A Lot Can Happen in a Week

On Friday 10th January, the United States sanctioned Gazprom Neft and Surgutneftegaz, two key Russian insurers and 183 ships, including 156 tankers, sending shock waves through the oil and tanker markets. Crude prices have rallied on concerns of potential oil supply disruptions, greater volatility has also been witnessed in a number of crude and product arbs. Spot crude and product freight across all markets firmed, with exception of most Aframax trades.

Unquestionably, the latest OFAC sanctions target a significant share of Russian export capacity. For Suezmaxes and Aframaxes/LR2s, we are talking about 1.4 mbd of export capacity, assuming an Ust Luga/West Coast India run. To put this into perspective, Russia’s seaborne crude exports averaged 3.35mbd last year and product exports reached 2.44mbd. The bigger picture is that now around half of the existing VLCC, Suezmax and Aframax/LR2 dark fleet (that trades only Russian and/or sanctioned Iranian/Venezuelan) is now sanctioned by either the US, EU or UK authorities. Percentages are smaller for LR1/Panamaxes and Handy/MRs – here in total just under 30% of the dark fleet is sanctioned.  

The implications of the latest sanctions could be far reaching, if Russia’s exports fall, with crude demand shifting to non-sanctioned producers, supporting incremental demand for the mainstream non-sanctioned fleet. There is already evidence that some traditional buyers of Russian crude are buying additional cargoes elsewhere. Undoubtedly, VLCCs and Suezmax demand will benefit if Russian crude is replaced from the Atlantic Basin. For Middle East producers, whilst shipments into India are extremely short haul, this needs to be considered against sanctioned tonnage potentially becoming untradeable. The clean tanker fleet is somewhat less impacted by the latest sanctions; yet, the US, the Middle East/India and the European exporters stand to benefit if Russia’s ability to export products to Africa and Latin America is hit. A stronger crude tanker market will also disincentivise Suezmaxes and VLCCs from cleaning up to engage in clean trade on East/West moves.

Yet, much remains uncertain at this stage. Whilst short-term disruptions appear inevitable, can the latest sanctions be circumvented over time? What will major traders of Russian barrels do in the long run? Will Russia be willing to increase the usage of international tonnage under price cap rules? The FFA market rallied on this uncertainty, with the Baltic exchange reporting a significant jump in tanker trading volumes. Forward curves firmed, particularly through to Q2, with the biggest moves seen on VLCCs, Suezmaxes, LRs and some MR trades. Although since Monday, some forward prices have eased, suggesting some expectation that Russia supply chains will adapt to the new sanctions.

Sanctions aside, news about the Israel/Hamas ceasefire, which potentially could see the end of the regional war, have also taken the market by surprise. Whilst the Houthis have long said that the attacks will stop if the conflict ends, how soon the traffic through the Red Sea resumes remains unclear. The Houthis have already vowed to continue its current practices if the ceasefire is breached or if there are further attacks from the Israeli side.

One would hope that next week will bring more clarity in terms sanctions, the ceasefire and the Houthi position. Yet, with Trump returning to White House on Monday, we should expect more surprises!

Russia’s key crude export flows in the West (kbd)

Crude Oil

East

VLCC rates on AG/East routes are spiralling out of control as rates soar on the back of the latest US sanctions. Current levels are the highest in over 7 months with little signs of abating early next week. Charterers may attempt so slow down the cargo flow in an attempt to stifle further rises, but with cargoes still to be covered for first decade, owners should be confident of maintaining the upper hand especially as the position list is tightening for early dates. Today we are calling AG/China at ws 77 and AG/USG at ws 42 on 2025 flats.

Suezmaxes in the AG have firmed this week and owners will be looking to push even further next week. For cargoes heading West, charterers are likely to be looking at around 140,000mt x ws 67.5 via C/C for modern approved tonnage. With a lack of candidates putting their hand up to head East, owners will be looking to push above 130,000mt x ws 135 next week.

In AG, the Aframax list is significantly thinner, with Owners looking at the bigger ladies and waiting patiently for their turn. We now assess AG/East at 80,000mt x ws 137.5, with all eyes on next week as to how the Aframaxes will react. In Asia, freight rates have not yet adjusted together with its larger sisters, despite an uptick of activity for final decade enquiries. Though the tonnage list has been considerably trimmed, charterers were still able to achieve last done levels on an Australia-bound run. However, sentiment has begun to move in owners’ favour and we expect rates to be steady moving into the new week as the TD14 prints 80,000mt x ws 111. Rates ex-Oz also to remain firm, buoyed by an improving LR2 market.

West Africa

Initially, the VLCC market here was less volatile than in AG but the pace of enquiry picked up as the week progressed. Levels started to move upwards as tonnage availability for earlier laycans was insufficient to give charterers enough options. Part of this was due to owners keeping more ships in the east and owners sentiment further strengthened with the recovery in rates throughout the Atlantic basin. Today we are calling Waf/East at ws 75.

