Chinese crude stocks, Saudi cuts pressure VLCCs

Rising Chinese crude inventories, a surplus of naphtha in Asia and Saudi Arabia's planned production cuts likely will limit the upside for very large crude carriers (VLCCs) this summer, with a recent rally fizzling on waning demand.

The US Gulf coast-China VLCC lumpsum rate on 22 June fell to $9.85mn, equivalent to $4.68/bl for WTI, including $250,000 load-port fees, after reaching a two-month high of $10.5mn on 16 June and was poised to fall further on Friday.

The Brazil-China VLCC rate similarly declined, down by 24pc to $3.80/bl for Tupi over the same period, as shipowners redirect tonnage from the Mideast Gulf to the Atlantic basin ahead of Saudi Arabi's 1mn b/d production cuts, which begin in July and follow 1.157mn b/d of Opec+ cuts from May.

Rates had risen precipitously in mid-June on an unexpected uptick of end-month Mideast Gulf cargoes bound for Asia, but that rally appears to have been short lived.

Although Asian refiners may look west of Suez for extra barrels, the tonnage shift to the Atlantic likely will cap rates for voyages loading in the US and Brazil, unless other Opec+ producers hike output to fill the gap created by the Saudi cuts, according to shipbroker BRS, which would create a tonnage imbalance between the Mideast Gulf and the Atlantic.

Building crude inventories in China also may limit VLCC demand. Stocks in the world's largest crude importer climbed to 972.7mn bl on 22 June, the highest level in more than two years, data from analytics firm Vortexa show. A naphtha surplus in Asia has put additional pressure on VLCC demand on the US Gulf coast, as refiners opt for light sours over sweets for September deliveries.

By Tray Swanson