A Year Ahead

The end of last year was marked by a significant increase in attacks on ocean-going vessels in the Red Sea, with several prominent shipping companies announcing temporary pauses in their transits through the region. At the same time, we have also seen new international sanctions against Russia, which among other things saw an increase in due diligence requirements for companies subject to the G7 price cap. The hastily assembled multinational naval military operation to protect commercial trade transiting through the Red Sea could improve the security situation in the region over time; yet, the latest news that Iran is deploying a warship to the Red Sea reminds us of the risk of further escalation and potentially extreme disruptions to global trade. In contrast, the latest round of international sanctions against Russia could see some owners abandoning Russian trade, boosting tonnage availability in the mainstream market, although much here depends on the Urals price and willingness of counterparties to abide by the new rules.

Fresh OPEC+ production cuts represent another downside risk to crude tankers; however, global oil demand is projected to grow by 1.1 mbd in 2024 and this demand needs to be met from somewhere. Although consumption in advanced economies, mainly the US and Europe, is projected to decline by 270kbd, demand in developing countries is expected to increase by 1.32 mbd. China accounts for the bulk of the increase, with the country’s anticipated consumption growing by 0.72 mbd, where growth in naphtha and LPG demand accounts for 70% of the total. Overall, non-OECD Asia’s refining runs are projected to increase by 0.5 mbd next year, suggesting healthy growth in regional crude imports.

Where will that crude come from? The growth in US crude production beat market expectations in 2023 and further gains are on the cards this year. The latest IEA report suggests the country’s production could increase by 0.59 mbd this year. This, coupled with expectations of declining demand, which could apply downward pressure on refining runs, means incremental growth in crude exports. Strong gains are also projected in Latin American crude output, driven by Brazil and Guyana. Overall, regional crude production is projected to increase by 0.52 mbd YoY. There is also some potential for a modest increase in Venezuela’s exports in the early part of 2024, although the longer-term trend is uncertain, depending on the outcome of Venezuela’s elections. With Middle East exports constrained, increases in Americas crude outflows are set to lead to incremental growth in long-haul trade to Asia, which will be further reinforced by an expected decline in US and European demand. This will mainly aid VLCC demand. Increases in Suezmax and Aframax demand are likely to be capped by Russian production cuts, although winter-related delays and disruptions traditionally fuel volatility during Q1. Later in the year, the long-awaited expansion of the Trans Mountain pipeline to West Coast Canada could generate a notable increase in Aframax demand, if the pipeline start-up date is not delayed yet again.

Growth in trade is also expected in the product tanker market this year, as recently commissioned refineries in the Middle East reach full-scale operations, with regional runs projected to increase by 0.6 mbd YoY and more products likely to head into Europe. Although manufacturing in Europe is underperforming, regional gasoil stocks as evidenced in ARA inventories are under downward pressure, following expended autumn refining maintenance. A further decline in European refining runs is projected in Q1 2024, with even bigger spring maintenance planned. Another factor that could support increased volatility is arbitrage opportunities if these become widely open as seen in 2H 2022 and early 2023. An element of support is also coming from restrictions in the Panama Canal: with these restrictions unlikely to materially ease until Q2, tighter MR supply and higher LPG prices relative to naphtha are likely this quarter.

Supply-side constraints are also expected to aid tanker markets, with deliveries highly limited in 2024. Environmental regulations, such as EEXI and CII will also impact on trading patterns, constraining fleet capacity and reducing trading flexibility. The same IMO regulations could facilitate the further exit of ageing tonnage from the mainstream trade, although it remains to be seen whether the latest EU sanctions will lead to a slowdown in secondhand tonnage sales into Russian trade.

In terms of downside risks, the pending start-up of the 600kbd Dangote refinery threatens WAF crude exports and CPP imports, with 4 cargoes of West African crude already delivered into Dangote in December. Although it is still unclear when the refinery will be fully operational, even a gradual ramp-up of operations will slowly eat into tanker demand. Another downside risk is the accelerating economic turmoil in Europe, with regional CPP imports at risk. Furthermore, any hard landing in China’s economic growth could slow crude imports. Although in this scenario Chinese CPP exports will be supported, much here depends on the volume of product export quotas, dictated by the government.

To sum it all up, strong tanker fundamentals are seen as we head into the new year, but geopolitical and economic events are the key “known unknowns” in terms of upside and downside risks. And of course, there always are “unknown unknowns”.

