Contents
Table of Contents
Dollar Strength
As the oil market contends with growing supply tightness until at least the end of 2023, macroeconomic headwinds are also at play. Central bank monetary policy is weighing on the oil demand outlook, with the US Federal Reserve signaling the potential for keeping interest rates higher for longer than some economists had initially expected to get a grip of inflationary pressure. This is likely to be bearish for both oil and tanker demand as higher US interest rates support a stronger US dollar, which in turn makes dollar-denominated barrels more expensive for non-US buyers, ultimately impacting demand. This could have knock-on effects on the tanker market as the oil market adapts. The shale industry is another victim of high interest rates, with their spending constrained by investor payouts.
Firstly, another rate hike is expected from the US Federal Reserve, as despite inflation decreasing from around 9% in 2022 to the most recent inflation reading of 3.7%, it is still above the central bank’s 2% target. This has indicated to policy makers that the current tightening cycle is working after raising rates by 5.25% over the last 18 months. At last month’s Fed meeting, it was decided to keep rates unchanged, although current consensus seems to indicate at least one more increase in 2023 with a period of holding higher future rate to give it time to feed through into the broader economy and finally get to the 2% inflation target. While we are likely to see further appreciation in the US dollar, softening oil demand somewhat further.
The ongoing tightening cycle, combined with a deteriorating oil supply outlook and projected growth in oil demand could set the stage for even further rate hikes, if higher oil prices feed into the broader economy and reignite inflationary pressure. In this case, central bankers may be forced to keep increasing interest rates into next year, prolonging market concerns, although there appears to be little appetite for this at present. The other issue persistent higher interest rates pose is the potential to disincentivize holding inventory at a time when commercial stockpiles are already under pressure as higher interest rates lead to increased storage costs, which during a period of a backwardated pricing makes storage commercially unviable for traders as we head into winter. The combination of elevated interest rates and steep backwardation also makes long-haul crude shipments less attractive.
For the tanker market, such a scenario could limit the upside in tanker earnings, if we start to see crude demand trend down from interest rate policy in addition to lower cargo availability, following the recent OPEC+ output cuts. However, there is likely to be a time lag in between further hawkish rate decisions and the consequences for the oil and tanker markets. Yet again, the general medium-term outlook for tanker earnings remains favourable, even if there are some short-term headwinds. While there could be some impact from tighter monetary policy on the market, the underlying tanker market fundamentals particularly from a fleet supply perspective may limit any downside pressure on earnings. Likewise, an improved oil supply outlook into next year cannot be ruled out, which would provide additional support for the tanker market. However, much depends on macroeconomics and here the Fed rate policy has a role to play as well.
US Dollar Strength (DYX)
Crude Oil
Middle East
A tumultuous week for VLCC Owners here as a healthy supply of market quoted enquiry highlighted Owners’ concerns that the week wasn’t going to be over-abundant with enquiry, so the need to fix was ever more important. With this in mind and after the initial correction in rates, further aftershocks brought levels down to 270,000mt x ws 38 for a short East run but an even bigger discount of 274,000mt x ws 33 for a favourable voyage to South Korea. The AG is firmer this week for Suezmaxes, with rates for Basrah/West looking to push over 140,000mt x ws 57.5. Markets to head East look steady but runs into the East have been few and far between. With a weak VLCC market as a viable alternative, rates are approximately 130,000mt x ws 97.5 today for AG/East. It has been an active week in the AG for Aframaxes, with the supply of well-approved tonnage unable to meet the demand from Charterers. In view of prompt tonnage being hard to pin down, Owners have been able to make further gains, with AG/East reaching towards 80,000mt x ws155. Although the list is tight up to the 20th, more options become available into the 3rd decade which could lead to rates stabilising.
West Africa
A very uninspiring week for VLCC activity, but we expect levels to come off after notable reductions seen elsewhere. Levels are likely to be no higher than 260,000mt x ws 40 for a generic Eastern voyage. Suezmax markets in West Africa are firmer this week, with the USG market starting to pick up and pull in ships from across the Atlantic. Rates stand at around 130,000mt x ws 72.5 for TD20. Premiums to head East stand at approximately ws 10 points.
