VLCC Fleet Development Updates
July 8, 2022
The cumulative net fleet growth for the VLCC sector in 2022 is expected to reach 19 vessels according to our latest data revisions (Figure 1). For the past month, we saw a net increase of 6 vessels, including 4 that have returned from floating storage operations. We do not expect any significant structural shifts owing to floating storage operations (or even a surge in drydocking) for the balance of the year, especially if we consider that the crude oil market remains backwardated, thus there is little incentive to build up stocks.
In terms of deliveries, June saw a net 5 newbuilding VLCCs entering the trading fleet, the second highest monthly additions so far. With 21 tankers delivered in 1H 2022, we are on track to surpass 40 in total for the entire year - in line with our January estimates. These new tankers are eligible to carry clean products on their maiden voyage, something that we have seen happening again in the past few weeks, in turn putting pressure on the LR2 tanker sector. Perhaps more importantly though, these deliveries intensify the VLCC fleet oversupply problem that has kept rates at very low levels for almost two years now.
Part of that oversupply problem is the fact that we still have not seen nearly enough deletions to offset additions in the sector, with only about 5 counted for the first half of 2022 (Figure 1). However, we still hope the pace will pick up during 2H 2022, with our forecasts showing an average of 4 VLCCs leaving the fleet each month. This activity could be boosted by a relief in Venezuelan sanctions where it is estimated that 50+ disadvantaged VLCCs (age 15+ years) are likely involved with illicit trading (Venezuela/Iran) and could become obsolete.
Market rateshave remained relatively weak, though this has partly been offset by increased demand for Suezmax and Aframax tonnage. In response to that, and due to the strong AG/West VLCC activity, we have seen a growing number of VLCCs positioning in the Atlantic Basin ready to compete with mid-sized tankers for cargos. This has brought some heat in markets such as the US Gulf recently. Overall, we believe the VLCC supply-side variable will continue to weigh on crude tanker earnings over the short- term, although the outlook in 2H 2023+ is more favorable.
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