The world is often an uncertain place; there are always two sides to any trade. This year seems to be more uncertain than most, with many factors driving in macro-economic and geopolitical uncertainty making trading more difficult. For crude tankers, there are good supply and demand elements, yet asset values are stagnant, and we think they may stay that way over 2025.
Demand is supportive of freight rates, on balance
Demand is supportive of freight rates: OPEC appears poised to increase production substantially, shifting away from its price control strategy; US tariffs appear they may be transitory (that too is uncertain); and the US Energy Information Administration (EIA) anticipates 1 mbpd increases in global crude demand growth. Also, the EIA indicates crude production appears to be in surplus for the next two years, and last week lowered their 2025 and 2026 price forecasts for West Texas Intermediate and Brent, lowering 2025 Brent to $62/bbl from $68 and 2026 to $59/bbl from $61.1Surplus production can cause contango in crude pricing which can be supportive of crude tanker freight rates. Further, lower oil prices can support macro-economic growth, helping to stave off or soften a recession, thereby supporting tanker demand.
There are demand/supply “wild cards”. 22% of the VLCC fleet is operating in the “dark” fleet3 carrying sanctioned cargos. President Trump has hardened his tone on sanctioned cargos of late, increasing uncertainty in an already opaque sanctioned dark fleet operating regime. Separately, the energy transition should not be discounted and the move to alternative fuel and power appears well underway, likely slowing per capita crude oil demand growth over time.
Supply appears relatively attractive
While the orderbook has been growing, the fleet is aging faster than crude tankers are being ordered, despite forecast demand growth.5
Further, decisions over propulsion technology are impacting ordering decisions: While the Baltic VLCC Tanker Newbuild Assessment is at $117 million, Idemitsu just ordered two methanol-rotor sail powered VLCCs for $135 million apiece6. LNG too is a competing propulsion option for a similar $20 million dollar premium. This makes the cash breakeven/day math more difficult digest, particularly to order on speculation rather than against long-term charters, which are harder to find in the days of the energy transition. While freight rates of recent years have been supportive of these values, the Baltic Exchange VLCC Time Charter Equivalent has averaged $32,500/day since the summer of 2022 which is below the needed first year cash breakeven/day that a newbuild dual fuel VLCC would need.
Crude Tanker Asset Values May Be Stable over 2025
The above conditions and volatile freight rates have created decidedly inconclusive data for VLCC asset value trends over 2025. Similar conditions exist for other crude tanker types. Over the last 90 days, the Baltic Exchange VLCC Health of Earnings Index8 has a 143% range between high and low, Suezmax a 211% range, and Aframax 160%. However, over the same period 5-year-old asset values have had a price range fluctuation of 0.74% for VLCCs, 3.48% for Suezmax and 10% for Aframaxes.
In last quarter’s Baltic Tanker Investor Indices quarterly, we warned with caveat emptor.
Despite some attractive supply/demand factors, geopolitical tumult, macro-economic outlook, trends in oil demand, the energy transition, changes in ship technology and historical freight rates not supporting newbuild values have all made it almost treacherous to order crude tankers today. Thus, we expect crude tanker values to remain fairly stable over the next quarter and the remainder of 2025.
Source: The Baltic Exchange