Freight rates for supertankers have plunged by 75% in a month since several large OPEC+ producers announced a new round of oil production cuts that will lead to lower volumes shipped between May and December this year.
Daily rates on the Middle East to China route for the very large crude carriers (VLCC) capable of shipping up to 2 million barrels of oil have crashed from nearly $100,000 per charter day in March to just $24,000 a day at the end of last week, per data from the Baltic Exchange cited by Bloomberg. The key reason for the crash is the recent surprise cut from OPEC+ which will reduce the global supply of crude by sea.
Early last month, in a move that shocked markets and drew criticism from the United States, several major OPEC+ producers announced an additional cut to production. On April 2, a day before a regularly scheduled OPEC+ panel meeting, the biggest OPEC producers in the Middle East and several other members of the OPEC+ pact announced a total of 1.16 million bpd of fresh production cuts. OPEC heavyweights Saudi Arabia, Iraq, the United Arab Emirates (UAE), and Kuwait, plus OPEC’s Algeria and Gabon, and non-OPEC Oman and Kazakhstan, announced the 1.16 million bpd cut. That’s on top of Russia’s current 500,000 bpd cut, which was extended until the end of the year.
Saudi Arabia is also cutting 500,000 bpd and said the move was “a precautionary measure aimed at supporting the stability of the oil market.” Before the latest OPEC+ cuts, supertanker rates had surged to $100,000 per day amid high Chinese demand and the embargo on Russian crude imports into the EU, which created a major shift in global crude trade. Many tankers now have to travel on much longer routes from Russia’s Baltic and Black Sea export terminals to Asia instead of just a few days’ trip to Europe.