Sky-High VLCC Market Faces Potential Double Hit From Late 2027

The booming VLCC market, with charter rates and asset values at exceptional levels, could face a double hit from late 2027 onwards, as a wave of newbuilding deliveries coincides with a potential easing of the inefficiencies currently driving spot rates higher. For now, with the Strait of Hormuz still closed, the market is enjoying one of the strongest rallies in its history. Crude tanker markets have hit fresh all-time highs, with large tankers earning exceptional daily returns.

 

The Current Rally

 

The market is enjoying a record rally. Rates have hit all-time highs. Large tankers earn exceptional returns. These reached around 805,000 dollars daily. The Strait of Hormuz remains closed.

The rally reflects disrupted flows. Gulf exports have surged. These reached 12M barrels daily. Vessels switch off transponders. They conduct ship-to-ship transfers.

 

The Hormuz Premium

 

Transit-capable vessels command premiums. Gulf rates far exceed norms. These run near 16 times. Atlantic rates are lower. The premium explains the gap.

The premium has several drivers. War-risk insurance is one. It accounts for under half. Crew exposure features. Detention risk also contributes.

 

The Inefficiencies

 

Inefficiencies drive the rally. Tankers are trapped in the Gulf. Others idle awaiting transfers. Cargoes move irregularly. Convoys escort shuttle tankers.

Longer voyages add demand. Tonne-mile demand has risen. US exports hit records. South American shipments grow. These travel longer distances.

 

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The Asset Values

 

Values have climbed sharply. The freight market pushes them higher. Buyers seek floating storage. These are mainly Gulf exporters. This lifts prices.

The gains are substantial. A 10-year-old vessel rose sharply. A 15-year-old vessel also climbed. Buyers gain Strait exposure. Values could firm further.

 

The Oversupply Threat

 

An oversupply threat looms. Many newbuildings were ordered. Owners reinvested their earnings. They anticipate a correction. Efficient vessels will benefit.

The orderbook is large. It stands at 73 percent of older tonnage. Demolition runs below average. Most scrapped tonnage was sanctioned. Supply may open after rates fall.

 

Significance of the Outlook

 

The outlook points to a reversal. The market may fall quickly. Reopening releases capacity. Disruptions would unwind. Timing depends on conflict.

The double hit could arrive late. It spans late 2027 into 2028. Newbuildings would deliver. Inefficiencies may ease. These could pressure the market together.