VLCC market analysis

 VLCC's conversion profit broke the long silence and finally rebounded to (+). Although the VLCC market was in a slump amid a long (-) profitability, freight rates have been rising due to a change in trading patterns after Russia's recent invasion of Ukraine.
 Despite the decline in China's crude oil imports amid concerns over a slowdown in the global economy, Russia continues to import crude oil from China and the Middle East.

In this article, we will take a closer look at the supply side of VLCC fleets.

 At present, the total number of VLCCs (over 280,000 DWT) is 871, and DWT is 268,621,902. Among them, 42 ships (12,556,211DWT) were 22 or older, accounting for 4.8% of the total fleet.

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 The grounds for considering the age of 22 or older as the future Demolition are as follows. The table below shows the age of dismantling of VLCC ships from 2008. Ships were dismantled at an average age of 21 for 15 years, and the market conditions are divided into good (2015, 24-year-old dismantling) and bad (2018, 19-year-old dismantling). In order to take a conservative approach, it was predicted that ships over 22 years old will soon be dismantled.

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 So, let's look at the order volume of ships that are attracted to supply (+) in the future. Looking at the table below, about 39 ships (11,821,245DWT) are expected to be built and supplied sequentially over the next three years (August 22nd to August 25th) according to the current orderbook. Based on a simple average, a net increase of 13 ships is expected every year, and the proportion of 13 ships is only 1.5% of the total fleet (871 ships), so the proportion is very small.

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 Adding the two tables above, we get: In other words, the number of VLCC vessels in the next three years is 868 (267,886,936DWT), which has the effect of reducing the supply compared to the current 22 years. In addition, the IMO environmental regulations mentioned above will have the cumulative effect of reducing the supply due to reducing the ship's speed as well as the ship's dismantling speed.

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 Although the current demand for crude oil is recovering, the supply is not as large as before due to the US shale gas restrictions. In the midst of this, the VLCC market is expected to be good for the next several years due to (demand > supply), even if it is assumed that the supply of VLCC will decrease and the crude oil volume does not increase significantly.

Please refer to the oil demand/supply and the two contributions analyzed previously.

 

Ref) [IMPORTANT] Inspection of market conditions by ship type/year(Forecast) (‘22/June) (tistory.com)

[IMPORTANT] Inspection of market conditions by ship type/year(Forecast) (‘22/June)

Ref) Euronav & Frontline Merger Issue (tistory.com)

Euronav & Frontline Merger Issue