Tanker owners are eyeing the US Gulf Coast as renewed tensions at the Strait of Hormuz threaten to disrupt Persian Gulf crude flows, though tepid VLCC activity out of the region and stronger returns on Brazil-China routes are tempering any immediate surge in US export freight rates.
US President Donald Trump's July 13 announcement of a blockade targeting Iranian vessels and a 20% security premium on Strait of Hormuz transits -- later replaced with trade deals -- has reignited concerns over Middle East crude supply reliability.
Iran also said the strait is closed again, citing US violations of the agreed upon memorandum of understanding. Total crossings rose to 17 ships July 13 from 11 a day earlier, but they remain well below normal levels, according to S&P Global Commodities at Sea data. Nearly all vessels transiting July 13 were Iran-linked or US-sanctioned.
Crude oil futures settled at one-month highs July 14 as Middle East tensions and continued attacks on shipping in the strait pressured supply outlooks. NYMEX August WTI settled $1.20/b higher at $79.34/b, and ICE September Brent climbed $1.43/b to end the session at $84.73/b.
The uncertainty is expected to drive more ballasting toward the USGC as Persian Gulf barrels become precarious, though shipbrokers said the impact remains unclear given Trump's history of policy reversals.
"Oh yeah, I kind of turn a blind eye to all that because next week he could reverse it," one shipbroker said July 13. "You just never know with him -- so many rug pulls already."
Freight holds firm
Platts assessed the benchmark 70,000 mt USGC-Transatlantic run at w240 July 14, up w10 from July 13, with shipbrokers reporting high offers for trans-Atlantic runs. However, one source cautioned that the USGC-Transatlantic arbitrage "might have closed now -- so need to keep an eye on that."
Platts assessed freight for the 270,000 mt VLCC USGC-UK Continent route for the typical loading dates of July 29-Aug. 28 at a lump sum of $8.1 million July 14, unchanged from July 13.
The benchmark 270,000 mt USGC-China VLCC run dipped $50,000 to $17.25 million July 14, while the 260,000 mt Brazil-China run held stable at w153, in line with market calls.
The USGC VLCC market remained steady and largely untested, with little fresh inquiry reported. The regional supply profile remains balanced, with limited signs of immediate pressure from incoming ballasters, shipbrokers said.
Activity picked up last week after tensions flared, with several trans-Atlantic Aframax cargoes fixed July 11, shipbrokers said. However, VLCC testing out of the USGC has been more muted recently, with the Brazil-China run bringing far better returns.
China's crude oil import volume dropped 41.3% year over year in June, a sharper decline than the 29% contraction in May, according to ANZ Research. Oil prices retreated to around $70/b by end-June, roughly 20% below their early-June peak following the Middle East conflict escalation.
Lower prices likely encouraged China to increase crude oil purchases in June, although this may not be fully reflected in customs import data after the four- to five-week shipping time, ANZ said.
"Therefore, we expect crude oil imports to recover in late July," the bank said.
Brazil program covered
A large share of Brazil's recent VLCC export program has already been covered, leaving fewer stems available to test the market.
At the same time, the steady flow of Brazilian crude moving on Suezmaxes continued to draw cargoes away from VLCCs, contributing to the erosion of VLCC freight levels and reinforcing the softer tone across the Atlantic Basin.
"The modern ships list for USGC is thin, and ships from the East [are] refraining from ballasting West," one shipbroker said.
When w161 was booked on the Brazil-China route July 9, one broker said the USGC-China run would need to reach $21.25 million in comparison based on earnings, but freight was only being discussed in the $17 million-$18 million range at the time.
Owners kept semi-bullish ideas because more active markets in the Persian Gulf and Brazil were propping up sentiment, shipbrokers said.
VLCC activity out of the USGC has declined over the past two to three weeks, with fewer ballasters coming from the East.
July laycan volumes out of the USGC were poor, one shipowner said, adding, "Now it's a question of how much volume we will get."
Another shipbroker previously said that the USGC remained quiet, and "anything that's been attempted to be moved the past couple weeks has been purely opportunistic."
The Persian Gulf market remained firm, with owners reluctant to discount modern, well-approved tonnage given the lack of recent benchmark fixtures, shipbrokers said.
"Fundamentals remain supportive as relatively few modern vessels are expected to ballast from the East," one shipbroker said July 13. "Should cargo enquiry improve in the coming days, the current tonnage profile leaves the market well positioned for a firmer correction."
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