Mediterranean
Suezmax markets in the Med still seem rather flat this week, with TD6 looking to set Charterers back around 135,000mt x ws 72.5 and a run into the East looking around $3.6m. The Med Aframax market has had somewhat of a turbulent week, as rates crept upwards off the back of fluid fixing. Activity has tickled people’s fancy but a significant resurgence is still far from the offing, so for now rates hold at around 80,000mt x ws 110.
US Gulf/Latin America
The general softening of sentiment for VLCC Owners ensured this area was never going to remain unscathed. Last done from the US Gulf to Far East is down to $7.30m, with TA voyages last done at $2.65m. A healthy mix of long and short-haul Aframax enquiry has sparked this market into life, with levels now breaching the ws 100 barrier and last done around 70,000mt x ws 102.5.
North Sea
The North Sea has had somewhat of a Legoland roller coaster of a week, nothing too exciting but enough to keep the children amused. Levels now sit at 80,000mt x ws 97.5, with little to suggest that the ride will get more bumpy going forward.
Crude Tanker Spot Rates (WS)
Clean Products
East
The LR2s saw a quiet start to the week leaving a few early ships unsure of when the first stem would be loaded. But volume has started to increase with a fair amount of business being discussed under the radar. Owners are pushing ideas up now with a 75,000 mt Naphtha AG/Japan run no longer available below ws 140 and a 90,000 mt Jet AG/UKC run hard to see below $4.0m with approved and good cubic tonnage. Next week should see the higher rates confirmed and a general movement up continue.
The LR1s have seen a fairly flat week after a lot of ambition has come to very little. LR1s just haven’t had the consistent volume to see rates firm and in fact they have eased off slightly. 55,000 mt Naphtha AG/Japan is steady at ws 155 with Owners unable to push it nearer the ws 160 they had hoped. 60,000 mt Jet AG/UKC now sits at $3.4m which is down only $50k but still has not seen the rise Owners had expected. There is an optimism though that a push is on the way but it needs more volume injected into the market.
MRs have had a very busy week and the rates have reacted quickly. 35,000 mt AG/EAFR is up some 70 ws points with ws 280 paid on the prompt replacement. The next window looks well supplied, with a good number of ballasters coming up so we should remain flat for the next window, but a push to ws 300 is not there just yet. TC12 has taken a big climb above ws 200, which at 35k/day and a ripping North market makes Eastbound an attractive run going forward. Plenty of questions still coming forward for 2H October Westbound, but current levels still hugely favour LRs over MRs.
Mediterranean
A fairly stable week passes for the Mediterranean MR players this week with consistent enquiry throughout keeping rates at the 37,000mt x ws 185 mark. We found this sector to be weaker at the start of the week compared to the UKC but with that market slow, it seems the tables have turned and this Med region now holds the premium. Poor weather across the Atlantic is hampering a few vessels in ballast and with the amount of enquiry we have seen, we expect rates to hold sideways into next week.
All in all it’s been a lacklustre week for the Handies plying their trade in the Mediterranean. After last week’s 100-point collapse, many Owners felt we had reached the bottom of this X-Med market at the 30,000mt x ws 200 mark but this was not to be. Slow enquiry throughout the week has seen prompt tonnage build and at the time of writing we see 30,000mt x ws 155 on subs X-Med albeit for a ship with Russian history. Heading into the weekend the list remains stacked with vessels and with little outstanding expect pressure to continue come Monday.
UK Continent
It seems finally the weight of limited activity seen in this UKC MR sector has taken its toll, as despite for the majority of the week we had Owners holding out for 37,000mt x ws 190 for TC2, we see ws 185 followed by ws 180 now being achieved. Despite a small flurry of Brazil / Argie runs being quoted at the end of the week, the fact this is for a tender indicates not all vessels will get fixed, and with WAF also offering little love, Owners find themselves a little light on employment opportunities and the potential for further negativity will be on their minds.
What a difference a week can make for Handies in the North. Diesel demand has slowed resulting in a real lack of cargo enquiry and after a number of vessels have been fixed short for X-UKC (mainly last week) the tonnage list has been quickly replenished. At the time of writing X-UKC trades at 30,000mt x ws 200 but the feeling is the bottom of the market has yet to be reached here. Pressure remains on Owners’ shoulders.
