However, there are a few caveats. Firstly, non-OPEC production continues to surprise on the upside with EIA forecasts for 1.9m bpd supply expansion. The key leading sources of this are the US, Norway, Canada, Brazil, and Guyana (source: EIA) which should also be supportive for ton miles as consumption growth continues to be focused on the Far East. Secondly, OPEC members (that are not part of OPEC+ cuts) (Venezuela, Iran, Nigeria) have seen stable production and exports. Thirdly, Russian barrels continue to defy most market forecasts with production and exports at similar level as late 2022.

During the quarter two key patterns of trading have emerged. Firstly, smaller tankers (Suezmax, Aframax) have continued to exhibit more resilience than VLCC markets given the higher dislocation from Russian trading and consequent higher utilisation. Secondly, volatility within VLCC freight has been more elevated than usual. These two trends have however coalesced into another quarter of counter seasonal strength in freight rates. June saw a very large spike in VLCC freight rates reflecting a tight market between supply and demand. The average Q2 VLCC and Suezmax spot rates since 1990 have been USD 34k per day and USD 27k per day respectively, for Q2 2023 they amounted to USD 55k and USD 68k per day respectively, reflecting an exceptionally strong performance.

Vessel Supply

An arguably long overdue uptick in contracting occurred during Q2 with focus remaining on smaller tankers. Q2 2023 saw 15 Suezmax orders taking the orderbook-to-fleet ratio to 5% and the first four VLCC orders in almost a year (VLCC orderbook-to-fleet ratio at 1.6%). Unsurprisingly, there was no recycling of VLCC or Suezmax vessels for a second consecutive quarter given such buoyant freight markets.

Contextual factors help to explain why new vessel contracting in Q2 could not remain at its previously very low levels. Contracting has come from highly reputable and disciplined owners with large established fleets as part of fleet renewal programmes. In addition, delivery dates are now on average 30 months after order placement – toward the higher end of the range since 1990. Finally, orderbook-to-fleet ratios remain extraordinarily low by historical standards (1.6% for VLCCs and 5.0% for Suezmaxes).

Suezmax asset prices continued to rise during Q2 for Suezmax, with five and ten-year old vessels increasing in value by 8 to 10% over the quarter. Prices were flat for all age categories of VLCCs and recent inflation in older tonnage appears to have moderated across all tanker segments.

Freight rates – consistent improvement and time charter emerging trend

Freight rates retained their counter-seasonal trend during Q2 – a quarter when historically refinery maintenance and lower seasonal crude demand would see rates recalibrate lower from winter rates. Whilst rates are lower quarter-on-quarter, the reduction is modest with VLCC and suezmax rates remaining far above the average since 1990 for comparable Q2 periods (USD 33,708 per day for VLCC and USD 27,315 per day for Suezmax).

The last period during which Q2 freight rates were sustainably above USD 40k per day for both VLCC and Suezmax sectors was in 2003-2008. Core industry fundamentals are similar today. In 2023, the global fleet average age is 11 years for VLCCs (vs. 8.2 years in 2003) and 11.1 years in 2023 for Suezmax (vs. 8.4 years in 2003). Then as now, owners faced incoming regulations requiring longer-term fleet adjustments, with the move from single- to double-hull vessels in 2003.