Choppy Waters Ahead

In recent years, the tanker market has faced quite a few tailwinds. Structurally, the industry has benefitted from the colossal gains in tanker tonne miles following sanctions on Russia, the exit of aging tonnage into the grey fleet and minimal new deliveries. This year, the rerouting via Cape of Good Hope has also supported the clean tanker market.

However, some of these factors are bound to change next year. The fleet will see an increasing wave of deliveries, although the picture is mixed depending on the size group. MR deliveries are scheduled to double next year, with over 70 units to start trading, the highest level since 2019. Suezmax and Aframax/LR2 deliveries are also notably up next year. Circa 55 LR2/Aframaxes are due for delivery, the highest number since 2017; whilst around 30 new Suezmaxes are also expected to start trading. Still, although deliveries in these size groups are notable, representing between 4% to 5% of the existing fleet, we have a similar, if not slightly higher number of tankers turning 15 years of age next year. In addition, VLCC, LR1/Panamax and Handy deliveries are still limited next year: just 15 tankers across all three segments.

In terms of demand, the fortunes in the clean tanker market, particularly for larger LRs will be interlinked with the relative strength of the crude tanker market, which will dictate the pace of dirty-to-clean switching. Accelerating Suezmax deliveries will probably also see at least some of the newbuild tonnage trading clean on their maiden voyage. For MRs, ramping up operations at Dangote and approaching operations at Olmeca will bring further trouble. Yet, Middle East refining runs could rise modestly year-on-year, when they reach full capacity in 2025, whilst announced capacity closures in Europe will support growing import requirements despite challenging demand. All of this offers an element of support to the clean tanker market, but perhaps not large enough to offset the negative impact of dirty-to-clean switching and the reduction in CPP imports into West Africa and Mexico.

The picture is somewhat more positive for crude tankers, as increasing crude production in the Americas will offer incremental crude tonne miles. According to the latest IEA monthly report, oil production in the US, Canada, Brazil, Guyana and Argentina are projected to increase by 1.2 mbd, which will not only offset additional Nigerian and Mexican crude being retained for domestic refining, but will also support expanding trade, primarily to Asia, where refining runs are penciled to grow by 500 kbd.

Much uncertainty, however, surrounds the OPEC+ production strategy. Although the current oil supply/demand balances show that no additional OPEC+ supplies are needed, if the block starts unwinding crude production cuts later in the year, it will certainly benefit the tanker market in the short term. A contango structure could also emerge, supporting storage economics (although land-based inventories would likely fill first). Geopolitics are expected to continue to play a major role in tanker markets, magnifying the degree of uncertainty. Trump 2.0 could bring many changes, with a profound impact on tanker markets, altering the trade dynamics once again. A major escalation of the Middle East conflict could potentially threaten oil supplies in the region. However, stricter Iranian sanctions could be positive, particularly for larger crude tanker market, shifting demand from the dark fleet to mainstream tanker markets.

Annual growth in oil production (kbd)

Crude Oil

East

The VLCC AG market lacked activity across the week with cargoes being drip fed into the market. One quote at the start of the week collected a very healthy amount of offers which hinted at where the trend was heading. As we progressed through the week rates continued to bounce along the bottom. Tonnage remained well stocked, and a few early ships got picked off and concluded below last done levels. Looking ahead to next week our focus moves to January stems and the expectation is for rates to follow the same pattern for the time being. Today we are calling AG/China WS39 and AG/USG WS26 level via the cape.

A slow trickle of activity throughout the week has kept pressure on Suezmax rates in the AG with owners finding very little to get excited about rates are around 140 x WS50 via C/C. VLCCs are keeping plenty of pressure on both East and West runs looking to compete on Suezmax part-cargoes, and rates are approximately 130 x WS92.5 for an East run.

Aframaxes in the East finish the week on the back foot with TD8 slipping back down to WS135. Lack of activity and VLCCs coming off have allowed tonnage to replenish which is the main driver.

