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Thursday, November 15, 2018

Hot VLCC market

The number of VLCC spot fixtures January to end November 2004 is already 11% above the level for the whole of 2003, which again was 17% above the low level in 2002.  Spot fixtures to both East and West will increase by more than 20% in 2004 compared to 2003. Such increases in demand easily take care of the fleet increase of some 25 VLCCs, or 6%, this year and go some of the way to explaining the strong spot market.  The fleet increase next year will be some 30 VLCCs assuming that recycling remains as out of fashion as it has this year (see table below), so demand therefore needs to continue to increase in order to maintain the current market balance.

1)  Source :Clarkson shipping Intelligence Weekly

2)  Source: IEA

Middle East oil production has naturally followed the same trend as the number of VLCC fixtures but the percentage increase has been slightly lower (see table above). The development of Middle East crude oil production in the period 1999 to 2004 can be seen in the graph below, and its strength this year has taken the average monthly spot rate for a VLCC AG-East to a staggering USD 201,000/day for November 2004 and the average for the first 11 months of 2004 to  USD 86,200. As recently as in 2002 the average VLCC rate for the year was only just above  USD 12,000 per day.

Daily, monthly and yearly developments in freight rates (tables and graphs) can be found on the following link on the INTERTANKO website

The VLCC average age is now below 10 years.

The 171 remaining single hull VLCCs were built:

Where are these single-hulled VLCCs trading? The chart below shows the VLCC trade in the first half of 2004 (1H04) in million deadweight (m dwt). The biggest single-hull trades are now Middle East-Japan and Middle East-other Asia. Whereas at one time most modern VLCCs were trading to Japan and South Korea, the chart shows that today 84% of the VLCCs trading to Europe are double hull (DH) as well as 65% of those trading Middle East-North America.

Also the number of VLCC contracts in the period market has increased from 20 in 2003 to 27 so far in 2004, while rates have increased from an average of  USD 21,883/day in 2003 to  USD 34,802/day so far in 2004, and the average period has increased from an average of 2.2 years in 2002, to 3.1 years in 2003, to 4 years so far in 2004.  The number of longer term contracts is conspicuous.  Whereas in previous years one year contracts were the norm, this year several 3, 5 and up 7-year contracts have been entered into.

The number of VLCC period contracts of half-a-year and above:

Contact: Erik Ranheim