US Crude Production (mbd)

Crude Oil

Middle East

It has been a sluggish start to 2024 for the AG VLCC market with Charterers drip feeding cargoes allowing rates to soften and with many deals concluded off radar or under COAs. However, things could be about to rebound as Charterers now move to cover the last decade and with improvements in the Atlantic and the ongoing geopolitical situation, we could see an upturn early next week.  In today’s market, we are calling 270,000mt AG/China ws 56.5 and 280,000mt AG/USG ws 45.5

Suezmax rates are steady in the AG despite increased tensions, with TD23 around 140,000mt x ws 95. Rates heading East are approximately 130,000mt x ws 125 today.

West Africa

The limited VLCC activity and bearish sentiment seen earlier in the week is now starting to change as we approach the weekend, with Charterers moving to cover VLCC’s for stems to the UKC against an upturn in Suezmaxes, which is now having a positive impact on freight rates. We have also seen more movement to India, especially from Nigeria so today we are expecting a WAF/China to fix at the ws 60 level.

Suezmax markets in West Africa have also begun to firm, and going into next week TD20 is likely to push above 130,000mt x ws 130, and to head East, premiums are around 5 points. Sentiment has firmed with plenty of cargoes for Owners to consider this week.

Mediterranean

The Med Suezmax market is also pushing up with ships from the Med being pulled into WAF cargoes. For TD6, rates are looking to push towards 135,000mt x ws 150. Cargoes heading East from Libya today will rate approximately $5.6m.

After a quiet first half of the week mirroring Aframaxes the North, a firming States market has seen sentiment start to firm. As we close the week, further enquiry came to light and recent Cross Med levels of ws150 were pushed. With bad weather creeping in, a further push on rates will be expected for next week.

US Gulf/Latin America

The VLCC market is beginning to take off here as we see an abundance of enquiry from the USG, Caribs and Brazil. This is giving a much-needed boost to the market after a disappointing end to 2023 and if this pace continues, it could be a happy hunting ground for Owners so expect to see an influx of East ballasters. We expect a USG / China run will fix in the region of $8.2m on today’s market while a Brazil/China is paying around the ws 57 level.

North Sea

With the States market firming and owners quickly choosing to ballast across the pond, the tonnage left in play managed to quickly gain increment and push rates northwards. A consistent flow of local enquiry was seen for the duration and workable positions are expected to remain thin on the ground heading into week 2 of 2024. 

Crude Tanker Spot Rates (WS)

Clean Products

East

The first week of the New Year has been as expected: interesting to say the least. The on going situation in the Red Sea has lead to a disparity in East versus West rates as Owners understandably seek a premium for heading West. Even whilst short of cargoes on both the LR1 and LR2s the softening seen centrally has not been a aggressive as it could have been, however, we expect that there is still more to come. TC1 was tested down to 75,000mt x ws 170 and the West is needing a fresh test but in the $4.85m-5.0m levels. TC5 is at 55,000mt x ws 190 and a West run at circa $4.0m. Both sizes are a little short on the cargo count. Expect that the LR1 will see a further negative correction next week as they adjust inline with the LR2s. Owners will be hoping that its not too big of an adjustment.

An active week to kick off 2024 has been seen on the MRs East of Suez which has served to begin the clear down of tonnage built over the festive period. As such, levels came under pressure where prompt and ballast units have taken what has been on offer with ws 210 (2023) on subs for TC17 – a drop from ws 240 at close of play in 2023. East runs have fallen in line however West numbers have held at $2.65m and we close the week with the potential that with sustained activity we should see the bottom reached as we hit the mid month fixing window.

North Asia starts the new year with flurry of fresh cargos, mainly due to the granting of new Chinese CPP export quota, on the back of a tight position list. The benchmark SK/Singapore run went up 200k to around 900k and SK/OZ up 20 points to ws 230 (2023 ws). The list looks tight for the next window so the rally should continue next week. In the Singapore area, it was a different case which has been trading sideways with limited public cargo. However, the private cargos were still emerging. Some ships chose to ballast to North Asia where earnings are currently better. By the end of the week, Singapore tonnage looks balanced for now.

Mediterranean

All in all, it’s been a slow start to the year in this Med handy market with rates coming under pressure from the offset. Lists pulled on Tuesday morning showed an armada of prompt tonnage and with fresh cargo enquiry on the sluggish side the writing was on the wall for Owners. X-Med soon slipped around 25 points to the 30,000mt x ws 205 (23) level which was swiftly followed by the first fixture on subs basis 2024 rates at 30,000mt x ws 200 (30,000mt x ws 190 basis 23 flat rates). Black Sea levels are therefore expected to negatively correct when tested with the +40 point premium to be maintained. Heading into the weekend little remains left to cover but with bad weather coming into play over the weekend and into the start of next week Owners will be hoping for a stabilization of rates.

