Trump’s surprise move, who last Wednesday announced “tremendous sanctions” against the oil giants Lukoil and Rosneft, could have significant repercussions on the crude oil shipping market, also contributing to a price increase per barrel on international markets.
Shareholders and traders are betting on a further increase in freight rates and profits for shipping companies, albeit only in the medium to long term, because Executive Order No. 14024 signed by the US president will fully deploy its effects starting from November 21, the date from which foreign financial institutions conducting significant transactions with the two oil companies and their 34 subsidiaries will risk being sanctioned in turn by the US Treasury.
As is known, India and China, to whom the Kremlin has continued to sell its black gold until now, might be forced to adapt to the new measures. This would result in a reduction of sanctioned crude oil flows, in favor of “regular” crude, like that transported from the Persian Gulf.
Furthermore, the US sanctions against Russian oil producers come at a positive time for the liquid bulk market. Last Thursday, VLCC freight rates averaged $74,843 per day, with Suezmax freight rates at $67,081 per day and Aframax at $51,367 per day. The market is supported by a combination of events, including high exports from the Middle East, the Gulf, and the Americas, with the lengthening of the average journey in /miles, and the uncertainty stemming from the application of new Chinese tariffs on US vessels, which have introduced new inefficiencies in the logistics chain.
“After 2024 and until the first half of 2025, crude oil tanker freight rates have followed an anomalous trend, with medium and small units (Suezmax and Aframax) always commanding a premium over the larger ones (VLCC), because they are more suitable for loading crude oil at the outdated terminals in the Black Sea and the Baltic Sea.
“Since August, there has been a return to normality,” Ennio Palmesino tells Port News.
“Large ships have started to command a premium again, as a consequence of the American sanctions against the shadow fleet transporting Russian crude, and lately, even directly against Russian crude,” he adds, predicting a decrease in shipments from the Black Sea and the Baltic Sea, in favor of those from the Persian Gulf: “Large ships (too large for Russian ports) are starting to be in demand again,” emphasizes the expert maritime broker, pointing out how VLCC rates have risen to $70/80,000 per day after having remained for months around an average of $30/40,000 per day.
“If China and India really try to reduce their imports of Russian crude, as they seem to have promised Trump, the gap will widen and rates could rise further” is Palmesino’s prediction, who however notes that the daily earnings of Suezmax and Aframax vessels have not fallen in absolute terms, “because international tension is also being felt in their sector” even though it is undeniable “that today it is the VLCCs that have greater growth margins.”
A separate discussion must be made for refined products: “After a strong 2023 and a good first half of 2024, we subsequently witnessed a progressive weakening of rates, which overall remained almost always below $20,000 per day for the 50,000 deadweight tonnage units, with a few sporadic exceptions during the summer,” says Palmesino, who highlights another anomaly for this sector: “The transport of gasoline from Europe to the USA has always been the prime market for product tankers, while the back-haul from the US Gulf to Europe has always paid less.” The situation has reversed since the dollar fell and gasoline became more expensive: “the Americans have reduced imports while the Europeans have continued to buy American diesel,” concludes the analyst, who however does not venture into future predictions for both market segments (crude oil and refined products).
It is indeed difficult today to predict the course of events; however, it is evident that the uncertainties deriving from the increasingly complex framework of sanctions in play against Russia and Iran are playing a determining role in the current market dynamics, with a positive impact on the utilization levels of VLCCs as well as Aframax and Suezmax vessels.
Some analysts, however, venture the possibility of new market imbalances for the coming year. It is no coincidence that flows of sanctioned crude are beginning to accumulate at sea, with a growth trend that could soon have a bearish effect on oil prices. The risk feared by experts is that these could fall rapidly compared to futures, favoring a strong contango and encouraging storage on board ships.
In short, dynamics not dissimilar to those seen during the pandemic period could be created, when floating storage had become a profitable activity both for traders, who managed to store reserves of crude oil waiting to resell it on the futures markets at higher prices, and for the shipowners in the sector, who had the opportunity to earn very high sums thanks to freight rates that were evidently inflated by a real race to charter.
