Distillate Disconnect

The European oil demand outlook is back in focus ahead of this winter, as continued macroeconomic developments cast a shadow over the region’s energy market. In particular, European distillate demand is expected to underperform as lower industrial activity, reduced road fuel demand and EV uptake gathers pace. With that in mind, one might question whether underlying demand levels are sufficient to sustain a bullish product tanker market.

The latest Eurozone manufacturing PMI reading for October came in at 43.1, falling further from September’s reading of 43.4, both of which indicate a contraction in regional economic activity. Weaker industrial output combined with worsening consumer sentiment is a clear sign that European demand is likely to remain under pressure into 2024. The latest IEA data shows OECD Europe gasoil demand decreased by 400 kbd in Q3, while overall demand for the whole of 2023 is expected to drop by 100 kbd, followed by a further fall of 90 kbd in 2024. The biggest reduction has been seen in Germany, where gasoil demand was 130 kbd lower year on year, a 12.9% decrease. Given Germany’s position as the region’s largest economy with a vast industrial and petrochemical sector, the outlook for Europe is increasingly bleak.

At the same time, regional middle distillate stocks are at their lowest since the end of last year, however, we are not expecting to replicate the large build seen ahead of the ban of Russian diesel into Europe last winter due to current weak demand levels. This signals that despite the expectations for the global distillates market tightening up in the coming months, Europe may able to cope with lower inventories this winter. In terms of imports from the East, these have been decreasing from 1.3 mbd in August to 1.18 mbd in October, while November is trending even lower at 1.14 mbd. This has particularly impacted the LR2 sector, which is underperforming relative to the strength of the Aframax market.

Nevertheless, there might be some cause for the product tanker sector to be optimistic later into the new year. Firstly, from a trading perspective, the East to West gasoil arb should evolve to support interregional flows to Europe for eventual restocking, especially given the fact that Europe is structurally short in distillate production. Secondly, the arb could open up wider as refinery complexes in the Middle East and India come out of their current maintenance schedules, increasing regional supply East of Suez, which should widen the price differentials beyond current levels. Thirdly, with Middle Eastern refineries operating more competitively than those in Europe both in terms of costs and margins, increased volumes from East of Suez are likely to put additional pressure on European refining margins, further disincentivizing local production and supporting imports. On top of this, Middle distillate stocks in Singapore have been rising over recent weeks and excess supply could head West, if the arb and freight support this.

If we see the arb economics translate into sustained higher volumes from the East to Europe for restocking, the LR2 and LR1 sectors should expect to find support from these long haul flows but the extent to which will depend on the health of the European economy which for now has a long way to go in terms of building the required demand strength and industrial activity needed to send a clear pricing signal to facilitate these higher future imports. For now, attention will remain on the state of the European macro environment and how this winter plays out.

Eurozone Manufacturing PMI

Crude Oil

Middle East

VLCC Owners enjoyed a good week as rates rebounded with a busy start to December liftings, combined with some Charterers still needing to cover end November cargoes.  The tonnage availability for early December has shrunk and we are seeing the effects of Owners’ decisions to move tonnage West to take advantage of strong rates and expected seasonal upturn.  Today we would expect 270 AG/China to fetch in the region of ws 73.5 and  280 AG/USG to go for at least ws 38 level.

Rates remain under pressure, although with the list beginning to thin out Charterers may struggle to push below 140,000mt x ws 72.5 next week. Enquiry to head East remains infrequent and rates are around 130,000mt x ws 125 today for AG/East.

Although activity remained at a steady pace, the AG has seen a slide in rates due to softer sentiment in neighbouring markets, combined with a replenishment of tonnage as we entered the December fixing window. Ballasters from the East have snapped up AG/West cargoes with Owners looking to lock in at current levels for longer voyages. AG/East remains relatively untested as we end the week at 80,000mt x ws 185.

West Africa

A mixed bag for VLCCs in WAF this week as rates did show some uptick but there was not enough activity to justify a big rebound like we witnessed in AG. The market here was more affected by events in USG / Brazil, where we saw rates drop and then start to steady again as Owners sentiment firmed. Tonnage availability off natural dates remains high, with many Owners showing a preference for Atlantic cargoes over long-haul Eastern runs. In today’s market, we are expecting a WAF/China to fix at ws 72 level.

