Newbuild orders for Very Large Crude Carriers (VLCCs) are picking up in expectation of rising demand but risk putting the sector's recovery at risk, according to Drewry's latest Tanker Forecaster report.

New ordering activity has accelerated in the VLCC segment, extending the upward trend of 2013. VLCC orders started picking up in 2013, when 26 units were ordered after the subdued contracting period of 2011-12, during which just 21 VLCC orders were reported. The trend gained momentum in the first quarter of 2014 with a total of 15 VLCCs ordered, as compared with only six vessels in the fourth quarter of 2013.

"Attractive yard prices, expectations of faster growth in demand for large crude carriers (amid rising trade on long-haul routes) and growing interest from private equity firms in the tanker market resulted in increased ordering in 2013," said Rajesh Verma, editor of Drewry's Tanker Forecaster. "The recent firming in freight rates in the period market also added fuel to the fire."

Demand on long-haul routes is increasing with changing trade patterns in the oil market. The surge in US shale oil production and downstream expansions in Asia are resulting in higher crude oil exports from Latin America, the Caribbean and West Africa to distant Asian markets. By contrast, exports to the US are declining.

"Tonnage utilization in the VLCC market has not picked up sufficiently to accommodate any surge in ordering activity, putting the sector's recovery at risk over the coming years," warned Verma. "The recent slowdown in the Chinese economy is an additional concern for the VLCC market, as many refinery projects are being delayed or cancelled due to slowing oil demand growth in the country. So, owners need to be cautious."

"Tanker Forecaster" is a quarterly report published by Drewry Maritime Research and is priced at £2075. The report will be available from the Drewry website www.drewry.co.uk.