Tanker - Weekly Market Monitor Week 6 - 2025

The crude oil freight market remains highly volatile, with recent spikes in VLCC rates on the MEG-China route. While tonne-day demand growth has yet to show signs of recovery, market sentiment appears to be firming, driven by uncertainty surrounding oil price fluctuations and China's crude oil demand. Additionally, the impending implementation of U.S. tariffs on the energy sector adds to the instability.

Recent reports confirm that the U.S. has decided to pause the planned tariffs on Canadian and Mexican oil, which were initially set to take effect in early 2025. This decision temporarily alleviates concerns about the potential disruption to Canadian oil exports, particularly to the U.S. Atlantic Coast, which holds a significant 60.3% share of Canadian oil flows. As a result, in the short term, oil shipments to key U.S. destinations are expected to remain stable, providing some relief for exporters.

However, despite this temporary suspension, policy uncertainty persists, particularly regarding the possibility of tariffs being reintroduced in Q2 2025. Should this occur, Canadian oil exports to the U.S. would likely decline, pushing suppliers to seek alternative markets in Europe, Asia, or the U.S. Gulf. In January 2025, Canada exported 2.2 million tonnes of oil, with approximately 1.33 million tonnes (60.3%) directed to the U.S. Atlantic Coast. Looking ahead, if the tariff suspension holds, February 2025 oil flows to the U.S. Atlantic Coast are expected to remain steady at around 1.3 to 1.35 million tonnes as buyers capitalize on the tariff-free window.

By March 2025, if no tariffs are imposed, volumes should remain stable. However, should the U.S. reinstate tariffs, a 5-10% decline in shipments is anticipated, reducing volumes to around 1.2 to 1.25 million tonnes as buyers adjust their purchasing strategies. For the entirety of Q1 2025, assuming the tariff suspension remains in place, oil flows to the U.S. Atlantic Coast are projected to reach between 3.9 million and 4.1 million tonnes. If tariffs are reintroduced by March, the Q1 total may dip to 3.8 million tonnes or lower, with further declines expected in Q2.

As for vessel utilization, Aframax tankers play a dominant role in Canadian oil exports, accounting for 42.2% of the total. In the absence of immediate tariff enforcement, Aframax utilization is expected to remain strong in Q1 2025, particularly for short-haul routes to the U.S. Atlantic Coast. However, if tariffs are reintroduced in Q2 2025, demand for Aframax tankers on U.S. routes may decrease, potentially leading to a shift in cargoes to Suezmax tankers for longer-haul shipments to Europe. This could result in a softening of Aframax freight rates due to reduced demand, prompting a reallocation of vessels to new routes.