Sharp Uptick Seen in Crude Tanker Ordering

Contracting activity for for crude tanker newbuilding has risen sharply to start 2024, driven by a steep rise in orders for very large crude carriers (VLCC), according to shipping organization BIMCO.

In the first two months of 2024, crude tanker newbuild contracting surged to 7.4 m DWT, a 490% leap y/y. Notably, the 19 VLCCs ordered in January and February is more than was ordered for the entirety of 2023.

Freight rates for crude tankers spiked at the start of the war in Ukraine, and they have largely stayed strong since, said Filipe Gouveia, shipping analyst at BIMCO. The Baltic Exchange Dirty Tanker Index on average increased marginally compared to the first two months of 2023, delivering the highest average for January and February since 2006. VLCCs in particular saw the strongest start to the year.

In March 2023, the crude tanker orderbook accounted for only 3.3% of the crude tanker fleet, the lowest point since at least 1996. However, during 2023, orders for suezmax ships rapidly increased and orders for VLCCs have followed. By February 2024, the crude tanker orderbook to fleet ratio had risen to 6.2%. Despite the high rate of contracting, the orderbook to fleet ratio for VLCCs remained at just 4.3%.

The near-term outlook appears positive for crude tankers, BIMCO stated in its recent Tanker Shipping Market Overview and Outlook report, noting the supply/demand balance could tighten due to low fleet growth and longer sailing distances. The outlook seems especially favorable for VLCC ships and could support freight rates in the segment, it added.

Gouveia said it is expected that more oil to come from the Americas and oil demand to shift increasingly towards Asia in the coming years, boosting sailing distances and benefiting VLCCs, which already dominate these trade lanes.

Meanwhile, freight rates will continues to be supported by low fleet growth until 2026 and 2027 when 70% of the ship capacity contracted in 2023 and all the ships contracted so far in 2024 will be delivered. From 2026 onwards, the risk of oversupply seems small as of now, BIMCO said. Even though contracting increased, the current orderbook is still small by historical standards. Nonetheless, more ships could still be ordered for delivery in 2026 and 2027.

"Despite the positive medium-term outlook, the International Energy Agency (IEA) currently predicts that global oil demand could peak by 2030. Nonetheless, the restructuring of global trade lanes since Russia’s invasion of Ukraine has increased demand for ships and there is a need to renew at least part of the aging fleet. It is therefore very likely that we will see a further increase in the orderbook during the rest of the year," Gouveia said.