The eye in the sky - Freight rate effects of tanker supply

We show how the evolution of crude oil tanker freight rates depends on the employment status and geographical position of the fleet of very large crude oil carriers (VLCCs). We provide a novel measure of short-term capacity in the voyage charter market which is a proxy for the percentage of vessels available for orders. We find that our capacity measure explains parts of the freight rate evolution at weekly horizons, where traditional supply measures are uninformative. The fact that freight rates directly influence shipowners' profitability and charterers' expenditures makes our measure particularly relevant for these groups of market participants.