VLCC Tanker Prices: Why the Age Inversion Won't Last
Pre-2016 supertankers are fetching over $150 million against a $135 million newbuild cost, a premium worth about twelve days of the $1.2 million-a-day spot rate. Frontline, the largest listed owner, is selling older ships and fixing others for three years at $75,000 a day. The desk expects secondhand values to fall back below $100 million within a year of any credible Hormuz reopening.
A ten-year-old oil tanker is now worth more than a new one, and the owners who understand why are selling into it instead of buying more. Pre-2016 VLCCs, the supertankers that carry about 2 million barrels each, have traded above $150 million in the past week, against roughly $135 million for a newbuild. The premium buyers are paying is for time, and the smart money is on the sell side of that trade.
The secondhand market keeps setting new marks. A recently built Dynacom tanker changed hands for $200 million on prompt delivery, one of the highest prices on record for a VLCC, and another ship for October delivery went for $169 million, according to the Financial Times' reporting, as summarised by LB.ua. Tanker values overall are up about a third over the past year.
The arithmetic behind the inversion is simple once you isolate it. Spot earnings on the route from the Middle East Gulf to Asia run near $1.2 million a day. The $15 million a buyer pays over newbuild cost for an older ship is worth about twelve days of that rate. Buyers are paying for immediacy, a ship on the water now, when a newbuild slot at a shipyard in Japan, Korea or China will not open before 2030, because those yards are already close to capacity.
Who is doing that paying tells the rest of the story. Drewry has tracked at least six VLCC purchases by ADNOC in the past two months. Kuwait's national oil company has been buying too, alongside firms moving Iraqi crude and the trading house Trafigura. These are cargo owners and state oil companies securing hulls to move their own crude through a war zone. A national oil company needs a ship on the water this month, and the ten-year economics of owning it are somebody else's problem. South Korea's Sinokor has spent roughly $6 billion on tankers this year on a similar logic.
Set that against what the largest listed owners are doing. Frontline reported a record $659 million profit in the second quarter, with VLCC spot earnings averaging $152,700 a day, comfortably the best conditions the company has seen. In July it sold two 2017-built VLCCs for $270 million combined and paid out the proceeds as a special dividend, according to the company's second-quarter results, a sale made at the peak of its own earnings. At about $135 million a ship, Frontline sold below this week's prices. It sold anyway, and the reason shows up in the charters it signed next.
In the same period Frontline fixed two 2016-built VLCCs on time charters at an average of $90,000 a day for two years and $75,000 a day for three. The three-year rate is about half of Frontline's own second-quarter spot average and about 6% of today's Gulf-to-Asia spot rate. A company earning $152,700 a day right now chose to lock part of its fleet into $75,000 a day for three years. That is the owner betting its own capital, in a signed contract, that today's rate does not hold.
The buyers of Frontline's older ships are pricing a bet that the current rate lasts. The seller is pricing its remaining fleet as if it will not, and the seller is the one with earnings on the water to lose if it is wrong.
The supply pipeline reinforces the sellers' view. The VLCC orderbook has grown to 38% of the existing fleet, up from 15% a year ago, according to Veson Nautical data reported by Seatrade Maritime. Those ships begin arriving in 2028 and keep coming through 2030, adding capacity precisely as any resolution to the current disruption would already be releasing tonnage back into normal trade.
The strongest case against selling comes from George Macheras of Watson Farley & Williams, who says rates would stay structurally above pre-war levels even after a steep correction. The desk would add the supporting facts: the Hormuz closure could run for months, and a year ago Veson counted about 18% of the large tanker fleet as sanctioned and outside mainstream trade. That case has merit for the floor under rates. It says less about the ceiling. A structurally higher baseline would justify a newbuild carrying a modest premium to its long-run average. A ten-year-old ship trading above a new one at a $1.2 million-a-day spot rate is a separate claim, and it rests on who is setting the price: state entities covering wartime cargo, a transaction with no reference to a multi-year return.
The people best placed to benefit are the ones already acting on it. Frontline's shareholders collected a special dividend from selling into the peak. Alexander Saverys, chief executive of CMB.TECH, the renamed Euronav, has said buyers can recoup a ship's cost within months at current rates, itself a description of a price unlikely to last. The buyers most exposed if the premium unwinds are the financial purchasers who paid war prices without the cargo need that justifies them for a national oil company. Refiners in Asia and Europe carry the cost either way, embedded in landed crude prices for as long as the premium holds.
The desk expects secondhand VLCC values to fall back below $100 million within twelve months of any credible reopening of the Strait of Hormuz, a decline of roughly a third from current levels. Before that reopening arrives, expect more listed owners to follow Frontline's pattern of selling older tonnage into the bid and returning the proceeds to shareholders. The next test comes with third-quarter results in late November, when the desk expects at least one more owner to announce a similar sale.