Rise Of Crude Tanker "Cannibals" In Wake Of Russia-Ukraine War

"It’s not only that Russian crude export terminals can’t handle larger tankers. A highly unusual transport pattern for U.S. crude exports has emerged, creating another war-induced headwind for owners of larger tonnage.

Prior to the war, U.S. crude exports to Europe were loaded aboard midsize Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1 million barrels). U.S. crude exports to Asia were loaded aboard very large crude carriers (VLCCs; 2 million barrels).

Europe hiked its crude imports from the U.S. in the wake of the invasion, replacing seaborne imports from Russia, which have been banned since Dec. 5.

Much of Europe’s incremental volume from the U.S. has moved aboard VLCCs, not midsize tankers — a transport model that was extremely rare before Russia’s invasion of Ukraine. 

“Virtually all the additional [U.S.] sales to Europe were done on VLCCs,” wrote Erik Broekhuizen, manager of marine research at Poten & Partners, in a report.

Tanker demand is measured in ton-miles: volume multiplied by distance. If ships switch to shorter routes, it’s a negative for demand, and thus, for spot rates.

VLCCs have “cannibalized” the shorter-haul U.S.-Europe business of Aframaxes and Suezmaxes. Simultaneously, China has increased imports from Russia, limiting Chinese demand for longer-haul U.S. exports. Both are negative for VLCC voyage distance.

“The problem is that more VLCCs are arriving in the Atlantic than leaving,” said ship brokerage BRS. “The latest data suggests that 108 VLCCs are currently trading west of Suez and that more are arriving every day, making the Atlantic crude tanker market more competitive." ZeroHedge