THE sanctions-fuelled rally in very large crude carrier stocks has at least temporarily paused, but not the rally in VLCC spot rates.

The Baltic Exchange VLCC time charter equivalent index jumped 33% on Tuesday to $47,916 per day. The VLCC index has doubled over the past week. Some spot fixtures are much higher. The Tankers International pool reported a VLCC fixture on subjects on Tuesday at $79,817 per day.

Average VLCC spot TCE rates have been lower than suezmax and aframax rates for most of the past year. Now, sweeping new US sanctions have changed the equation and put VLCCs back on top.

By discouraging Chinese and Indian buyers from taking Russian cargoes on sanctioned tankers, more volumes should be forced toward mainstream VLCCs, increasing demand and spot rates.

The latest US sanctions announcement came four days after China’s Shandong Port Group said it would cease handling US-sanctioned tankers, a decision that will curtail both Iranian and Russian flows, another positive for mainstream VLCCs.

As of Thursday, the Baltic Exchange suezmax index was at $25,110 per day and the aframax index was at $26,410 per day. Average VLCC rates are now 91% higher than suezmax rates and 81% higher than aframax rates.

Share prices of listed VLCC owners have risen by double-digits in recent days.

Tanker shares first jumped on January 7, after unconfirmed reports of the sanctions were published by Reuters and the Shandong Port Group announced its decision. Shares then jumped again on Friday and Monday after the official US sanctions announcement came out.

Tanker shares pulled back slightly on Tuesday on much lower volumes than in the prior two trading sessions.

Year to date, shares of Frontline are up 26%, with DHT up 16%, Okeanis Eco Tankers 15% and International Seaways (which also owns a large product tanker fleet) up 14%.

The Breakwave Tanker Shipping ETF (BWET) has outperformed stocks of VLCC owners in recent days and is now up 26% year to date. BWET is an exchange-traded fund that buys near-dated forward freight agreements — heavily weighted to Middle East-China VLCC FFAs — to mimic spot rate trends.

The sanctions-driven rebound in spot rates and sentiment follows a very bearish period for VLCCs. Average rates for VLCCs have rebounded to where they were a year ago after languishing in the second half of 2024. Most of the VLCC shipowner stocks are still below where they were at this time last year.

DHT is the only VLCC owner stock in the black, up 9% from mid-January 2024 based on adjusted closing prices. Shares of Frontline are still down 11% year on year, International Seaways 8% and Okeanis 4%.

BWET is down 32% from a year ago even with its latest surge. Its performance has lagged VLCC owner stocks throughout the past year, implying that stock-picker sentiment got ahead of the FFA market.

Which flows sanctions hit the most

Analysts and brokers are now busy pondering how sanctions could play out for spot rates and stocks.

Allied Shipbroking, citing AXS data, said that tankers hit by the latest round of US sanctions handled 32% of Russian crude exports in 2024.

Vortexa noted that the majority of tankers designated in the latest sanctions were involving in loading Russian ESPO crude from the Russian Far East as opposed to Russian Urals crude loaded in the Baltic and Black Sea.

While Urals has at times been priced below or near the $60-per-barrel price cap instituted by the G7 and EU, ESPO has always priced above it.

According to Allied, “China, heavily reliant on Russian ESPO, is now pivoting towards Middle Eastern and Atlantic Basin grades, including Oman and Murban, driving up spot premiums and tightening benchmarks.”

Ship brokerage BRS said, “Since ESPO grade is lighter and less sour than Urals, this could see increased appetite for lighter crudes from West Africa, Brazil and the US.”

Virtually all of the Russian crude carried by the newly sanctioned tankers has gone to China and, to a lesser extent, India.

According to Vortexa, “Russia-India flows may be less at risk [than flows to China] due to the low share of previous Urals loadings by the recently sanctioned fleet.”

Even so, “India is rapidly seeking alternatives for its Russian Urals imports in the Middle East, Africa and the Americas”, said Allied.

Scenarios on how sanctions could play out

The future impact of the sanctions remains unclear, with multiple scenarios being discussed.

In one scenario, Russian and Iranian crude ultimately finds a way to buyers via more ship-to-ship transfers. This would be risky, said BRS, noting that more STS transfers of Russian and Iranian crude to unsanctioned tankers could lead to more tankers being sanctioned and a greater risk of oil spills.

“We cannot dismiss the scenario that demand for STS could drive demand for vintage tankers over the short term. However, this would depend heavily on the attitude of the incoming US administration,” said BRS.

Another possibility, BRS continued, is that “Russia will be forced to discount its crude significantly, otherwise its exports will drop”.

According to Vortexa, “Russian crude exports will most likely face serious logistical difficulty due to the lack of available tonnage, which will force the price of Russian crude below the price cap. At that point, Western operators would be able get involved to lift Russian crude.”