Suezmax markets in West Africa remain under pressure, with a number of spot ships for Charterers to choose from. Though sentiment is slightly beginning to turn and more Owners are starting to feel more optimistic. TD20 today we estimate at 130,000mt x ws 97.5, and to head East premiums around ws 10 points.

Mediterranean

The market in the Med is also softer with low levels of enquiry. TD6 today we think 135,000mt x ws 137.5 is likely achievable. Cargoes heading East today will be approximately $5.0m but enquiry remains limited.

A change in sentiment in the Atlantic basin and the reality on the larger sizes has continued to infect the Med Aframax sector this week. A steady enquiry was not voluminous enough to stem the bleeding as X Med rates continued their slide. Ws 210 was concluded for an X Med voyage and then less was to come for better runs. Ws 200 for Ceyhan was soon followed by ws 195 and then ws 190 was achieved for a short Algerian run. At the close, a new Owner has reached to confirm ws 177.5 for a Libya run to establish a Med presence and surely Owners will hope the rot stops here. With Fos maintenance lasting longer than expected, this can be the only hope for Owners.

US Gulf/Latin America

A frustrating week for Owners here as rates began to soften despite good levels of enquiry but an influx of recent Eastern ballasters gave comfort to Charterers and it was not until later in the week before rates started to rebound slowly. A plethora of ships failing did not help but Owners remain confident of a busy December programme, with more opportunities to end the year on a high note. We expect a USG / China run will fix in the region of just  $10.2m on today’s market,  while Brazil/China is paying around the 71 level. The US Aframax market has also softened over the course of the week.

North Sea

With rates for an X-North Sea gradually decreasing throughout the week, we close trading at ws 177.5 for this voyage. The list appears to be well stocked due to many vessels returning from the USG, as well as those looking to get involved in the rumoured increasing Baltic market. With surrounding market rates also suffering, we could see rates continue to push downward as we move into next week.

Crude Tanker Spot Rates (WS)

Clean Products

East

The LR2s have seen the bulk of the activity this week. Progress has been made on clearing some of the tonnage. However, there are still options out there and that’s been reflected in the levels seen this week. TC1 was on subs multiple times at 75,000mt x ws 125 and AG/West corrected to $3.5m. Charterers still have options for both East and West cargoes and as such, expect rates to remain flat for now. The LR1s continue lacking enquiry, but contract liftings and a few short haul stems has chipped away at the front end and as a result the list doesn’t look terrible. Owners will be hoping to move on from last done levels of TC5 at 55,000mt x ws 135 and $3.0m for West discharge, but we really need more stems making an appearance early next week for any traction.

Despite an upturn in cargoes this week, the exodus from SE Asia and the hangover form a quieter period in the AG has meant rates have largely stagnated. TC17 has traded within a 5 point range between ws 205-210 and a West bound option is hovering in the $1.8m-$1.9m level. TC12 still needs testing-  with correction below ws 140 bringing earnings in line with surrounding runs but expect to see resistance to a drop that steep.

With demand remaining healthy and the backlog of tonnage slowly being fixed, the market started with a slight dip and finally rebounded in the last two days of the week. TC11 increased marginally to $580k and Korea/Australia jumped 7.5 points to ws 185. The Situation is looking more positive for owners as December fixing starts. The transpacific ULSD arb is marginally open but not wide enough yet. The tonnage clearance in Singapore has continued as ships keep ballasting to the AG or North Asia. However, the oversupply has hardly improved after ships re-open after short haul voyages. TC7 dropped 7.5 points to ws 157.5 which has seen a return to earnings in the mid teens.

Mediterranean

All in all it’s been an active week for the Handies here in the Mediterranean which has seen rates firm. We began the week with X-Med at the 30,000mt x ws 225 mark but with a flood of cargoes hitting the market on Tuesday we soon saw momentum begin to build. By Thursday we saw rates settling around the 30,000mt x ws 265-270 levels with little to cover but at the time of writing a few more cargoes have come out of the woodwork so expect positive ideas from Owners into the weekend with higher achieved ex EMed.

