Table of Contents
A Passage to the Panama Canal
The Panama Canal stands as one of the world’s most vital intercontinental waterways, playing an important role in facilitating global trade, particularly along the routes connecting the Americas and Asia. However, in recent years, a combination of climate change and structural factors have posed significant challenges to the maritime trade passing through this essential artery.
Climate change has significantly impacted the water levels of Lake Gatun, one of the two natural lakes of the Panama Canal system. According to data from the Panama Canal Authority (ACP), the average water level for February currently stands at 80.3 feet. This figure sharply contrasts with the five-year moving average of 83.9 feet around this time of the year. While the difference may appear modest, it’s essential to note that over the past five years, the lowest average lake levels have typically been recorded in May, averaging at 82.5 feet. This trend paints a concerning picture for the future of transits through the Panama Canal, as any reduction in Gatun Lake’s levels directly impacts the number of allowed transits.
A primary factor contributing to these low levels and drought conditions in Panama is attributed to the El Niño phenomenon, which commenced in Q3 of the previous year and is anticipated to persist until Q2 of the current year. The most recent record low was reached in 2016 at 78.3 feet, driven by an exceptionally rare consecutive El Niño occurrence. Notably, all four previous record lows in Gatun Lake levels coincided with El Niño events. Therefore, it’s plausible to suggest that only the onset of the monsoon season can alleviate the pressure on lake water levels. Current forecasts suggest that despite some rain over the next few weeks, persistent rainfall will not return until the April-June period. As the El Nino fades, a rapid La Nina phenomenon is forecast, which should allow the region to break the drought cycle by mid-2024.
While the ACP has been implementing limitations for most of the past and the current year, these measures have significantly impacted Panama Canal traffic and transit times. One of the most notable consequences of these actions has been the significant increase in the average winning bids for canal transits. During the first half of 2023, the average winning bid was approximately, $100,000 for tankers using the old locks but in Q4, the average winning bid jumped to just over $600,000, although so far in Q1 it has fallen to just over $200,000. That being said, it doesn’t mask the fact that transits have fallen and remain at reduced levels for now.
For crude oil, product and chemical tankers, transit restrictions are just another factor creating increased inefficiencies. During Q4 when auction prices and delays peaked, traders sought to supply increased volumes from East Asia, boosting tonne mile demand. Likewise, the US Gulf MR market was impacted by reduced ballasters arriving to replenish position lists. Looking ahead, whilst weather forecasts the situation may improve by mid-2024, climate scientists suggest that rainfall patterns are more likely to deviate from historical norms, leading to increased volatility and unpredictability in freight costs for those who rely on the waterway.
Gatun Lake Water Levels (Ft)
Crude Oil
Middle East
AG VLCC rates seem to be steady after a further fall this week. The volume of enquiry has been lighter than normal which has forced some Owners to ballast West and therefore this list is now looking more balanced. Expectations are high that next week should be more active after the end of IE week and Owners are showing more resistance. Today we are calling 270,000mt AG/China ws 60 and 280,000mt AG/USG is now at ws 44.
Despite a lack of activity, Aframax sentiment in the East remains on the warmer side. The list in the AG is slim of well approved units up to third decade which has led to Charterers reaching further ahead on dates. That being said, if cargo enquiry struggles to improve next week, Owners with ships ballasting from Singapore to the AG could have their resistance tested. We end the week with AG/East at 80,000mt x ws 197.5.
We will likely see pressure on Suezmax rates in the AG with well stocked tonnage lists in the region, rates for Basrah/West today will try to test below 140,000mt x ws 70 via Cape. To head East the market remains competitive also and today Charterers will be looking to break below ws 120.
West Africa
It has been a quiet week on the VLCC front in WAF and rates have softened as a result. We are also seeing more ballasters from the East which is not helping matters and Owners have had to lower expectations in order to get fixed. The WAF/East market needs a fresh test to establish the new level but with the lack of USG activity, it is hard to see an uptick in the short term. Today we are expecting a WAF/China to fix at w63 level.
