FINWIRES · TerminalLIVE
FINWIRES

VLCC Freight Rates Retreat as Hormuz Risk Premium Fades, Focus Shifts to Vessel Supply, Vortexa Says

By

Very large crude carrier freight rates have fallen sharply in recent weeks amid improving transit conditions through the Strait of Hormuz, lowering the geopolitical risk premium, Vortexa analyst Wanying Zhang said in a Wednesday note.

Attention is now shifting to whether crude demand can absorb a growing supply of available tankers, according to Zhang.

Rates for Middle East Gulf-to-China voyages have dropped from post-conflict highs and recently traded below equivalent Atlantic Basin-to-China assessments for the first time since early April.

During the disruption, Gulf export routes commanded a premium as charterers competed for vessels willing to operate in a higher-risk environment.

The decline suggests freight is increasingly being priced on market fundamentals rather than geopolitical concerns alone, although Zhang cautions that renewed security risks could quickly restore a premium.

Vessel traffic through the Strait of Hormuz has recovered steadily since the signing of the US-Iran memorandum of understanding on June 15.

Of 308 recorded transits since then, 130 involved VLCCs, underscoring the continued importance of Gulf crude exports.

Outbound departures have consistently exceeded inbound arrivals, reflecting the rapid departure of vessels already positioned in the region while replacement tonnage has returned more gradually.

Tankers that accumulated off India's west coast and other waiting areas during the disruption have also begun repositioning east of Hormuz, increasing vessel availability in the Middle East Gulf.

The recovery has coincided with fewer VLCCs repositioning to the Atlantic Basin, suggesting owners are regaining confidence in Gulf operations.

As fleet positioning normalizes, the dislocations that supported freight rates during the disruption are easing, leaving rates increasingly dependent on underlying vessel utilization.

Freight has not fallen more sharply because prompt vessel supply remains concentrated among a relatively small number of owners, limiting competition.

In addition, some tankers continue to perform shuttle and ship-to-ship transfer operations established during the disruption, temporarily reducing effective spot market supply.

Market participants said the pace at which additional VLCCs return to the Gulf will be a key indicator for freight direction.

Faster replenishment of vessel supply would likely put further downward pressure on rates, while any deterioration in regional security could quickly revive the geopolitical risk premium.

Related Articles

Oil & Energy

US Oil Update: Futures Settle Lower After Trump Says US-Iran Talks Going Well

Crude oil futures settled lower in after-hours trading on Wednesday after President Trump said talks between the US and Iran were progressing well, easing concerns over potential supply disruptions, while a draw in US crude stockpiles further pressured the market.Front-month West Texas Intermediate crude futures fell 2.1% to $68.02 per barrel, while Brent futures dropped 2.5% to $71.16/bbl.US commercial crude oil inventories decreased by 3.8 million barrels to 408.4 mmbbls in the week ended June 26, the Energy Information Administration said in its weekly report on Wednesday. The decline is less than Macquarie's forecast of a 5.5-mmbbl draw for the week ending June 26.On Wednesday, Trump said that the US was getting along very well with Iran and that recent meetings in Qatar went well. The US President told reporters that the two sides had very constructive meetings, "and we'll see how it develops," adding that crude prices have come down significantly, now at about $68/bbl.The technical talks in Qatar come after tit-for-tat military strikes between the US and Iran over the weekend, which threatened to jeopardize a 60-day truce between the two countries.Soojin Kim, research analyst at MUFG, said progress in indirect negotiations has supported a gradual recovery in shipping via the Hormuz, while Iranian exports have increased following the easing of maritime restrictions.US special envoy Steve Witkoff and Trump's son-in-law, Jared Kushner, held positive talks in Doha to ease the Middle East conflict and held technical talks as the two sides seek to reach an agreement on the flow of shipping through the Strait of Hormuz.Iran's Deputy Foreign Minister Kazem Gharibabadi led a delegation of representatives from Iran's foreign ministry, central bank and agriculture ministry, meeting Qatar's prime minister, Sheikh Mohammed bin Abdulrahman Al Thani and holding talks with mediators, according to local media.Gharibabadi reportedly said that working groups for the follow-up of the MoU's implementation and for negotiations towards a final agreement have been set up, "but no talks have yet taken place within these frameworks."Meanwhile, market sentiment is being bolstered by reports that tanker traffic through the Strait of Hormuz has begun to recover. US Vice President J D Vance reportedly said that oil flows through the strategic waterway have returned to pre-war levels.ING strategists said that the crude market continues to take an optimistic view of a supply recovery from the Persian Gulf, despite recent flare-ups between the US and Iran.The Strait recorded 34 verified crossings on June 30, according to MarineTraffic, with traffic evenly balanced at 17 vessels in each direction.However, route visibility remained "fragmented," with vessels using Iranian, Omani, International Maritime Organization, and dark or unknown routes, according to MarineTraffic.