Suezmaxes have also seen improvement this week, with multiple Owners not extending. Yet, with rumours of a few cracks beginning to show in the USG, for a TD20 run charterers will be looking to break below 130,000mt x ws 90. However, there is still a lot of optimism in the air that rates may push even higher, especially for those with early dates.

Mediterranean

On Suezmaxes, CPC has firmed this week with ws 90 paid, albeit on an early position where the charterer was limited for options. Prompt availability in the East Med has been cut down throughout the week and as a result, owners will be looking for further improvement. Those looking today for TD6 will likely be looking at a larger number, with owners looking to achieve more than 130,000mt x ws 92.5. Cargoes heading East have remained infrequent and the market needs a test but as broker, for Libya/Ningbo we feel owners will be looking above the $4.6m level.

Aframaxes in the Med have finally recovered some points having been shown the way by the larger sizes worldwide. An influx of charterers trying to reach way ahead on dates cleared out the position list and incremental gains were made. A vanilla XMED rose initially from ws 102.5 to ws 112.5 but ws 117.5 soon followed, with ws 120 not far behind. CPC voyages were concluded at ws 115 before the rise but now theoretically stand in the mid ws 130s, with Suezmaxes having moved past helping charterers. The top for the week seems to have been ws 130 XMED, though this was for a short voyage and by the close, activity has slowed somewhat. Having said that, some vessels with suspect itineraries were snatched so there could yet be some fruit for owners next week even when the music has stopped.

US Gulf/Latin America

Freight rates this week on TD22 sky-rocketed as charterers introduced a plethora of fresh cargoes onto the market and owners were able to take full advantage, which came as a welcome relief after recent depressed levels. There remains a good number of uncovered cargoes as charterers struggle to cover at even last done. In comparison, Brazil export volumes seemed quieter but rates firmed on the back of rising markets in other adjacent zones and this should continue into next week. On today’s rising market, we expect a USG/China run to fetch in the region of $10m and Brazil/China to go for ws 73.

Suezmaxes traded up and down, trying to ride the coattails of the VLCC market but many of the deals ended up failing, leaving a softer sentiment and a 145,000mt x ws 65 on subs. With the upcoming Monday a bank holiday in the US, we would expect a little softening if WAF isn’t busy on Monday.

USG Aframaxes end the week in dire straits (nominally 70,000mt x ws 135 for Trans-Atlantic) as little was reported on a flush tonnage list chock full of ballasters from Nsea/Med.

North Sea

The North Aframax market has seen an exodus of tonnage ballasting away to the US, which in turn has benefitted those now left. Although not hefty gains, increment is still increment and we finish the week a few points higher than where we began, with replacements also attracting a slight premium (ws 110). And so with some sort of familiarity now associated with the sector, the question is where do we go from here? Surrounding markets have seen volatility and with units now also leaving to head to the Med, a rosier picture presents purely because of the supply ratio having now been altered.

Crude Tanker Spot Rates (WS)

Clean Products

East

What a week we have seen. With sanctions followed by a ceasefire deal, its fair to say that its been a very volatile week. Unsurprisingly, we have seen some big corrections. TC1 has jumped, with 75,000mt x ws175 on subs a few times, rates seem to have settled at this level for now. UKC reacted accordingly but is due a retest next week, sitting for now at $4.5m levels via the Cape.

The LR1s have been quieter and the expected volume hasn’t been realised with rate rises very much riding on the back of the LR2s. TC5 sits at circa 55,000mt x ws 175-180 and the UKC at $3.25m. However, there are ships on the list and the drip feeding of cargoes would indicate that owners should proceed with caution with the market remaining very volatile.

This week, AG MRs have seen a mixed bag of results where a flurry of cargoes on Tuesday saw TC17 steadily climb from ws 210 up to ws 225 / 230 with ws 250 on subs off earlier dates by close of business and Westbound also climbing to $2.4m off early dates. From here, however, activity slowed and the initial boost in sentiment faded. Fast forward and a number of units failed throughout the next few days (including ws 250 TC17 and $2.4m Westbound), some finding replacement business but on the whole, some of the more ppt units are still there. Going forward, expect to see levels repeat into next week, with eyes on the LRs to provide some stimulus.

Mediterranean

All in all, it’s been a positive week for Handy owners in the Mediterranean, with rates able to firm throughout. 30,000mt x ws 140 was the call for XMED on Monday morning; yet, with an uptick of enquiry midweek combined with a couple of replacements rates soon pushed into ws 160’s. Fast-forward to today and we see ws 175 on subs for XMED thanks to some poor weather in the region and the list tight for well-approved tonnage. At the time of writing, there isn’t a great deal left to cover, with charterers looking to take the sting out over the weekend.

