive oil flows from the West to the East, and should provide a lot of support for the VLCC market in 2025. If we assume 1.1m bpd in demand growth and we assume all of that comes from west-of-Suez suppliers, we could see extra demand for about 30 to 35 VLCCs based on this trade alone.”

The Trump ‘wildcard’

The election of Donald Trump adds another layer of uncertainty in 2025, and a potential major upside if Iranian sanctions force more barrels back to mainstream tankers, building on the shift seen in November.

Trump is “one factor I’ve not wanted to place any bets on today”, said Frederiksen. “He can be quite unpredictable, to say the least”. She dubbed Trump “a bit of wildcard that could swing either way, to either side of the scales”.

According to Matthews, “The uncertainty is massive. We need to see Trump in the White House. We need to see what his first 100 days look like, what the implications are for Iran, and what the implications are for Russia and Ukraine, and then we can start to make a strategy from there.”

Zania said, “There is significant uncertainty until there is clarity on Trump administration policies, which could range from tariffs that weigh on global demand to potential tightening of sanctions enforcement. We have seen how the oil market and to a lesser extent the tanker market moved on tweets during his previous presidency, so we expect next year to be more volatile.”

According to Nadia Martin Wiggen, director at Svelland Capital, “What would really stimulate this market going forward is more sanctions coming onto Iran in such a way that China stops buying Iranian crude. In addition, the Trump administration could also place sanctions on Russia if it wanted Putin to bend more on the Ukraine situation.

“However, it would be a difficult negotiation with China, because China has to agree to this, and the only way we see that that can happen is through a tariff agreement [in which] the US will tariff China less,” she said.

Matthews said, “I do expect tougher sanctions on Iran will shift some demand from the Iranian trade to other Middle Eastern barrels and US barrels on non-sanctioned ships. I think there’s potential upside.”

According to Staubo, “We obviously don’t know what’s going to happen, but looking at everyone who has been hired by Trump so far, it’s more hawkish in terms of their expected approach toward Iran.

“We think there are some downside risks for Iranian flows, which means China will need to replace some of those barrels from other areas. We expect to see some floating storage of Iranian oil, because some of the previous buyers of those Iranian barrels will not take them anymore and will rather source from other areas. That might leave some of the shadow fleet idled and less efficient.”

There’s also potential for “massive upside if there are broad sanctions like in 2019”, Staubo said. “That is how things may quickly become more interesting.”

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