Clean Tanker Spot Rates (WS)
Dirty Products
Handy
Going from strength to strength, the Continent, from the beginning of the week saw Handies as “hot property”, with a collection of Charterers seeking to cover. As the week progressed, Owners’ confidence grew due to cargoes piling in on top of each other and Charterers struggling to find coverage. The week closes as it started with tonnage tight. The feeling remains that Owners will maintain their bullishness if cargoes flow early next week.
A familiar story develops in the Med, where Charterers must steer some problematic times. Replenishment over the weekend had questions about whether the top of the list could potentially be tested; however, a flurry of activity soon surfaced Monday, taking a large chunk out of the list. Although repetition of ws 260 was seen in the early stages of the week, sustained activity and uncertain itineraries due to weather delays and a lack of firm discharge orders affected supply. A change of sentiment followed as Owners made a slight gain on the last done as the week closed at ws 265.
MR
We again find ourselves using the sentiment of the surrounding markets, where availability for both Med and the Continent was tight for most of the week to gauge where 45kt stems genuinely lie. Part cargo opportunities kept MRs this week consistently finding employment and thriving off firm sentiment. Furthermore, although conditions for full stem enquiry appeared flat in both regions, Charterers now have to keep a close eye on MR availability due to the uptick in enquiry on Handies, which saw MR units taken off the list before itineraries were firm.
Panamax
Local business has provided Owners with all the opportunity they needed this week. The surrounding sectors as mentioned are performing well, which has provided a stable platform in order to secure employment until a preferred TA move comes along. In turn, this has also moved along the fixing windows, which Charterers will need to be cautious of should the need for cover on this size come along. As for rates, however, with the surrounding markets above still underperforming for TA, any upside remains capped.
Dirty Product Tanker Spot Rates (WS)
Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)
| wk on wk change | Oct 5th | Sept 28th | Last Month* | FFA Q4 | |
| TD3C VLCC AG-China WS | -14 | 37 | 51 | 36 | 50 |
| TD3C VLCC AG-China TCE $/day | -16,250 | 7,250 | 23,500 | 5,250 | 31,000 |
| TD20 Suezmax WAF-UKC WS | 6 | 73 | 68 | 73 | 87 |
| TD20 Suezmax WAF-UKC TCE $/day | 6,500 | 20,750 | 14,250 | 19,000 | 35,000 |
| TD25 Aframax USG-UKC WS | 24 | 115 | 91 | 109 | 139 |
| TD25 Aframax USG-UKC TCE $/day | 12,000 | 20,000 | 8,000 | 16,000 | 33,500 |
| TC1 LR2 AG-Japan WS | 7 | 140 | 133 | 135 | |
| TC1 LR2 AG-Japan TCE $/day | 4,750 | 31,000 | 26,250 | 28,250 | |
| TC18 MR USG-Brazil WS | 9 | 243 | 223 | 234 | 217 |
| TC18 MR USG-Brazil TCE $/day | 6,250 | 34,500 | 28,250 | 31,250 | 31,750 |
| TC5 LR1 AG-Japan WS | 1 | 156 | 156 | 145 | 172 |
| TC5 LR1 AG-Japan TCE $/day | 1,750 | 25,250 | 23,500 | 21,250 | 33,000 |
| TC7 MR Singapore-EC Aus WS | -1 | 244 | 244 | 254 | 247 |
| TC7 MR Singapore-EC Aus TCE $/day | 1,250 | 30,000 | 28,750 | 31,500 | 33,250 |
(a) based on round voyage economics at ‘market’ speed, non eco, non scrubber basis
Bunker Price s ($/tonne)
| wk on wk change | Oct 5th | Sept 28th | Last Month* | |
| Rotterdam VLSFO | -25 | 601 | 626 | 600 |
| Fujairah VLSFO | +2 | 655 | 653 | 630 |
| Singapore VLSFO | -7 | 671 | 678 | 642 |
| Rotterdam LSMGO | -47 | 893 | 940 | 922 |