Suezmax markets in West Africa are steady but with limited enquiry. If we don’t start to see an improvement soon, then rates will likely test towards 130,000mt x ws 100, however, for now Owners in position seem fairly relaxed. In any case, improvement on the other side of the Atlantic seems to be providing an outlet to prevent the tonnage list from building too much.
Mediterranean
The market for TD6 has seen low levels of enquiry and low delays in the Turkish Straits. Today, we assessed TD6 at 135,000mt x ws 115. There is adequate tonnage willing East, and rates are around $5.3M for Libya/Ningbo via the Cape.
Aframax Owners are looking on at this market in horror. The beginning of the week showed XMED at ws140 levels but a combination of low activity, reduced Turkish Strait delays, coupled with few Owners being occupied with Russian barrels, allowed Owner’s sentiment to take a battering. We have seemingly found a market floor at ws 102.5 for a good Cross Med (the lowest of the year so far) but many were not quite anticipating such a collapse. Furthermore, we have reached demurrage levels akin to covid era lows of $15,000/day. This said, the market as expected is looking to rebound quickly as Charterers look to make the most of bargain levels, some units opt to ballast straight over to the US and some quite simply refuse to fix at these levels. That said even if we were to see a 5-10 percent immediate rebound, the sheer measurement of decline over the past fortnight will now take a much more cohesive change of sentiment from Owners to claw back rates to any meaningful degree.
US Gulf/Latin America
The USG VLCC export market has witnessed muted activity this week with only one Charterer so far dipping into April loading. Owners have been putting up resistance and not rushing fix at below last done so currently rates seem steady. The Brazilian export market has been fairly active, but an oversupply of tonnage has seen rates soften. Today, we expect a USG / China run will fix in the region of just $8.7 m while a Brazil/China is paying around ws 61 level.
North Sea
The North Sea had a bit of a correction this week with downward pressure also seen in surrounding markets. Levels now are trading in the high ws 120s but a feeling that this could come off a tad more.
Crude Tanker Spot Rates (WS)
Clean Products
East
The LR2s have been busy this week but rates have continued to soften. Charterers have been chopping away at last done levels with the UKC (via Cape) on subs at $4.45M and TC1 on subs twice at 75,000mt x ws 145. Given the corrections seen this week, we assess that we are at or incredibly close to the bottom – the bounce should come. In reality list looks thin from the 10th onwards, but sentiment counts for a lot, and it’s been ugly this week. LR1s have traded downwards, with pressure coming from the softening seen on the LR2s. We estimate that the UKC (via Cape) pays $3.9-4.0M levels and TC5 at the 55,000mt x ws 180-185 levels. Short haul cargoes have been a little more active this week. However, the LR1 are lacking volume. Owners will be hoping for an active week next week to try and turn this tide.
A flat week for the MRs where much of the steam has been taken out of the market following a busy week last week. Westbound and short hauls remain capped by the larger sizes but with tonnage on the front end tight and itineraries at the top of the list uncertain, levels have largely held with ws 235-240 for TC12 and ws 330-335 for TC17. A sluggish end to the week has the potential to see the next up ballasters tested come Monday as they arrive in the next window.
Mediterranean
It’s been a week of 2 halves for the Handies here in the Mediterranean with rates jumping up and down. Monday saw a handful of fresh cargoes enter the market, many off of prompt dates, which got Owners excited and we soon saw X-Med push up to 30 x ws 340 levels. Since then, activity has been somewhat subdued with IE week in full flow and as a result a mixture of rates have come to light. 30 x ws 320 & now 300 are both on subs X-Med and with little to cover before the weekend, there is a feel that this market could see some pressure come Monday.
On the Med MR’s, there hasn’t been a great deal to report on the market this week with many deals being done under the radar. We began the week with Med/TA trading at 37 x ws 320 but since then activity has been slow. With TC2 trading in the mid 200’s, the Med was always going to see some pressure eventually. Fast-forward to Friday and Med/TA has now dipped under the 37 x ws 300 mark with WAF in need of a fresh test which is likely to land at +20. Quiet into the weekend.