West Africa

The pace of enquiry for VLCCs remains slow in WAF with only a few stems reportedly worked throughout the week. Levels have not been supported by fixing in the surrounding regions and an improved amount of ballasters from the east. Looking ahead to next week owners will hope to see an improvement in activity levels with the aim of trying to pull rates back to more attractive levels. Off natural dates we estimate that on today’s market a 260 WAF/China run would pay around WS47 level.

Suezmax markets in West Africa remain very much under the covers but rates seem steady at WS90. With the USG starting to fall away though, charterers will definitely be looking to chip away at this figure next week and will likely have success in doing so.

Mediterranean

In Suezmax markets in the Med CPC is starting to be impacted by increased delays in the Turkish Straits, and charterers will be looking to take hold of early ships with plenty of time up their sleeves. Rates look likely to push above WS100 for TD6 for those not willing to take any chances on the itinerary. Libya/East runs will be all to play for next week with a few ships keen to head East, and rates will likely push below the $4.8M level.

In Aframax markets in the Med at the start of the week cargoes flowed and they were of a longer voyage length and attracted interest pushing rates down to the WS130s. This then trickled through to CPC cargoes which owners used to help with missing XMed dates. As such levels in the WS150-152.5 range were concluded. Only when the lists started to tighten did those still needing employment sense an opportunity to push back, leaving the week almost on par to where the week began, especially helped by short unpopular voyages paying big premiums into the WS180s. Looking ahead, however, and with only a few days of trading left until Christmas, any further tightening of the list is unlikely to transform into any real resurgence especially when surrounding sectors show a similar trend.

US Gulf/Latin America

This week the USG VLCC market was welcomed by a few USG export cargoes. The pace of enquiry remained slow but with industry events taking place in the US further info is expected to come to light early next week. Charterers will be pleased to know that committed ballasters from the East to the West are at 7-month highs. The Brazil market was not active this week and for those charterers who did step out they were able to pull the market down further following the same trajectory of the surrounding regions. Today we expect a USG/China cargo to pay in the region of $6.85m and a Brazil/China run is around the WS45 level.

Aframaxes begin their correction this week in the Americas.  Minimal fixing activity has left it in a soft state, with fewer deals than in prior weeks bringing us down to 70 x WS160. A Suezmax was put on last night for the equivalent of WS150, leaving more potential for the slide to continue.

North Sea

A decent bit of action to keep the Aframaxes in the North Sea relatively buoyant with some optimism going forward. A midweek replacement and a lot of States ballasters gave owners the hope that it might kick on. Despite a rise off the back of this, enough local tonnage remains to keep things in the balance with rates still trading in the mid-high WS120s.

Crude Tanker Spot Rates (WS)

Clean Products

East

A very flat week for LRs in comparison to last week. Owners will be disappointed that there hasn’t been any further traction to see rates pushed, but with the lack of cargoes there was no way to capitalise. TC1 steady at 75 x WS110 and West flat at $3.3m. TC5 at 55 x WS110 and West at $2.6m. There is still a week to go until Christmas and owners will be hoping for stems to arrive with haste, however, for now the run into Christmas looks rather flat.

The MRs East of Suez got off to a steady start this week as a thinner list in the natural window saw a slight push on TC17 to WS202.5 by mid-week. East was tested with WS125 on subs, however, a gap in earnings of around $4k p/d has opened between TC17 at $19k p/d and TC12 at $15k p/d. Some of the steam has now come out of the market off the back of a quieter couple of days in the AG with the potential for levels to once again come under pressure next week.

Mediterranean

A bit of a slow start to the week for the Handies in the Mediterranean and by the midpoint we had lost 20-30 points off the market down to the WS200 region. Thankfully for owners though this seemed to wake up charterers and a more active end of the week sees 30 x WS210 on subs on Friday. Itineraries will be key in the upcoming week as we expect many to reach further out to clear the Christmas period and the value of a firm itinerary could well be worth a little extra. 

Finally, to the MRs where it’s not been the busiest of weeks, but with a lack of naturally open vessels in the area, owners have been able to hold onto some more premium numbers. This could well be questioned coming into next week as we for the first time in a while see a good number of WAF ballasters heading up and expect WMed loadings to be able to pick off some tonnage without too much pain.

