A Look at the VLCC Fleet development
July 31, 2020
In the crude market, we have seen historically that about 60% of all volume is carried on VLCCs. This alone makes these giants the main sector to look at when it comes to trying to assess how the CPP markets and dirty tanker fleet will develop in the near and long-term. As we are approaching the middle of Q3 2020, we are starting to have a clearer picture regarding the VLCC fleet development for the entire year. Trying to assess the sector becomes even more significant in a year when pretty much every event since its beginning has been out of the ordinary -to say the least.
When we look at the net number of VLCCs entering the market in the beginning of the year, the main event has been the return of the COSCO fleet into trading in February and early March. The expectation of falling rates was almost immediately inverted by the Saudi-initiated price war that led to a rate frenzy. What immediately followed with the demand/price drop and contango markets is also well-known by now. Instead of fleet growth, we started seeing the VLCC fleet actually diminishing, remaining to a net number close to zero for the past two months (Figure 1). VLCCs started moving “away” on floating storage at an average rate of almost 20 per month until now in July.
After economies started emerging from the pandemic lockdowns, the demand for crude oil is expected to unavoidably begin to bring some of these ships back to trading. For the rest of the year we expect to see this trend continue, although not at the same pace as previously. In addition to that, we expect a lot of VLCC to begin “catching up” on drydocking requirements that were previously postponed, further reducing the net fleet growth until the end of the year.
In terms of fleet additions, we expect very few relative to previous years -something that was to be expected given that along with the rest of the world, shipyards remained closed during global quarantine measures. On the other side, the VLCC fleet profile right now shows a relatively high number of vessels over 15 years old with approaching special surveys and drydocking schedules. For that reason, we do expect deletion to commence in Q4 2020, the rate of which is worth monitoring in order to assess the potential impact on freights as we will be entering the new year.
Figure 1 – VLCC Fleet Growth for 2020
Source: McQuilling Services
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