2023 Turmoil

2023 Turmoil

12 months ago, we titled our closing report of 2022 ‘What the hell just happened?’. 2023 has not seen the same degree of volatility but has still been a turbulent year for the oil and tanker markets, with robust earnings for all sectors owing to strong demand growth, tight supply and ongoing trading inefficiencies caused by geopolitical and climate related events.

As the year started, China’s decision to lift it’s zero covid policy in late 2022 gave oil demand a significant shot in the arm, contributing 77% of this year’s 2.3mbd demand growth through an additional 1.78mbd of demand, with the VLCCs feeling much of the benefit.

Following the December 2022 implementation of the crude price cap, February saw the introduction of the European and US embargo on Russian refined products and associated price cap. However, a large distillate stockbuild prior to the embargo and persistent demand weakness capped the upside for tankers throughout 2023. The price cap continued to influence the tanker market during the year, with prices at times trading above $60/bbl, forcing Western players to leave the Russian market. October saw the first US sanctions issued for price cap breaches, although so far most sanctioned tonnage has been linked to Sovcomflot.

By summer, the Panama Canal started to become increasingly problematic for products trade from the US Gulf to the West Coast of Latin America. Transit restrictions, record high auction prices and the associated delays have continued to impact arbitrage, trade flows and tonnage supply, with disruption expected to last well into next year.

In October, terrible events unfolded in Israel, which has had awful ongoing consequences in Gaza. For tankers, the impact on freight rates has so far been limited; however, attacks on Israeli linked shipping have increased, with the risk of collateral damage to other non-Israeli linked shipping ever present. Events in the Middle East also appear to have derailed any chance of sanctions relief for Iran. October also saw the easing of sanctions against the Maduro regime, with rising Venezuelan exports shifting from the dark fleet to conventional tonnage. However, even here, geopolitical tensions remain high, with the Bolivarian Republic threatening to seize large swathes of Guyana. Only time will tell whether Venezuela adheres to its side of the deal, paving the way for more permanent sanctions relief.

November saw perhaps the tensest OPEC+ meeting of the year, which, following extensive debate, saw output cuts rolled over and deepened for Q1-2024. Despite the pledged cuts, prices fell and a small contango emerged in the weeks following the meeting highlighting prompt oversupply. Against a backdrop of OPEC+ cuts, non-OPEC supply has continued to surge. US production grew by 1mbd, exceeding forecasts set in January by 100%. Brazil and Guyana have also made significant contributions to global supply growth.

Despite all the ongoing OPEC+ cuts this year and geopolitical events, oil prices so far have averaged $82.28/bbl, down from $99.04/bbl last year, demonstrating that supply has been adequate to meet demand growth. Refining margins have been very healthy overall, but again have not been as strong as last year. European diesel cracks have averaged around $25/bbl, down from nearly $34/bbl last year, albeit still very strong. Freight rates have also been constrained by narrower arbitrages in 2024, most notably in the refined products sector.

Newbuilding orders this year have reached levels not seen in 8 years, with 291 (>25,000dwt) firm orders for the year to date, despite newbuilding prices gaining 5-8% (size dependent) over the course of 2023. Secondhand prices were more mixed, with modern units generally seeing prices rise by 5-15%, whilst older crude tankers have generally seen values decline – perhaps a sign that Russia has sourced adequate tankers, whilst sanctions relief in Venezuela may also be weighing on trading opportunities for vintage tankers.

Unsurprisingly, with all asset classes making substantial profits and a strong secondhand market, scrapping has been extremely limited. Just 17 tankers (>25,000dwt) have been scrapped this year, mostly in the MR/Handy category.

Overall, 2023 has been another exceptional year for tanker owners with strong earnings across the board. 2024 looks set to be another strong year owing to supportive supply and demand fundamentals. However, with an uncertain economic outlook and a plethora of geopolitical risk, this outlook is far from guaranteed.

Crude Oil

Middle East

A slower than expected start to January stems has had a negative impact on VLCC rates in the AG and a large overhang of tonnage ensures Owner’s sentiment remains of the soft side. Going forward, there could be a chance of an upturn next week if Charterers decide to move before the upcoming holiday season and some will argue that rates appear to have found the bottom after the recent downturn. In today’s market we are calling a 270,000mt AG/China run at ws 55 and 280,000mt AG/USG at ws 33.

Suezmaxes in the AG have seen a much-needed improvement in enquiry this week. A good quantity of Basrah ships have been stripped from the list and Owners will be feeling a little more confident leading up to Christmas. An AG/East run we would expect to fix at 130,000mt x ws 127.5 levels while AG/West we are calling at the 140,000mt x ws 72.5 level.

