A First Look at the VLCC Fleet Development
Feb. 12, 2021
Throughout the course of a year, we put considerable time and effort to monitor and project the tanker fleet developments. Extensive analysis and statistical models have shown how fleet utilization measured as forward month’s ton-day demand divided by current month’s ton-day supply is closely correlated to tanker earnings development. What that means in practice is that fluctuations observed in the total number of ships trading can have a significant effect in utilization statistics, therefore earnings.
The impact of relatively small fleet adjustments becomes more pronounced in the VLCC sector and in turn the VLCC sector has relatively the highest impact in the entire DPP market. This became very clear during 2019 and the sudden sanctioning of the COSCO fleet and even more dramatic in 2020 during the brief Saudi/Russia price war combined with the impact from the COVID-19 pandemic. In fact, during the period May-June 2020, the combination of increased VLCC demand with less supply due to a floating storage rush (cumulative 97 VLCCs in August) pushed the utilization rate for the sector up from about 43% in the beginning of the year to 48.8%, something that translated to earning in excess of US $300,000/day.
To arrive to our final numbers regarding the VLCC fleet development, we take into account vessels getting released from floating storage as well as drydocking. We also combine information regarding sanctions or arrested vessels (e.g. OTC fleet) and we incorporate information regarding deletions and additions.
Looking into our latest data for the VLCC fleet, we can clearly see how the cumulative net number of vessels entering into trading is steadily increasing through April 2021, at a peak of 55 cumulative additions (Figure 1). This translates into consistent supply side pressure for the first half of 2021 amid floating storage and drydocking unwinding. However, the cumulative VLCC fleet growth will trend slightly lower as we move into the second half as demolition activity picks up, offsetting expected deliveries. To that point, the expectation of weak rates throughout the year could push owners to delete more ships and, of course, these projections assume that there will not be any additional disruptive events as we have seen in 2020.
Read more about VLCC fleet development and other topics at our just published 2021-2025 Tanker Market Outlook.
Figure 1 – Global VLCC Fleet Development
Source: McQuilling Services
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