Low freight environment shifts Americas-loading VLCC rate differentials

A lack of VLCC demand, namely in the Arab Gulf, has left owners hesitant to make the voyage to West Coast India as a lengthy list of available ships in the Arab Gulf tends to cannibalize opportunities for them to book US Gulf Coast-loading cargoes in a timely manner.

Historically, VLCCs discharging in Ningbo and South Korea command a $1 million premium to those unloading at Singapore, while West Coast India voyages typically trade at a range of $0-$300,000 below Singapore, with the spread occasionally moving wider in periods of unusually high freight levels.

Freight for the VLCC 270,000 mt Caribbean-WCI run was assessed April 23 at lump sum $3.68 million, down $25,000 from a week ago April 16, while the comparable 270,000 mt USGC-Singapore voyage ended the week down $100,000 at $3.3 million.

Ecopetrol confirmed market expectations of steep West Coast India-destined freight after it placed the Olympic Lion on subjects April 21 for a Covenas-WCI run at $3.675 million for a May 15-19 laycan.

The depressed freight has also pushed other historical differentials to shift in recent days, with the typical $200,000 premium of Caribbean-loading VLCCs versus USGC-loading ships moving into the two routes trading at parity with one another on Dec.

This uptick, even in 2020 from 2019, came as India’s crude imports fell 10.3% year on year to 201.5 million mt in 2020, or 4 million b/d, according to data from the Petroleum Planning and Analysis Cell, a part of India’s Ministry of Petroleum and Natural Gas.

Some headwinds could come from a recent surge in coronavirus infections in India, although the nation’s government has pledged to avoid a national lockdown.

Still, even with rising infections in some countries like India, S&P Global Platts Analytics expects vaccine distribution to help curb the virus spread and lead to an improving global economy in the second half of the year.

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