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Rising US crude exports promise more earnings for VLCCs from longer voyages

Rising US crude exports promise more earnings for VLCCs from longer voyages

WASHINGTON: The US gradually turning into a key exporter of crude will support freight rates because of the prospect of more longer voyages, according to market participants. Shipowners are now planning their voyages in such a way that they can pick up cargoes of US crude for delivery to Asia. US crude imports were estimated by EIA at 7.87 million b/d last year, down more than 14% since the beginning of the decade. The US is now exporting crude equivalent to 13% of its imports. For several decades, the Middle East-to-US Gulf has been a key route for VLCCs. As volumes on this route gradually fall, it is becoming less liquid and the opposite route from the US to Southeast Asia is gaining traction. “Ships want to take cargoes to the US, so that they can then bring back a US crude or condensate cargo into Asia,” said Masood Baig, director of Singapore-based Straitship Brokers.

VLCCs do not want to ballast all the way to the US Gulf from Asia and need a front haul cargo, but sometimes they have no choice, he said. So far this year, close to 35 VLCCs have loaded crude from the US, up from merely six in the same period last year, and only 20 in the whole of 2016, according to data from UK-based shipping consultancy VesselsValue. It is certainly very interesting that while US crude loadings on Aframaxes have held steady, those on VLCCs and Suezmaxes increased dramatically this year, William Bennett, a trading analyst with VesselsValue, said.

VLCCs, Suezmaxes and Aframaxes typically load cargoes of up to 2 million barrels, 1 million barrels and 750,000 barrels respectively. “VLCC loadings are extending the reach of US crude cargoes to China, Malaysia and Singapore,” Bennett said. Such long voyages are providing the much needed ton miles to the cash- strapped VLCC market. Ton-mile demand is calculated by multiplying the volume of cargo moved in metric tons by distance traveled in miles. It indicates the average distance a ship covers to deliver every ton of cargo. Covering a longer distance implies diminished availability of ships even if the total size of the fleet remains the same or conversely, it offsets the increase in supply of tonnage.