Humbled by Hurricanes

With Hurricane Beryl recently striking the Caribbean and United States, making headlines worldwide for being the earliest category 5 Hurricane in history, many clients have been asking us what impact Hurricanes have on the tanker markets. The NOAA predicts a record number of tropical storms and hurricanes this year, expecting a quick transition to La Niña conditions following the recent El Niño. The administration forecasts between 17 and 25 named storms (up from an average of 15 since 1991), 8 to 13 hurricanes (above the average of 7 between 1991 and 2023), and 4 to 7 major hurricanes (compared to a historical average of 3). An active season points to broader risk for both the crude and clean markets, however, it is difficult to predict the overall impact.

The two key factors to watch are the path of the storm and its intensity. A major category 5 storm may cause devastation to whatever lays in its path, but provided oil infrastructure is avoided, then the impact is usually muted, aside from possible delays due to vessels re-routing to avoid the path of the storm. However, should the storm hit offshore oil production, causing any prolonged outage, then the impact will primarily be felt on crude tanker export demand from the United States and Caribbean. Combined, the US and Mexico produce 3.5 mbd offshore, much of which are sought after medium and heavy grades. In extreme cases, hurricanes may even support seaborne crude imports from further afield, if local sources of supply are taken off market for an extended period.

The other key impact concerns refineries. Refineries on the Texas and Louisiana coasts account for 48% of the overall US refining capacity. These facilities are critical for supplying US domestic markets, and exported 2.1 mbd overseas in 2023. Any disruption to refining operations is bearish for the clean tanker market in the US Gulf, with fewer barrels available for export. However, major refining outages in the US can also have a positive impact on clean tanker freight. The US Atlantic Coast in particular depends on pipeline flows from the Gulf to feed local demand. If flows up the Colonial pipeline dry up, then typically these barrels are replaced by cargoes from Europe, supporting MR rates on the UKC-USAC (TC2) route. Refinery closures in the US Gulf can also be supportive for local crude exports. If US refineries are unable to use domestic and regional grades, then additional volumes are likely to be made available for export. Other factors, such as a waiver of the Jones Act cabotage law can also positively benefit international tanker markets on a temporary basis.

Given that no two hurricanes are the same, it is difficult to predict what the impact might be specifically, other than heightened freight volatility, both up and down. Interestingly, US refiners have gotten better at recovering from storm damage. Back in 2005 when Hurricanes Katrina and Rita struck, it took about three months for Gulf Coast refineries to return to pre-storm levels. In 2017, following hurricanes Harvey and Irma, it took just 29 days. Yet, if the forecast for an active Hurricane season proves correct, with frequent back-to-back high intensity storms, then the ability of both refiners and crude producers to maintain output could be challenged.

Crude Oil

East

The VLCC AG market has experienced a busy week as Charterers looked to move on first decade August stems. The list has been rapidly decreasing, with ships booked for private/market cargos which has been a catalyst for an uptick in levels. Looking into next week, the tonnage list opens up which will provide some  much needed support for Charterers who are looking beyond the 1-5 Aug window. Today we are calling 270 Ag/China WS51 and 280 Ag/USG is now at WS31 level.

Suezmax enquiries in the AG continue to be drip fed into the area, which is managing to hold the weak sentiment here. However, larger tonnage in the region has firmed toward the end of this week, which may leave early trading next week a little more interesting. TD23 runs we estimate are now trading around 140,000mt x WS57.5 level via C/C. 

A quiet week in the AG as TD8 settled around 80,000 x WS167.5. Options remain available to Charterers, partly due to Suezmaxes soaking up much of the Aframax tenders. Expect next week to remain soft/flat.

West Africa

The WAF VLCC market was active at the start of this week, mostly off the back of Suezmax plays where pressure was greatest due to a tight front-end position. Levels steadied out over the course of the week as the pace of enquiry slowed and Charterers began to look off natural dates where tonnage is easier to come by. On today’s market, we estimate that the current rate for WAF/China should be around WS55 level.

