VLCC rates shoot higher but tanker stocks retreat after restrained Iranian response
- Spot rates for VLCCs in the Middle East Gulf-China trade have tripled since June 11 and are at their highest level since February 2024
- While the Middle East Gulf-China index is at $75,941 per day, a VLCC was placed on subs on Monday at over $100,000 per day
- Stocks of VLCC owners are not rising to the same extent, and actually declined on Monday, implying that equity investors do not believe Strait of Hormuz traffic will be curtailed
The US attacked Iran, Iran retaliated and fired missiles at a US base in Qatar, the Strait of Hormuz is theoretically still in jeopardy — and despite all of this, tanker stocks were in the red on Monday. Equity traders are clearly not convinced that there will be a major disruption
SPOT rates for very large crude carriers continued their ascent in the wake of US strikes on Iranian nuclear sites, adding to gains since Israel began military action against Iran on June 12. But the performance of tanker stocks tell a very different — and far less bullish — story.
On Monday, the Baltic Exchange’s weighted average of time-charter equivalent VLCC spot rates rose to $60,560 per day, up 15% from Friday and up 133% versus June 11, just prior to the Israeli attacks on Iran. The global average is now at its highest level since February 2024.
The Baltic’s VLCC TCE index for the Middle East Gulf to China closed at $75,941 per day on Monday, jumping 18% versus Friday. This index is now more than triple its level on June 11 and also at its highest point since February 2024.
A few individual fixtures are much higher than the index average.
On Friday, the Tankers International pool reported the fixture of the Sea Leopard (IMO: 9422615) on subjects for a voyage from the Middle East Gulf to Korea at $92,081 per day. That was topped on Monday, when TI reported the fixture on subs for the Zourva (IMO: 9679593) for a Middle East Gulf-China voyage at $107,052 per day.
Atlantic Basin VLCC rates are rising as well.
The Baltic Exchange’s West Africa-China VLCC TCE index is at $62,385 per day, up 122% versus June 11 to its highest level since February 2024. The US Gulf-China index is at $43,353 per day, up 69% versus June 11.
The caveat to the higher index numbers is that they include voyage rates that are on subjects, which can prove illusory. Deals on subjects have often failed in past periods of geopolitical unrest.
Thus, the recent surge in the indexes may not be indicative of a sustainable upward move, particularly going into the typically slow summer period for VLCCs.
“Whenever we have these dramatic moves higher, there’s been a fixing-and-failing element that takes place,” said Jefferies analyst Omar Nokta during the Marine Money conference in New York last week.
Lois Zabrocky, chief executive of International Seaways, said at the conference, “The charterer, to a degree, essentially has a free option.
“As an owner, you can control that to a degree. When the market gets tighter, instead of having subjects including receivers, suppliers and everybody under the sun, you can limit that down. You need a high level of awareness that your negotiating position has changed, and you need to put timing on your side and to put more factors on the side of the owner,” said Zabrocky.
Stocks tell a very different story than indexes
The geopolitical unrest centred on Iran, which could potentially impact VLCC transits via the Strait of Hormuz, has pushed up share pricing of listed VLCC owners.
However, tanker shares are up only single digits since the attacks on Iran began, implying that the stock market questions whether the military action will translate into a severe disruption for crude flows and a sustainable impact on tanker rates and earnings.
Iran launched retaliatory strikes against a US military base in Qatar on Monday. VLCC owner stocks that had been up earlier on Monday declined in the trading hours after that news broke, given that the retaliation was deemed to be restrained and symbolic, with no casualties.
The price of Brent crude collapsed by 9% on Monday and the Dow surged by over 350 points, based on the assumption that Iran will not attempt to close the Strait of Hormuz and the conflict will not expand into a wider war.
Tanker stocks have recently behaved very differently than the Breakwave Tanker Shipping exchange-traded fund (BWET) that buys near-dated forward freight agreements to mimic spot rates, with a heavy emphasis on Middle East Gulf-China FFAs.
Since June 11, VLCC owner stocks have not risen at anywhere close to the pace of BWET, or the Baltic Exchange indexes. The equity market appears to be saying that the high-priced fixtures on subs will fail and that indexes and FFAs will come back down.
At the closing bell on Monday, shares of DHT were up only 2% since June 11, with Frontline up just 3%, International Seaways 5% and Okeanis Eco Tankers 7%. In sharp contrast, BWET has jumped 37% over the same timeframe.
Despite the US attacks on Iran over the weekend and Iran’s retaliation on Monday, tanker stocks lost ground on Monday — and not just crude tanker owners. Product tanker stocks also pulled back, given the importance of the security situation in the Middle East to long-range product carrier rates.
Among the crude tanker owners, shares of DHT and Okeanis declined 1% on Monday versus Friday, Frontline fell 2% and Teekay Tankers 3%. On the products side, Scorpio Tankers and Hafnia fell 1%, Ardmore 3% and Torm 4%. International Seaways, which operates both crude and product tankers, declined 3% on Monday versus Friday.