UK Continent
A really tricky MR UKC market to call this week with so many out and about enjoying IE week and the Mediterranean market trading in the 37 x ws 320 region after some tricky requirements were covered. Where to stick TC2 was up for debate. With a few ships quietly dropping off our lists with direct deals, it was only once a few details started to leak that educated ideas of rates were possible, with WAF being done at 37 x ws 270, and therefore calling TA at the ws 250 mark. Tonnage is thin on the ground at the top of the list, but once we start reaching out to 7-8 March dates, laden tonnage should start opening up and more options will be available. Enquiry levels on Monday morning will be crucial for Owners to hold this market but it’s very plausible to see an active start on Monday with so many out and about this week.
Handy volumes this week have also been somewhat subdued as one could argue fixing has been taking place under the radar. Levels for X-UKC close around the 30 x ws 265-270 level but the weekend break will only see increased supply on our tonnage list come Monday. Momentum seems to be slowly swinging back to Charterers here.
Clean Tanker Spot Rates (WS)
Dirty Products
Handy
IE week has taken its toll on both regions with a quiet week in terms of activity with the majority of activity (if any) under the radar. In the Med, levels dropped to ws 385 and in North to ws 340, but with tonnage still showing across both regions, there is potential for the top of the list to be tested on Monday, as negative pressure creeps in.
MR
There has been little activity on MRs this week, with most Owners taking part cargo as a time filler. If you can, take an at Afra 80 x ws 105, which equals 45 x ws 186.66 plus some heating on the Afra. But if you are quoting an MR, Owners will know you have a restriction and hold around last done. From now on, expect to see Owners continue using 30kt stems for some coverage while awaiting full stem enquiry to emerge.
Panamax
A sluggish feel this week for Panamaxes. Owners are still confident that levels can hold at last done (ws 170) due to the current lack of tonnage in Europe. While we saw a dump on the States market this week, Owners with ships opening this side will think twice before committing to the ballast West.
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 | Feb 29th | Feb 22nd | Last Month* | FFA Q1 | |
TD3C VLCC AG-China WS | -8 | 60 | 68 | 58 | 66 |
TD3C VLCC AG-China TCE $/day | -9,500 | 30,750 | 40,250 | 28,000 | 39,000 |
TD20 Suezmax WAF-UKC WS | -5 | 104 | 109 | 106 | 115 |
TD20 Suezmax WAF-UKC TCE $/day | -3,500 | 34,750 | 38,250 | 35,750 | 42,250 |
TD25 Aframax USG-UKC WS | -11 | 193 | 204 | 185 | 206 |
TD25 Aframax USG-UKC TCE $/day | -4,000 | 44,750 | 48,750 | 41,750 | 49,750 |
TC1 LR2 AG-Japan WS | -46 | 145 | 191 | 323 | |
TC1 LR2 AG-Japan TCE $/day | -16,500 | 26,250 | 42,750 | 90,250 | |
TC18 MR USG-Brazil WS | -20 | 234 | 254 | 219 | 226 |
TC18 MR USG-Brazil TCE $/day | -3,750 | 26,500 | 30,250 | 23,250 | 25,000 |
TC5 LR1 AG-Japan WS | -34 | 174 | 208 | 356 | 237 |
TC5 LR1 AG-Japan TCE $/day | -8,750 | 24,750 | 33,500 | 72,500 | 41,500 |
TC7 MR Singapore-EC Aus WS | +2 | 342 | 340 | 344 | 304 |
TC7 MR Singapore-EC Aus TCE $/day | +250 | 42,500 | 42,250 | 43,000 | 35,750 |
(a) based on round voyage economics at ‘market’ speed, non eco, non scrubber basis
Bunker Price s ($/tonne)
wk on wk change | Feb 29th | Feb 22nd | Last Month* | |
Rotterdam VLSFO | +5 | 579 | 574 | 575 |
Fujairah VLSFO | +10 | 630 | 620 | 621 |
Singapore VLSFO | -2 | 636 | 638 | 636 |
Rotterdam LSMGO | -5 | 770 | 775 | 803 |