Finally, to the Med MR market where it’s been a tough start to the year for Owners with rates falling. We finished 2023 with Med/TA trading at the 37,000mt x ws 195 (23) mark which was around a 20 point premium on TC2 but with a replenished list on Tuesday rates soon came under pressure. 37,000mt x ws 150 (24) was achieved by Wednesday despite good enquiry in the Med sector which saw levels back in line with TC2 for the first time in a few months. WAF has also received a fresh test with the premium now down to +15. At the time of writing there is nothing outstanding and with TC2 now at 37,000mt x ws 130 and we expect further pressure to come.

UK Continent 

It was never going to be easy for Owners to dig in and hold rates in this UKC MR sector once tonnage lists were pulled on Tuesday to reveal a glut of available tonnage, but partner this with a lack in enquiry, rates have really taken a beating. We find ourselves now on Friday around the 37,000mt x ws 125 mark for TC2, with many a discussion on how inclusive or exclusive the ETS affects rates, but with a few more cargoes than before we now have the additional debate of how much further we can fall. Short X-UKC stems are keeping some ships moving, but in reality, this week has been a bit of a write off for Owners, with hope next week these longer haul runs start flowing more frequently. 

Then to the UKC Handies which have faced an equally troublesome start to the year, especially with the glut of MRs ready to feast on 30kt clips. Unfortunately for Owners to be able to be competitive despite minimal stems, we’ve seen rates slip to the 30,000mt x ws 200 mark and expected below now, with MRs sliding further. Owners hope the UKC wakes up next week.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The New Year kicked off with the Handies in the Med fixing at ws 285 at the onset of the week. But as the week progressed, minimal replenishment coupled with steady enquiry continued to chip front end tonnage off the list, thus allowing Owners to claw back a bit more value with last done now sitting at ws 295. The Med may have hit its ceiling rate before the weekend, but attention remains focused on the list next week as Owners seek to make more incremental gains if Charterer’s options remain limited.

It’s been a reasonably steady week in the North as enquiry matches tonnage supply. Rates peaked at ws 312.5 mid-week before one Owner with a prompt vessel went on subs at ws 307.5 at the week’s close. Take this with a pinch of salt, however, as with tonnage now very tight for the next fixing window, Owner’s will be quietly confident going into next week.

MR

There has been very little activity in the market this week for MRs in the Continent. The market hoped to see a fresh test to identify true market levels for the limited number of available units, but this is yet to happen. Weather delays and change of orders contributed to the lack of units marketed this week, keeping the list favourable to Owners if and when a 45kt test surfaces. A similar story has played out in the Mediterranean, where there has been a shortage of firm tonnage, but for the couple of MRs who managed to fix basis 45kt (all behind closed doors). While activity has been relatively slow for the MRs, certain Owners did not hold back on waiting for a full stem to appear and decided to throw their hat in the ring for 30kt cargoes.

Panamax

With a lack of TA enquiry over the past couple of weeks, Owners have succumbed to taking on the ballast across the pond in a plea to utilise the firming States market. Tonnage availability is now limited, which could work out in the Owners’ favour if an enquiry surfaces next week.

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 4thJan 3rdLast Month*FFA Q4
TD3C VLCC AG-China WS+057576761
TD3C VLCC AG-China TCE $/day-75029,00029,75051,00034,000
TD20 Suezmax WAF-UKC WS+11136125103117
TD20 Suezmax WAF-UKC TCE $/day+5,75055,50049,75043,50044,500
TD25 Aframax USG-UKC WS+54281227159204
TD25 Aframax USG-UKC TCE $/day+19,00077,75058,75040,00049,750
TC1 LR2 AG-Japan WS-14169183131 
TC1 LR2 AG-Japan TCE $/day-5,25036,50041,75028,500
TC18 MR USG-Brazil WS-12216228378211
TC18 MR USG-Brazil TCE $/day-2,25024,50026,75065,00023,500
TC5 LR1 AG-Japan WS-7190197130175
TC5 LR1 AG-Japan TCE $/day-2,00030,00032,00018,50026,000
TC7 MR Singapore-EC Aus WS-1235236214223
TC7 MR Singapore-EC Aus TCE $/day-25024,25024,50026,75022,250

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

Bunker Price s ($/tonne)

wk on wk changeJan 4thJan 3rdLast Month*
Rotterdam VLSFO  +18560542536
Fujairah VLSFO  -11610621586
Singapore VLSFO  +9602593597
Rotterdam LSMGO  +16741725736

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