It has been a slow week in the East with tensions in the Red Sea being the focal point. We are yet to see the heightened risk impact rates, with Owners undeterred from transiting the Gulf of Aden for now. Despite a few cargoes entering the market today, the week ends with sentiment on the softer side and AG/East lingering in the low-mid ws 180s.

West Africa

WAF VLCC rates remain under pressure after a lackluster week in which owners had to concentrate on other zones in order to find suitable employment as enquiry remained limited and sporadic. The downturn in other VLCC sectors is likely to ensure freight rates here are unlikely to improve in the short term and in today’s market we are expecting a WAF/China run to fix at the ws 56.5 level.

A week of minimal enquiry in West Africa has left Owner sentiment wounded, though certain ilk’s of ship are harder to come by regarding their stance on Nigeria at the moment and we expect to see some resistance from these next week. A WAF/UKCM run we would rate at the 130,000mt x ws 97.5 level basis Nigeria level while WAF/East would fix at 130,000mt x ws 117.5 in todays market.

Mediterranean

For Suezmaxes in the Med, a flurry of Aframax enquiry will give Owners a boost here, though we are still a way off from Suezmaxes being a cheaper option. There is ample tonnage in the region for now and rates remain steady. A 135,000mt CPC/SKOREA run is trading at approximately $5.7 million levels while 130,000mt Libya/Ningbo we are calling at $4.6 million at the close of the week.

Aframax Owners in the Med can end the week on the front foot for the first time this December. A decent week of fixing has seen the list trimmed with TD19 inching back up as the week has progressed. We close the week with ws 135 for a XMed voyage with rates only moving in one direction as charterers look to cover before Christmas.

US Gulf/Latin America

It has been a challenging week for VLCC owners here as rates suffered a significant downturn from last weeks levels as an over supply of east ballasters added to an already well stocked area meant Charterers are very much in control here. Enquiry levels have dipped towards the end of the week so we might not yet be at the bottom of this current cycle. We expect a USG/China run will fix in the region of just $8.2 million in today’s market while Brazil/China is paying around the ws 55.5 level.

North Sea

The market has crab-walked its way through this week with little action keeping levels uninspiring and X-NSea closing around the ws 135 levels. Many ballasters are leaving the region, hoping for better returns across the continent, which has somewhat balanced out the list. The overall sentiment is flat, and some agree that the market will remain so until we reach the third decade of December.

Crude Tanker Spot Rates (WS)

Clean Products

East

With the taps having been turned on. Both the LR2 and LR1 have got very busy in the last 48 hours, with LR2s leading the charge. Cargo after cargo entering the market has seen rates push and the list being wiped out. Finding suitable tonnage to cover the many open stems is becoming extremely challenging. A AG/West jet run is at the $4.45 million level and TC1 is trading at 75,000mt x ws165 however, given how tight it is, these rates will be further tested.

The LR1s are not as busy as the LR2s but there is still enough activity both on and off market which has helped clear tonnage and see a solid correction. We assess TC5 at 55,000 x ws 165 levels and a AG/West jet run at circa $3.5 million levels. Owners on all sizes are pushing on these last done levels and are keen to have one last push before the year is out.

The  resurgence on the MRs East of Suez continued this week as the cargo base saw pre Christmas fixing in full swing. Despite the better flow however, there has been little in term of opportunity and willingness from owners to push rates with ws 235-240 for TC17 and ws 165-170 for TC12 established and holding. Westbound questions have surfaced with one or two owners needing that direction taking coverage sub $2 million with the expectation that next done will be at least $2m. The week closes with the LR’s pushing on and with MR cargoes outstanding, pre Christmas coverage next week is likely to see owners in the driving seat.

Mediterranean

It was a fairly simple description this week for the Handies in the Mediterranean of “30,000mt x ws 265 and stable” as we see this rate repeated throughout. Enquiry levels have remained strong, but paired with an equally strong tonnage list, rates have been unable to shift either up or down and as we roll into the weekend, this ws 265 sticks. Moving into the Christmas week we may see a few more stems quoted further out, but for now anyway we expect rates to sit here.

MRs also have had a fairly stable run this week with Med/TA continuing to trade around the 37,000mt x ws 215-220 mark, consistently 20 odd ws points higher than the UKC. This has kept WAF ballast tonnage heading this way and thankfully for Owners the enquiry has been good enough to absorb any excess. A steady end to the week.

