In Q3 2019, the average time charter rate for a VLCC for one year was up 53% from Q3 2018 at $32,464/pdpr, rates were also up 5% from Q2. This was due to the unprecedented surge in crude tanker spot rates at the end of the third quarter, caused by a combination of factors that restricted vessel supply: namely the US sanctions on China over alleged shipments of Iranian oil, that removed some Chinese owned tankers from the market, uncertainty in the Middle East- in the weeks following the September drone attacks in Saudi Arabia, VLCC rates for one year rose over 109% to $65,000/pdpr for one year also not forgetting that some vessels have been taken out of service to install scrubbers, in order to comply with the 2020 IMO regulations. The result of this perfect storm of supply limiting factors was that dirty tanker spot rates broke records and there were reports of VLCCs fixing at over $300,000/day. This consequently had a positive knock on effect on the period market and in October, the one-year rate for VLCCs hit $65,000/pdpr, the highest rate recorded since Alibra began assessing time charter rates for tankers in 2011, compared to the same period in 2018 this was an increase of 171%. As the market for VLCCs improved, rates for the smaller suezmaxes and aframaxes followed suit. Suezmax rates rose to $39,500/pdpr, an increase of 46% year-on-year.
Following the spike, rates then lost momentum and both spot and period earnings went on to experience a correction, moving downwards to more stable yet still lucrative levels. With the winter season upon us, the underlying sentiment is generally optimistic that rates will remain firm towards the end of the year due to weather delays and the various ongoing geopolitical tensions. However, in the last few weeks freight rates have moved up once again as concerns of a global economic slowdown that have long plagued the markets seem to soften and many major indices have been in record territory this month, boosted by the optimism that a resolution to the US – China tradewar is on the cards, which could in turn boost oil demand.
In terms of tanker supply, we are at a level where supply and demand beginning to balance out. With the IMO sulphur cap regulations just over a month away, vessel supply has been limited as a number of tankers have been taken out of service in order to retrofit scrubber technology that will enable the vessels to comply with the new emissions ruling, but continue using high sulphur fuel oil.
Overall the current tanker orderbook is relatively modest and currently accounts for 8% of the trading fleet. The largest orderbook to fleet ratio is currently in the VLCC sector at 10%, this sector has also seen the highest number of deliveries this year with 53 vessels delivered so far this year and 20 still on order for the remainder of 2019. The smallest orderbook currently belongs to the LR1/Panamax sector that has seen only 9 deliveries this year with 26 vessels on order, this is in contrast to the MRs that has seen almost 70 deliveries this year and also has the largest orderbook with 139 vessels slated for delivery between 2019-2023.
According to Alibra data there are just over 430 tankers slated for delivery in the next four years and 38% of this orderbook is scheduled to be built in South Korea, closely followed by China that accounts for 31% of the orderbook. Japan has fallen to third place with just 19% of tanker orders.