From the start of this week the WAF region has been oversupplied in tonnage. As a result, we have seen some softening in fixing levels, however, we have not witnessed the negative correction that Charterers have been looking for. Opening Monday we will be presented with early tonnage in and around the region, likely resulting in continuing weakening of this market. We close this week with TD20 trading around the WS95 level.

Mediterranean

TD6 has not faired any better as an oversupply of tonnage in the Mediterranean has given enough competition between Owners to chip away at levels. This leaves CPC – MED being concluded at 135,000mt x WS105 level. Looking ahead we feel it still needs a larger upturn in enquiry for this weak sentiment to be shaken off.

Mediterranean Aframax Owners have suffered this week. Visible activity levels were meagre and those which come with the territory of a Summer market. Given the North Sea market provided little for Owners ,we also had an influx of ballasters and so the die was cast. Rates which were benchmarked at WS145 for a Ceyhan run came under pressure through a lack of activity. A sharp low of WS120 was rumoured before a new confidence level was achieved at WS130 several times, as charterers came back to the market to profit from low levels. CPC cargoes traded at WS160, with a low of WS155 being set by the close for the last July cargo on offer. As we look towards the next fixing window there is expected to be more cargo on offer for early August dates but momentum is low and as such rate gains will be hard to achieve.

US Gulf/Latin America

A rather uneventful week for USG VLCCs, it started with a couple of Friday TD22 deals being reported at a touch below the last done levels and showed that forward dates still fail to hold enough strength to stop further slippage. As the week progressed, there were rumours of cargos working, however, little to get excited about with levels continuing to remain flat. The Brazil export market remained muted on the surface this week, with little to write home about. One market cargo received a healthy amount of offers and a below last done level was achieved. Looking forward into next week Owners will be eager to see the pace of enquiry pick up in the Atlantic Basin region. We expect a USG/China run will fix in the region of $7.20m while we estimate a Brazil/China run is paying around WS49 level.

North Sea

A classic summer week for the North Sea with levels dropping to WS120 and holding around there. Plenty are either ballasting to Med or TA but others are simply accepting it for what it is. Compared to recent Summer markets, this isn’t the worst we’ve seen.

Crude Tanker Spot Rates (WS)

Clean Products

East

As expected, a negative correction has been seen on the LR1s. Too long without regular stems and a building tonnage list saw TC5 down to 55 x WS180. A sizeable correction, but not unsurprising. West needs a true test, but given the TC5 drop levels, are assessed at circa $4.7m. LR2s have been correcting accordingly and with $5.2m on subs for a Jet West and 75 x WS165 for TC1, it seems that LR2s will stay flat for the time being. Hopefully for the Owners there will be more stems entering the market to continue to chip away at tonnage, otherwise the pressure will continue on rates.

Far East CPP MRs continued to trade down due to sluggish demand and tonnage over-supply. The transpacific arb was very much closed. As the sell-off went on for the fourth consecutive week, Owners’ hope of any stabilization or recovery was dashed and the rate drop accelerated. In North Asia, benchmark SK/OZ dropped another 40 points to WS235, while SK/SG dropped another 200k to 600k. The situation was even worse in the Straits area, as TC7 dropped around 50 points to WS210. The long haul returns went down to mid to low 20ks and that of short haul down to high teens. Straits open ship may choose to ballast to the AG, where better returns await. The TCE has now entered a range, where the TC charterers are trying to redeliver their ship as soon as possible, and some owners are trying to advance their dry dock schedule in order to avoid this depressive period.

Mediterranean

For once we see this MR market in the Med having to rely fairly heavily on the busier UKC sector for rate guidance and sentiment, as for the majority of the week we see rates hover around 37 x WS185. Some additional testing ex Portugal sees 37 x WS192.5 now on subs and with a couple of trickier stems still to cover, we could believe rates could move closer towards the successes of the UKC. 

A fairly troubled start to the week for the Handy Owners plying their trade in the Mediterranean, with a glut of tonnage partnering with some bullish ideas from Charterers. Come midweek, we saw 20 odd points knocked off x Med as we arrived at the 30 x WS205 point and could well have thought more was to come. Thankfully for Owners though a good level of enquiry to start the week cleared a good chunk of the top of our lists away and we are now left with a position, where Owners could well claw back a few points here and there. Come Friday there are mixed successes but we continue to call the market around the 30 x WS205 point but with further testing could see some small increases around the corner.

