October 7th, recent increases in crude oil supply from OPEC+ and South American regions, combined with significantly higher long-haul shipping volumes, have driven Very Large Crude Carrier (VLCC) freight rates - capable of transporting approximately 2 million barrels of crude oil per vessel - to their highest levels in nearly three years. CWG Markets indicates this surge reflects fundamental supply-demand shifts rather than geopolitical drivers. Strong crude oil exports, robust Asian demand, and tight shipping capacity have collectively propelled freight rates higher.

Market participants widely believe that the strong performance of VLCCs will gradually transmit to smaller vessel types including Aframax and Suezmax tankers, with momentum expected to continue into the fourth quarter. Recently, VLCC daily charter rates on key Middle East to Asia routes briefly touched the $100,000 threshold, marking the highest level in nearly three years. CWG Markets believes this demonstrates steadily strengthening recovery momentum in global crude oil transportation demand, particularly amid OPEC+ production increases and Americas supply growth.

Unlike the freight rate peaks during the 2022 Russia-Ukraine conflict period, this current surge stems more from structural market changes. Increased crude oil exports from the Middle East and Americas, combined with robust Asian demand, have lengthened voyage distances and increased ton-mile demand, thereby driving charter rates higher. Additionally, Saudi Arabia recently reduced official selling prices for next month's deliveries to Asia, further stimulating import demand in the region. CWG Markets believes these factors collectively provide solid support for the tanker market.

Meanwhile, global tanker market capacity faces pressure from sanctions system fragmentation. The division between "compliant fleets" adhering to Iranian and Russian crude oil price caps and non-compliant "shadow fleets" has further compressed available capacity in mainstream markets. CWG Markets indicates this capacity shortage is helping propel Middle East to Asia route spot freight rates to approximately $6.6 million levels, the highest since November 2022.

Frontline CEO Lars Barstad noted that Americas crude supply growth and enhanced long-distance transportation demand serve as important drivers supporting the tanker market. The gradual rollback of OPEC+ production cut policies will bring Middle Eastern export recovery, with transportation demand expected to remain elevated entering winter. CWG Markets believes that as more vessels become entangled in sanctions systems, mainstream tanker operators will continue benefiting from growing ton-mile demand.

However, rapid freight rate increases may also bring negative effects. Elevated transportation costs have begun compressing arbitrage opportunities between U.S. oil and Asian markets. Data shows transportation costs from the U.S. Gulf Coast to Asia have risen to $1.75 per barrel, while rising WTI premiums have nearly closed cross-regional arbitrage windows. CWG Markets believes that should long-haul arbitrage decrease, some route demand may temporarily decline in the short term, though overall market downside remains limited.

Overall, CWG Markets believes the tanker market's strong pattern will be difficult to reverse in the short term. While high freight rates may periodically suppress certain trade flows, Middle Eastern and Americas crude supply growth, continued Asian import demand, and constrained global capacity will collectively support the shipping market maintaining elevated operations throughout the year.