Ship-to-Ship Transfers in the Gulf of Oman Add Pressure to VLCC Capacity
VLCC freight rates are exceptionally high right now. Operations around the Strait of Hormuz are disrupted, voyages take longer and Asian buyers keep taking oil, so fewer tankers are available. But the strength may not last. A big wave of new ships is on the way, and it could weigh heavily on rates in the coming years.
Yao (Oliver) Ge, Head of Research at McQuilling Partners, laid out the picture at a seminar in New York last week. The event, titled “Investing Through Uncertainty: How Technology, Capital and Consolidation are Reshaping Maritime Investment”, was organized with law firm Reed Smith and classification society DNV.
Ge opened by pointing out how much unexpected events now shape shipping markets. Conditions shift quickly, he said, so it pays to look past the disruption of the moment and ask what is really driving tanker demand and supply over the longer run.
Extended Voyages and Strong Asian Demand Push Rates Higher
Ge called current rates for large crude tankers astronomical, and he put much of that down to Asia’s continued buying. Chinese independent “teapot” refineries have stepped up their purchases, and countries refilling their strategic petroleum reserves (SPR) are adding more support. He described the demand as “phenomenal”.
Meanwhile, lightering and ship-to-ship (STS) transfers are pushing costs up and tying down ships that are already on the water. That is especially true around the Gulf of Oman, where vessels coming through Hormuz have had to change how they operate.
Ge said transfers involving ships heading from inside the Persian Gulf toward Fujairah have stretched voyages dramatically. What used to take about four days can now take 12 to 15. Each ship does less work and stays tied up for longer.
Supply is under strain too. Ge pointed to attacks on ships, sanctions and the easing of some US restrictions linked to Russia, along with wider disruption in where tankers are and whether they are available.
Pipeline Diversions and Vessel Attacks Further Reduce Efficiency
The alternative routes are struggling as well. Oil moving through Saudi Arabia’s East-West pipeline, especially volumes that connect with the SUMED pipeline, matters more and more. Under that setup, tankers can load in the Mediterranean and then make the long trip to Asia.
But these flows haven’t escaped the disruption. According to Ge, the number of ships waiting at Sidi Kerir has jumped from two or three a day before the war to more than 20 now.
Attacks have also cut into the working fleet. A damaged ship can be out of action for two to three months while it is repaired, which takes that capacity off the market for the duration.
Put all this together and you get a lot of waste across tanker operations. That goes a long way toward explaining the exceptional rates in the large crude carrier segment.
Current Market Strength May Signal the Peak of the Cycle
Strong as the market is, Ge urged the audience not to assume it will stay this way. Shipping moves in cycles, and he cautioned against extending today’s conditions indefinitely.
He said the market was heading toward the peak of this cycle this year, with short-term disruption doing much of the work. The effect is strongest in the East, where demand and logistical bottlenecks combine to squeeze capacity.
He also noted that ships moving toward better-paying regions could help restore balance over time. As vessels reposition to chase higher returns, some of the regional imbalances propping up rates may start to ease.
The US Dollar and Emerging Markets Could Shape Future Oil Demand
Looking ahead to 2027, Ge widened the lens to take in the macro picture and the outlook for oil consumption.
He asked the room who would keep buying US government debt, suggesting the answer could show where shipping demand is headed.
The dollar has weakened in recent months against the Chinese and Japanese currencies, he noted. In his view, a softer dollar could help emerging markets and, in turn, support oil demand.
How currencies, emerging-market activity and energy use play off each other will remain an important thing to watch for anyone thinking about tanker shipping’s long-term outlook.
Growing VLCC Orderbook Raises Oversupply Concerns
The biggest long-term risk, in Ge’s view, is the number of new ships coming.
He warned that deliveries from the newbuilding orderbook could eventually undo much of the tight supply that is holding rates up today. The VLCC orders worried him most. He noted that 187 VLCCs have been ordered so far in 2026 and singled out China’s Hengli shipyard as part of the wider newbuilding boom. He called the size of the orderbook “very shocking” and “even scary”.
As these ships join the fleet, the extra capacity could push freight rates down, especially if demand growth doesn’t keep pace.
Ge did concede that some owners might cancel orders if they expect a weaker market. That would trim the number of ships eventually delivered, though how much is anyone’s guess.
Tanker Market Cooling Could Begin Between 2028 and 2030
Shipping runs in cycles, and that remains central to the outlook. Disruption, longer voyages and strong oil demand are holding VLCC earnings at exceptional levels today, but a flood of new deliveries could turn the market around.
Ge’s conclusion was that the tanker market should start to cool between 2028 and 2030 as new tonnage arrives. How soon and how sharply depends on demand, how fast the fleet grows, whether orders get cancelled and how long today’s supply disruptions last.
For owners and investors, the challenge will be telling the exceptional conditions behind today’s rates apart from the fundamentals that will decide what comes next.
