SPOT rates for very large crude carriers have surged, even as the crude flow through the Strait of Hormuz remains a relative trickle compared to pre-crisis levels.

This marks the second major rate spike for VLCCs since the beginning of the war.

The first, in early March, was caused by panic among crude importers. This time around, the mere hope of reopening the strait (a hope that remained unfulfilled as of Monday) is boosting rate sentiment globally by pulling tonnage from other routes.

Uncertainty on strait status is exacerbating fleet inefficiency and removing effective capacity — and there is no shortage of uncertainty.

“Confusion continues to reign in the waterway,” shipbroker BRS said on Monday.

Tanker transits reached their highest level since the Hormuz crisis began late last week, then “traffic slowed to a dribble” after Tehran claimed that the strait was closed over the weekend, BRS said.

“The stop-start nature of the Hormuz is very much in line with previous expectations, and that a newly empowered Iran can impose its will over the strait.”

On social media, the waterway has garnered the nickname “Schrödinger’s Strait” — an homage to scientist Erwin Schrödinger and his famous quantum physics thought experiment in which a cat is simultaneously dead and alive.

VLCC rates

The Baltic Exchange’s time charter equivalent index for VLCCs on the West Africa-China route rose to $188,957 per day on Monday, up 92% week on week to its highest level since March 10, back during the initial Hormuz crisis spike.

“West Africa remains under-fixed and with many owners still holding back, rates appear set to climb further,” said BRS.

The Baltic’s US Gulf-China VLCC TCE index rose to $154,987 per day on Monday, up 46% w/w to the highest assessment since April 2. This increase came despite “muted” demand and “very little” concluded fixture activity, said BRS.

“These gains are driven more by firm sentiment as opposed to high activity,” said Clarksons Securities, referring to VLCC fixtures in general at loading ports outside the strait.

The future potential to fix cargoes inside the strait renders ballasting from Asia to the Atlantic basin less attractive, particularly given that bunker prices are still around 50% higher than they were pre-crisis.

“Improving opportunities in the Middle East have reduced owners’ willingness to ballast west, providing support for freight rates [in the Atlantic],” said Gibson Shipbrokers, adding that “developments in the Middle East” have also “encouraged owners to maintain a firmer stance”.

According to BRS, “Last week, many VLCCs voyaging in the southern Indian Ocean abruptly changed course to head northward towards the Middle East Gulf. Ship-tracking data suggests that these units are now amassing off the Omani coast, awaiting clearance to pass Hormuz.

“Moreover, data also suggests that a higher proportion of the ballasting VLCCs exiting the Strait of Malacca on their way back from discharging in Asia are now signalling for the Middle East rather than the Atlantic.”

All but one of the Baltic Exchange’s Middle East VLCC indexes assess largely hypothetical voyages that transit the strait. Its sole benchmark that assesses VLCC loadings outside the waterway — the Oman-China index — has surged along with the Atlantic routes.

The Oman-China index was at Worldscale 276 on Monday, up 82% w/w to the highest level since this assessment was introduced on March 24. Monday’s Worldscale assessment equates to a TCE rate of $275,032 per day.

If the strait reopening is delayed, transits only increase slowly, and/or transits continue to stop and start — i.e., if Hormuz continues to earn its Schrödinger nickname — rate upside could persist as more VLCCs wait outside, unemployed.

Even before the US-Iran peace framework, VLCCs idling outside the strait kept Atlantic basin rates elevated. Heightened expectations for a reopening, even a chaotic and partial reopening, should inflate the queue, adding to market inefficiencies.

Suezmax and aframax rates

The potential for renewed loadings inside the strait has also been positive for suezmax rates, although to a much lower extent than for VLCCs.

The Baltic’s suezmax index (an average of Black Sea-Mediterranean and West Africa-North Europe) was at $117,889 per day on Monday, up 26% w/w.

Suezmax rates, like VLCC rates, have hovered around the six-figure-per-day mark for the past two months. Monday’s index reading was the highest since May 11.

By contrast, aframax spot rates have yet to be affected by the US-Iran peace framework, and have long since shed most of their Hormuz crisis upside. Smaller crude tankers conducted more long-haul cross-basin voyages amid the initial panic but have reverted to intra-basin voyages, a negative for tonne-miles.

The Baltic Exchange’s US Gulf-Europe aframax index was at $37,194 per day on Monday, up 11% w/w but at a similar level to a year ago. It is up only 6% year on year.

The cross-Mediterranean aframax index is at $49,511 per day, down 8% w/w but up 75% y/y. The Caribbean-US Gulf aframax index is at $37,860 per day, flat (up 1%) w/w and up 17% y/y.

Product tanker rates

A strait reopening is less positive in the near term for product tankers than crude tankers.

Expectations for renewed flows of MEG supply have lowered crack spreads. Clarksons, citing Argus data, noted that Asian jet fuel and gasoil crack spreads are down, as are global margins for diesel and jet fuel.

According to Clarksons, the lower crack spreads reduce demand for products exports out of the US Gulf, although on the plus side, the peace framework could bring more clean MEG cargoes to the seaborne market.

BRS cited the potential for a short-term rise in product tanker rates if additional clean cargoes can transit Hormuz, given very high demand in Asia.

“Refined products markets, especially in Asia, are extremely tight,” said BRS. “Many countries are anxiously awaiting the return of fuel exports from the MEG and will likely charter tankers seemingly regardless of price to obtain these much-needed supplies. Indeed, this appetite will only grow with each passing day that Hormuz is disrupted.”

But Gibson cautioned, “Damage to Middle East refineries means runs are unlikely to return to prewar levels until 2027 at the earliest, while Asian refinery runs will only recover once feedstock supply has substantially improved, likely in 4Q26.”

“Refiners may also find themselves competing with government stockbuilding, and refinery exports may be constrained as operators seek to rebuild CPP [clean petroleum product] inventories to normal levels or divert supplies into government storage. Seaborne CPP volumes are therefore unlikely to recover fully until later in 2027,” said Gibson. 

The Baltic Exchange’s Mediterranean-Asia LR2 index was at $21,863 per day on Monday, up 10% w/w and just over double rates at this time last year.

By contrast, MR product tanker rates are not only falling, they’re below where they were a year ago.

In the Atlantic basin, the Baltic Exchange assessed US Gulf-Europe MR rates at just $8,547 per day on Monday, down 57% w/w and 59% y/y. The Europe-US east coast MR index was at $5,523 per day, down 6% w/w and 32% y/y.

MR rates are higher in the Pacific, albeit unexceptional from a historical perspective.

The Singapore-Australia MR index was at $27,768 per day on Monday, down 2% w/w and up 14% y/y. The India-Japan MR index was at $18,542 per day, up 15% w/w but down 34% y/y.