UK Continent 

With the States market offering such promise, TC2 has consistently been the most desirable route available for Owners and with a lack of ballast tonnage heading into the UKC, Owners have managed to make small gains throughout. With the Med offering higher rates, many WAF ballasters have taken a sharp right at Gibraltar which inturn has kept our tonnage lists slender, but incoming laden vessels have been the main source of tonnage available. WAF and South America runs still hold around a 30-40 ws points premium over TA and moving into next week we anticipate a few further ahead dates to be quoted as many look to cover themselves up to the new year.

With the Med recently dominating the highlight reel for handies in Europe, it wasnt a surprise to see rates improve in the UKC as we saw enquiry levels pick up. With limited tonnage around, Owners have been able to make small gains throughout the week and come Friday we see ourselves pull up from 30,000mt x ws 220 to ws 245 now. Tonnage remains on the thin side, and expect an active week ahead before the festivities begin.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

In the north, rates remained relatively steady around the ws 300 level, buoyed by a balanced match of enquiry and tonnage supply. As the week progressed, steady enquiry continued to clip front end tonnage off the list, soon limiting charterers’ options and creating a firmer regional feel. Owners now exhibit increased confidence on the next done level, particularly if replenishment is minimal come Monday. 

In the Med, a surplus of tonnage at the beginning of the week led Charterers to drive rates down from ws 265 (last week’s closing) to ws 250 on Monday. As enquiry slowed, there was a disparity between Owners as ws 240 was fixed while others held firm at ws 250. In the latter part of the week, increased enquiry occupied front end tonnage, gradually reducing availability in the region. Owners with open vessels now have a better chance to regain some value from what has felt like a softer market. 

MR

Due to a softening on the Handies at the beginning of the week, this had a knock on effect on the MR’s in the Med with one Owner fixing at 45,000mt x ws 210 and another at 45,000mt x ws 205 shortly after. Owners will undoubtedly prioritise full stem enquiries going forwards, however, given the inconsistency in cargo frequency, the decision to wait for such opportunities comes with its risks. Consequently, it is anticipated that Owners will persist in exploring part cargoes as a pragmatic alternative.  It’s been much the same in the north with owners taking part cargoes as a time filler, but finally a well needed test was seen yesterday at 45,000mt x ws 210 which will serve as a corrective benchmark for next done negotiations.

Panamax

Panamax owners can breathe a sigh of relief that not all TA enquiry is lost as one owner managed to test the market at 55,000mt x ws 142.5 earlier on this week. This certainly helped to extinguish the ambiguity around true market levels and there was potential for Owners to keep being bullish whilst availability this side of the pond was in short supply. However, long haul enquiry has been somewhat quiet since last done, with levels holding steady as a result and Owners still looking at local employment if it remains the only way to keep the propellers turning.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

	wk on wk change	Dec 14th	Dec 7th	Last Month*	FFA Q4
TD3C VLCC AG-China WS	-11	56	67	74	61
TD3C VLCC AG-China TCE $/day	-13,750	37,250	51,000	57,000	44,500
TD20 Suezmax WAF-UKC WS	-6	97	103	99	107
TD20 Suezmax WAF-UKC TCE $/day	-3,500	40,000	43,500	39,000	46,750
TD25 Aframax USG-UKC WS	-4	156	159	208	187
TD25 Aframax USG-UKC TCE $/day	-750	39,250	40,000	58,250	51,750
TC1 LR2 AG-Japan WS	+18	149	131	124
TC1 LR2 AG-Japan TCE $/day	+8,500	37,000	28,500	22,750
TC18 MR USG-Brazil WS	-67	311	378	301	277
TC18 MR USG-Brazil TCE $/day	-14,750	50,250	65,000	48,250	43,000
TC5 LR1 AG-Japan WS	+22	152	130	133	149
TC5 LR1 AG-Japan TCE $/day	+7,000	25,500	18,500	16,750	24,750
TC7 MR Singapore-EC Aus WS	+7	221	214	158	203
TC7 MR Singapore-EC Aus TCE $/day	+2,000	28,750	26,750	11,500	25,000

(a) based on round voyage economics at ‘market’ speed, non eco, non scrubber basis

Bunker Price s ($/tonne)

	wk on wk change	Dec 14th	Dec 7th	Last Month*
Rotterdam VLSFO	-8	528	536	576
Fujairah VLSFO	-10	576	586	658
Singapore VLSFO	-20	577	597	676
Rotterdam LSMGO	-7	729	736	776

Print the report

Print report