The Med MR market has been quiet this week in terms of fixing activity; yet, TC2 rates in the region have been able to tick up. From this time last Friday rates have jumped up around 50 points with 37,000mt x ws 165 on subs for a Sines/ARA run but this cargo received 5 offers with owners taking the first counter. This shows that TC2 has been the real driver of rates here in the Med and with little left to cover pre-weekend, it is unlikely we see any further gains here. 

UK Continent 

With 8/9+ fresh cargoes quoted during previous Friday, the improvement during this week was that ARA/TA went from 37,000mt x ws 140 to ws 175 and ARA/Waf moved from 37,000mt x ws 165 to ws 197.5 (last cargo hydrotreated veg oil). Multiple factors aligned to help the growth here, with the Colonial pipeline potential disruption creating a pull of ULSD from Europe to TA (nothing fixed). Also, X-UKC has been steadily active, with the Handies being tight. On the back of this positive outlook, suspect more of the same going into next week. West Africa has been steadily busier, with some more Tema enquiry and Brazil ex ARA being unsurprisingly active due to Russian sanctions. The Baltics had an active end-month window, with all cleared out now till early Feb dates. Yet now, a lull of enquiry has been seen since Wednesday’s evening and with programmes expected to arrive 20th onwards, the market seemed to have topped at 37,000mt x ws 265/270 for West.

It has been a positive week for Handy owners in the North as the combination of limited supply and continued cargo enquiry resulted in levels for TC23 closing the week at 30,000mt x ws 187.5-190. ULSD demand has once again been the main driver, with STS cargoes also clipping out a few ships. A quiet Friday has passed, which isn’t surprising considering there is a tricky tonnage list for charterers to manoeuvre through. The weekend break should see some ships replenish over the weekend and a few more options open up. Owners are bullish with potential heading into next week.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The North saw another disappointing week, with little action throughout. Monday saw levels soften from a last done of 30,000mt x ws 172.5 (WS 2025) to the ws 170 mark, which some hoped would signal activity to come out from the woodwork. Unfortunately, this did not materialise. With mounting pressure and a build-up of prompt vessels with more expected to open up early next week, rates are likely to be in for a test down towards the 30,000mt x ws 165-167.5 mark. The Med has seen the better of the week’s activity, however, trading started with corrections downward before consistent under-the-radar activity steadied the ship for a while as ws 150 took hold. Unfortunately for owners, this was not to last as by the end of the week, levels softened further to ws 140 mark. Looking ahead, owners will need a strong start to the week for levels to start to rebound.

MR

Unlike the Handies, the North had seen some activity basis full stem with levels starting the week with 45,000mt x ws 122.5 reported for XUKC before levels came off slightly to ws 115 for a UKC/MED run. Naturally positioned units are now showing on the list and demand struggled to surface by week’s end. We expect levels to come under further pressure as we head into next week. The Med has seen similar levels of enquiry as the North, with a couple of deals reported at 45,000mt x ws 110 for XMED runs. Units remain prompt at the top of the list but as tonnage is split amongst a couple of owners we think levels could hold here for now.

Panamax

A quiet week for Panamaxes in the Continent with few questions asked. Owners may soon look to ballast to the USG in search of more consistent enquiry. We feel levels are flat around the 55,000mt x ws 115 mark for voyages into the USG. Over in the USG, the local Aframax market has softened which could cause charterers to see them as better value. With the US on holiday on Monday, we expect the week to start in a lethargic manner but for now, levels are steady at 50,000mt x ws 130.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeJan 16thJan 9thLast Month*FFA Q4
TD3C VLCC AG-China WS3077474065
TD3C VLCC AG-China TCE $/day35,25059,50024,25017,00039,000
TD20 Suezmax WAF-UKC WS2386638587
TD20 Suezmax WAF-UKC TCE $/day14,50030,25015,75031,25027,750
TD25 Aframax USG-UKC WS6136130183144
TD25 Aframax USG-UKC TCE $/day1,50027,75026,25047,50026,750
TC1 LR2 AG-Japan WS42174132108 
TC1 LR2 AG-Japan TCE $/day13,50041,75028,25020,250
TC18 MR USG-Brazil WS41202161279179
TC18 MR USG-Brazil TCE $/day7,50024,00016,50040,25016,500
TC5 LR1 AG-Japan WS19175156110151
TC5 LR1 AG-Japan TCE $/day4,00028,00024,00012,75019,500
TC7 MR Singapore-EC Aus WS17178161160180
TC7 MR Singapore-EC Aus TCE $/day2,50017,00014,50014,75014,250

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

Bunker Prices ($/tonne)

wk on wk changeJan 16thJan 9thLast Month*
Rotterdam VLSFO  +15547532516
Fujairah VLSFO  +29590561542
Singapore VLSFO  +28598570549
Rotterdam LSMGO  +47706659655

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