Oil & Energy

European Crude Differentials Retreat as Supply Stays Robust, Kpler Says

European crude markets have shifted into contango as strong supply continues to pressure physical differentials, Kpler said in a note on Wednesday.A market in contango points toward surplus spot supply amid weak spot demand, reflecting bearish market sentiment. In a contango structure, futures prices trade higher than spot prices. In contrast, backwardation indicates strong near-term demand or tight spot supply, with futures prices trading below spot prices.Kpler expects Atlantic Basin crude differentials to remain under pressure, with additional downside possible if Strait of Hormuz shipments recover in July and the US sanctions waiver allows higher Iranian crude exports.The firm said rising production from Brazil, Guyana and Venezuela in the second half of 2026 could lift crude flows into Europe. It also expects Kazakh CPC Blend to retain its competitive advantage as the region's most economical light crude.Kpler said Europe relies on the Middle East for only 5% to 6% of its crude imports, or roughly 500,000 barrels per day, limiting the region's exposure to supply disruptions.As crude imports from the Middle East declined after disruptions in the Strait of Hormuz began in March, Europe increased purchases from the Americas.Imports from the Americas reached a record 3.9 million b/d in May before easing to 3.2 million b/d in June, led by stronger flows from the US, Brazil, Guyana, Mexico and Venezuela, according to the note.Europe also increased purchases of Kazakh CPC Blend, with imports averaging 1.3 million b/d between March and June, up 180,000 b/d from a year earlier. Kpler said the maintenance delay at the 400,000 b/d Kashagan field until next year also supported exports.High crude arrivals, combined with reduced refinery throughput caused by the European heatwave, labor strikes and low Rhine River water levels, kept European Union-27 crude inventories elevated at 337 million barrels in June, only 4 million barrels below the previous month, Kpler said.Alternative shipping routes, weaker crude demand and inventory drawdowns helped global oil markets absorb the US-Iran conflict, while progress toward a US-Iran deal and a 60-day US sanctions waiver for Iran pressured prices, Kpler said.The North Sea Dated Brent forward month M1-M3 spread reversed sharply, moving from a $6 per barrel backwardation early in the month to roughly $2/bbl contango by late June. Physical differentials across the North Sea, Mediterranean and West Africa also weakened toward pre-war levels.In the Mediterranean, CPC Blend traded at around $4/bbl below North Sea Dated on a cost, insurance and freight August basis.Azeri Blend fell to about $3/bbl above North Sea Dated, around half its late-May premium, while Es Sider traded close to parity with the benchmark through most of June.Kpler said CPC Blend remains the cheapest light crude option for refiners in the Mediterranean and Northwest Europe.The grade is expected to arrive in the Mediterranean at about $3.50/bbl below North Sea Dated Brent for September deliveries, compared with Es Sider at $1.55/bbl, Saharan Blend at $3.70/bbl, WTI Midland at $4.30/bbl and Johan Sverdrup at $7.85/bbl.

Oil & Energy

Market Chatter: US LNG Exports Tilt Toward Asia as Prices Outpace Europe

Asia claimed a larger share of US liquefied natural gas exports than Europe in June for the first time in almost two years as stronger regional pricing and robust Egyptian demand redirected cargoes, Reuters reported Wednesday, citing LSEG data.Europe received less than 42% of US LNG shipments during the month, down from more than half in May, while exporters steered additional cargoes toward Asia as spot prices there outpaced European benchmarks.Europe imported 4.41 million metric tons of US LNG in June, while Asia received 3.25 million mt, including a record 1.06 million mt delivered to Egypt, according to data.(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)