UK Continent 

Owners in this UKC MR sector walked into the office on Monday morning full of ambition, as a tonnage list holding limited options and a buoyant US market keeping ballasters away was presented to us. Charterers have carefully picked their way through available tonnage and therefore only seen limited improvement for TC2 up to the 37 x WS200 mark now. As we’ve observed recently with a positive market, we see WAF become less desirable and the few testings we have seen have taken some effort to cover. Come Friday we are faced with a softer USG sector now, although this will give Charterers a touch more breathing space. Yet, until we see units actually set sail this way, expect some delicate steps still needing to be taken from Charterers looking to cover. 

A decent week for the Handy owning fraternity in NWE, as levels have firmed up and close the week at 30 x WS190. Good demand at the start of the week cleared out the front end of the tonnage list and limited supply was available until the 23-24 window. A prompt cargo received little interest, as Charterers now push the dates up to the 27th. Quiet Friday as expected, with Charterers trying to take the steam out of the market, but come Monday a few more vessels will be available in the 25-30 windows.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A mixed week for Handies across both sectors, as last week’s trend of off-market activity continues. The North started the week with WS230 reported before sluggish enquiry and owners accumulating idle days, which caused sentiment to shift and ideas of freight rates are now sitting around the WS225 level. The Med has seen the better of activity; yet, levels fell from WS230 at the start of the week down to WS225 by week’s end. However, Owners will be confident that if enquiry gets off to a fast start next week, levels could soon firm. 

MR

Not the week owners would have hoped for basis full-stem. Enquiry across has remained elusive, with Owners looking to part cargoes for employment. In the North, MR rates are capped by a soft Handy market, despite few naturally positioned units available to Charterers. With WS175 reported as last done, levels could reasonably be expected to soften when enquiry surfaces. In the Med units have been chipped away for part cargoes, leaving availability thinner until the end month. A fresh test here is needed to determine rates, as full stem enquiry has been absent for some time. 

Panamax

Panamaxes have seen another quiet week in the Cont and Med, as enquiry fails to surface and workable units remain thin. Some Owners have looked to ballast straight back to the USG after discharge rather than risk remaining idle for extended periods of time for TA runs. In the Caribs, it’s a different story. In the wake of recent bad weather, owners have found themselves in a position to take advantage of slipped itineraries and a lack of available units to spike rates. Some typical Aframax cargoes have been split, creating more demand and perhaps leaving more room for levels to run as we look to 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 changeJul 11thJul 4thLast Month*FFA Q3
TD3C VLCC AG-China WS-247485153
TD3C VLCC AG-China TCE $/day-1,50021,25022,75028,25022,750
TD20 Suezmax WAF-UKC WS-59510011492
TD20 Suezmax WAF-UKC TCE $/day-2,75034,25037,00047,00028,250
TD25 Aframax USG-UKC WS+13185171229167
TD25 Aframax USG-UKC TCE $/day+5,25046,25041,00063,25035,500
TC1 LR2 AG-Japan WS-22160182201 
TC1 LR2 AG-Japan TCE $/day-7,50036,75044,25052,250
TC18 MR USG-Brazil WS-32250282213231
TC18 MR USG-Brazil TCE $/day-6,25033,50039,75027,00026,750
TC5 LR1 AG-Japan WS-38189227229193
TC5 LR1 AG-Japan TCE $/day-9,75031,50041,25043,00030,000
TC7 MR Singapore-EC Aus WS-56236292319256
TC7 MR Singapore-EC Aus TCE $/day-10,00026,75036,75042,75027,500

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

Bunker Prices ($/tonne)

wk on wk changeJul 11thJul 4thLast Month*
Rotterdam VLSFO  -16571587543
Fujairah VLSFO  -22613635595
Singapore VLSFO  -18616634593
Rotterdam LSMGO  -29727756731

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