Finally to the Med MR market where we have seen a good level of enquiry throughout the week. Med/TA started the week at the 37,000mt x ws 210 mark but with TC2 slipping we soon saw the Med come under pressure and fall to 37,000mt x ws 195. However, since then enquiry has picked up and with the Handies also busy, Owners have been able to regain some momentum. Last done is now 37,000mt x ws 205 and with cargoes still to cover before the week is out, expect positivity from Owners.

UK Continent 

A fairly dull week passes for the MRs trading in the UKC as we see a slowish level of stems quoted with TC2 being the preferred and with that rates have fallen down to around the 37,000mt x ws 185 mark now. With WAF being a less desirable route we find Charterers looking to clip out some of the cheaper, larger Handies but still we find enough full 37kt stems to keep tonnage turning over but at a higher premium than in recent times. It’s not all doom and gloom though with a strong week for the States market and as we see Thanksgiving on the horizon, expect most ballast tonnage to set course for the USG. Next week has potential to get tight quickly if we see an active start to the week, but for now we hold here at these levels.

Handies, in the North have been lacking enquiry this week as the busier Med market has been driving Owners sentiment here. ARA liftings have traded at 30,000mt x ws 165 for the majority but we have seen some higher numbers paid ex North Spain (30,000mt x ws 187.5) for X-UKC. Some ARA positions have fixed WMED cargoes and swallowed the ballast down but looking at the tonnage list now there is still a healthy amount of supply available for Charterers which will keep levels trading sideways for now.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

In the Med, ws 335 became the conference level for most of the week as steady enquiry kept front end tonnage ticking over. As the list tightened come Thursday, one Owner managed to go on subs at ws 340, which is where the market is expected to hold for now heading into the weekend.

Meanwhile, in the Continent, the rate of enquiry and tonnage supply were going hand in hand at the onset of the week and, as a result, saw ws 325 repeated. As the week progressed, persistent enquiry started to limit charterers’ options for naturally placed, well approved vessels and thus allowed the market to be pushed to the ws 332.5 level by mid-week. Despite a quieter back end to the week, expect Owners to want no less than last done going forward.

MR

It’s the same old story in the North as full stem enquiry has failed to surface again this week. Owners with vessels approaching opening dates have had no choice but to take part cargoes to limit idle days once more. On the other hand, in the Med, the front end of the week saw two owners utilising their vessels’ full capacity, taking 45kt cargoes with rates tested at the ws 255 level. Going forward, expect Owners to continue exploring both full and part cargo enquiry as and when they arise to keep the region ticking over.

Panamax

Trans-Atlantic opportunities have remained few and far between this week, which has caused Owners on this side of the pond to again look to local employment to keep the propellers turning. Although Owners will certainly be keen for long haul enquiry to pick back up, confidence on next done won’t be as high as it has been due to the US Aframax market softening over the course of the 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 changeNov 16thNov 9thLast Month*FFA Q4
TD3C VLCC AG-China WS+674685665
TD3C VLCC AG-China TCE $/day+8,00057,00049,00031,00044,750
TD20 Suezmax WAF-UKC WS-1399112120112
TD20 Suezmax WAF-UKC TCE $/day-9,50039,00048,50050,75048,000
TD25 Aframax USG-UKC WS-13208220202200
TD25 Aframax USG-UKC TCE $/day-5,75058,25064,00053,75055,750
TC1 LR2 AG-Japan WS-14124138171
TC1 LR2 AG-Japan TCE $/day-6,00022,75028,75042,000
TC18 MR USG-Brazil WS+9301237179234
TC18 MR USG-Brazil TCE $/day+14,25048,25034,00019,00033,750
TC5 LR1 AG-Japan WS-10133142176158
TC5 LR1 AG-Japan TCE $/day-3,00016,75019,75029,75024,750
TC7 MR Singapore-EC Aus WS-8158166234208
TC7 MR Singapore-EC Aus TCE $/day-1,75011,50013,25026,75021,750

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

Bunker Price s ($/tonne)

wk on wk changeNov 16thNov 9thLast Month*
Rotterdam VLSFO  +17576559621
Fujairah VLSFO  +2658656665
Singapore VLSFO  +7676669686
Rotterdam LSMGO  +9776767900

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