UK Continent 

A higher premium for MRs for both WAF and XUKC has kept this TC2 market tricky to call all week with a lack of vanilla testing. With excess of WS200 seen down to WAF, TA has been guided around the 37 x WS150 but as the week has progressed a few opportunities arose to go on a long run. 37 x WS142.5 was seen and with a market quote ex Portugal also seeing 37 x WS135 go on subs, leaving a few question marks as we move into a potentially busy week just before the festive break. 

Charterers were greeted with limited supply on the front end of the UKC Handy tonnage list at the start of the week which resulted in freight firming to around the 30 x WS180 level by Tuesday. MR levels also moved which has meant that Handies made more sense to cover the short haul stems. By the end of the week cargo flow has slowed and a vanilla XUKC needs a fresh test. 

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Activity came thick and fast this week both in the North and Med. The North kicked off with a lengthy looking list which saw levels corrected down to 30xWS197.5 on Monday. This signalled the start of a flurry of activity, clearing tonnage and leaving the list tight as we look ahead to next week’s trading. Owners will be hoping for another fast start to capitalise on a tight list. We feel levels are poised to firm to 30 x WS200 if enquiry hits the market early.

A delayed winter market has finally arrived in the Med, bringing with it healthy and consistent levels of activity. Early in the week 30 x WS160 had taken root with plenty of deals repeating at these levels. As vessels were fixed away the list began to tighten, by week’s end a new barrier was broken with 30 x WS170 on subs for an XMed cargo. Looking ahead to next week, we expect to see levels continue to firm if enquiry remains strong.

MR

Like the Handies, MRs in the North saw levels soften. When enquiry did surface, 45 x WS140 was fixed for a XUKC cargo. Some delays in the North and Med kept vessels from opening and left itineraries somewhat uncertain. In the next fixing window, there are fewer options available to charterers, and owners could look to push levels on should enquiry surface early. In the Med, the market still awaits a fresh well-publicised test, full-stems struggle to surface and owners find employment via the usual handy cargoes. The list is tighter for MRs leaving a feeling that next done could surpass current freight ideas of 45 x WS -120.

Panamax

A quieter week for the Panamaxes on this side of the pond as deals have been concluded under the radar. Availability in the North looks thin, any cargoes this side of Christmas are likely to be covered by ships positioned in the Med. Ideas of freight still stand at 55 x WS110-115 for cargoes straight into the USG and around 55 x WS125 for Caribs options. In the USG the week started strong as initially surrounding tight markets gave levels here a boost to 50 x WS170, but these levels could be short-lived as local markets look to have run out of steam and rates look likely to soften.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeDec 12thDec 5thLast Month*FFA Q4
TD3C VLCC AG-China WS-440434750
TD3C VLCC AG-China TCE $/day-3,75016,75020,50023,50024,500
TD20 Suezmax WAF-UKC WS-488928589
TD20 Suezmax WAF-UKC TCE $/day-2,50033,00035,50030,50029,500
TD25 Aframax USG-UKC WS-16176192134158
TD25 Aframax USG-UKC TCE $/day-5,75045,00050,75028,75034,500
TC1 LR2 AG-Japan WS-111111296 
TC1 LR2 AG-Japan TCE $/day25021,75021,50014,750
TC18 MR USG-Brazil WS24248224217216
TC18 MR USG-Brazil TCE $/day4,75034,50029,75028,25025,250
TC5 LR1 AG-Japan WS-2110112105118
TC5 LR1 AG-Japan TCE $/day25013,25013,00010,25013,000
TC7 MR Singapore-EC Aus WS0160160158171
TC7 MR Singapore-EC Aus TCE $/day50015,00014,50013,50014,250

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

Bunker Prices ($/tonne)

wk on wk changeDec 12thDec 5thLast Month*
Rotterdam VLSFO  +4505501518
Fujairah VLSFO  -14527541577
Singapore VLSFO  -20535555586
Rotterdam LSMGO  -16631647666

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