AIRLINE passengers are flying again, transport fuel prices across Europe and the US are hitting fresh highs and refiners are enjoying record profit margins.

So why are the world’s biggest tankers not joining the party?

Spot rates for very large crude carriers have sharply deviated from the upward trajectory seen for smaller tankers since Russia began its incursion into Ukraine and upended oil markets.

Average time charter equivalent rates for VLCCs are now at minus $22,000 daily, according to the Baltic Exchange.

Those assessments do not reflect the higher earnings for scrubber-fitted vessels, nor account for the speed, or the engine efficiency of modern tankers.

Nevertheless, these negative numbers point at the depth of loss-making returns for owners and operators across the global fleet of 890 VLCCs.

This contrasts with suezmax, aframax and medium range tankers, where earnings have rebounded since March, ending a pandemic-induced protracted 18-month slump in rates for these sectors.

DHT Tankers, with a fleet of 26 VLCCs, reported average rates of $11,900 daily for the 20 trading in the spot market over the first quarter. That is well below the company’s breakeven rate of $15,100.

“The trade disruptions resulting from the Russia/Ukraine conflict are driving transportation distances longer, hence supportive of certain freight routes for smaller sized vessels,” the company said as it reported a loss for the three months ending March 31. “The trade disruptions are also changing sourcing of refined oil products, supporting freight rates for product tankers.”

VLCCs are used to ship about 80% of crude by sea to China, the largest oil importer. Lockdowns and transport restrictions have stalled demand growth that was expected to lead a global recovery.

April imports at 10.5m barrels per day were 500,000 bpd higher than March, but refinery throughput fell 6%, the biggest monthly decline since the early days of the pandemic, Reuters reported, citing China customs data.

Adding to VLCC pressure is the refusal of countries that are members of the Organisation of the Petroleum Exporting Countries to increase crude production beyond agreed outputs.

The so-called Opec-plus deal sees 400,000 bpd returned to the market each month until October. That is keeping prices at around $110 a barrel.

Opec members Saudi Arabia and the United Arab Emirates are the only exporting countries with capacity to increase production but have resisted pressure to open taps further.

VLCCs carry about 40% of the 51.3m bpd of oil tracked on vessels worldwide over 60,000 dwt, according to data from Lloyd’s List Intelligence, but 70% of all cargoes from the Middle East Gulf.

Preliminary Lloyd’s List Intelligence data for April show that oil exports totalled 20.4m bpd from the region, which equates to about seven VLCCs leaving daily from the Middle East Gulf.

That figure is well up from the depths of 16.3m bpd seen at the height of the pandemic in June 2020 and marks a return to 2019 volumes.

But the VLCC fleet is much larger than it was three years ago, and about 5% of global oil trades has been cannibalised by elderly tankers deployed exclusively to ship US-sanctioned Venezuelan and Iranian crude.

These circumstances have now returned the US to its 2019 position as the world’s swing supplier of crude. Production this year is forecast at 11.9m bpd in 2022 and 12.8m bpd by 2023, setting a fresh high, the US Energy Information Administration said in its latest report.

“A high level of uncertainty remains in our outlooks, but we have consistently forecast that elevated crude oil prices would help drive record-level annual US oil production levels in 2023,” said EIA Administrator Joe DeCarolis.

That is good news for aframax and suezmax tankers used to supply refineries in Europe and the Mediterranean with rising volumes from the US, as they seek alternatives to Russia.

US crude exports have exceeded 3m bpd since mid-March, the first time these volumes have been seen consistently since mid-2021. About 1.4m bpd of this is heading for Europe, according to shipbroker Braemar ACM.

In previous market downturns VLCCs have led any improvement in rates, usually in tandem with strengthening Chinese import demand, with improved earnings then trickling down to smaller sizes.

This time the recovery is arriving from the bottom up. China’s oil demand contracted for the first time since the early 2000s in 2021 and estimates for 2022 are being revised downwards as the country’s zero-Covid policy restricts movement.

Instead, middle distillates and to a lesser extent, gasoline carried on medium range tankers, are going to be doing all the hard work for tankers when it comes to the size and duration of any lasting rates recovery.

Medium range tankers, the workhorse of the product tanker fleet, are shipping more diesel to northwest Europe, the UK and Mediterranean. The European Union's 27 member states relied on Russia for 600,000 bpd of ultra-low sulphur diesel and needs alternative sources.

Rates for larger clean tankers show similar gains, much of this attributed to jet fuel exports as international travel resumes post-pandemic, especially in Europe.

Freight rates for long range one tankers to ship 65,000 tonnes of clean product to the UK from the Middle East Gulf are at $75.89 per tonne, according to the Baltic Exchange.

This is a key route for shipping jet fuel to northwest Europe. Pre-invasion rates were at about $25 per tonne, and have climbed steadily since.

Excluding the short-lived month-long pandemic blip of April 2020, the freight cost on this route is the highest since records began  in 2006.

All eyes are now on the global economy. Russia’s incursion into Ukraine, the expansion of oil sanctions, rising inflation and slowing economic growth in China have all clouded the medium-term outlook for tanker demand.

The possibility that a two-tier tanker market will emerge to handle sanctioned Russian trades is another wildcard.

The estimated 200-plus tankers, including more than 80 VLCCs shipping 1.4m bpd of Venezuelan and Iranian oil, provide a profitable logistics template and regulatory workaround for those owners willing to take the risk and the money.

It is anybody’s guess whether the tanker rebound under way can trickle up to reach VLCCs or whether any nascent recovery will be derailed by further economic shocks or a new ‘black swan’ event.