VLCC rates fall like ‘lead balloon’ in steepest one-day plunge in over half-decade
SPOT rates of very large crude carriers are extremely volatile. There can be massive daily swings to the upside or downside. That was on full display on Monday when a key VLCC index plunged.
The Baltic Exchange’s TD3C time-charter equivalent index, measuring spot rates on the Middle East Gulf-China route, sank 20% versus Friday, to $87,711 per day.
It was the lowest reading for the TD3C index since October 27 and the largest one-day fall in percentage terms since June 26, when upside from the Iran-Israel-US conflict evaporated.
Monday’s TD3C drop of $22,357 per day versus Friday was the steepest single-day nominal decline in over five-and-a-half years, since May 1, 2020 at the end of the Covid-era floating-storage boom.
“Not the start to the week that owners would have wanted, with TD3C dropping like a lead balloon this afternoon,” wrote brokerage Braemar on Monday.
“With four market quotes today, two of which collected 10-plus offers, and with lists opening up, this was likely to happen, but not many expected this much of a drop-off.”
Brokerage BRS said on Monday, “Despite the expectations and hopes of a strong first decade of January, the MEG remained mostly quiet the whole of last week, which prompted the start of a downturn in rates as prompt available tonnage started to grow. As of today [Monday], it had fallen even further.
“Cargo counts are still low for the first decade, so many are questioning if all these cargoes have really been covered privately already or will at some point pop back up to steady the ship.”
The sinking TD3C pulled the Baltic’s global weighted average VLCC index down to $83,882 per day on Monday, its lowest point since October 16.
The Baltic’s TD15 West Africa-China VLCC TCE index was at $84,001 per day on Monday, down 11% versus Friday, with the TD22 US Gulf-China index at $79,935 per day, down 3% from Friday.
“Large tankers will always be a volatile sector,” said DHT chief executive Svein Moxnes Harfjeld during a Capital Link crude tanker roundtable on December 16.
“When you are in a strong market like we have now, the volatility in nominal terms can be quite scary numbers — you can have things flipping $20,000 or $30,000 per day. But that should not be a reason to be worried.”
Frontline chief executive Lars Barstad said during the same panel, “I’m always afraid of jinxing things, but December is a short month because charterers and owners go on holiday too.
“The Baltic index doesn’t print between Christmas and New Year, so there is a chance that we can still have some hectic days as the January stems in the Middle East need to get covered, and that’s basically going to start happening any minute now.”
Barstad’s fear of “jinking things” proved prescient. The pre-Christmas boost for January stems he hoped for never happened.
But to put Monday’s drop in perspective, VLCC rates are still exceptionally profitable. Prior to the current rally that began in September, the Baltic Exchange’s global average VLCC index had not been at Monday’s levels since April 30, 2020, at the end of the floating storage boom.
Meanwhile, the broader strength of the crude tanker market remains intact. Suezmax and aframax rates have not declined.
The Baltic Exchange’s global weighted average suezmax index came in at an extremely strong $91,465 per day on Monday, the highest level since November 27.
The suezmax index was $7,583 per day above the VLCC index on Monday. This is the highest premium of suezmax rates to VLCC rates since September 4, at the very beginning of this year’s VLCC rate rally.
Aframax rates also remain very strong.
The Baltic’s global weighted average aframax index closed at $61,978 per day on Monday, the highest level in almost two years, since January 22, 2024.
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