Is China’s crude craze over?

China saw an impressive rebound in crude imports last year, driven by the country’s post-Covid economic recovery. However, the picture is different this year, with average crude shipments into the country somewhat slipping, down by 50 kbd during the 1st half of the year, compared to the same period in 2023.

Imports are sluggish in part due to heavy maintenance taking place in Q2 and weakening refining margins in Asia. As a result, China’s refinery output was down 3.7% year on year in June according to data from the Chinese National Bureau of Statistics, and Sinochem reportedly closed two refineries with a total capacity of 300 kbd in Shandong province for an unspecified period following the end of seasonal maintenance. Structurally, Chinese demand is also challenged, due to reduced factory strength as well as an ongoing housing crash. The construction sector is reeling from 12 consecutive months of drops in home sales, lowering consumption of plastics and refined products. Similarly, China’s official PPI numbers, which can be used as a proxy for factory strength, have been negative for 20 months. Another key factor behind demand weakness is the growing share of EVs in the Chinese vehicle fleet. China now accounts for over half of global EV sales, and 45% of cars sold this year in China will be electric, according to the IEA.

The above suggests that the strong growth in Chinese crude imports of the last two decades, with shipments growing on average by over 10% per annum between 2013 and 2020, is a thing of the past. Nevertheless, with 10.6 mbd of crude imports in 2023, China remains by far the largest single importer of crude globally, with India a distant second at 4.6 mbd.

Going forward, Chinese oil demand is still expected to increase, although at a considerably slower pace compared to an impressive 1.46 mbd gain in consumption seen last year. The IEA expects the country’s oil demand to increase by 510 kbd in 2024 and by a further 370 kbd in 2025.  

As a result, refining runs are also expected to pick up later in the year and in 2025, supporting incremental crude imports. According to the IEA, crude throughput could increase by 500 kbd during the second half of 2024 versus the first half, as existing plants come out of maintenance. A further increase of 500 kbd (on an annual average basis) is projected in 2025, as the anticipated start-up of the 430 kbd Yulong refinery in Q4 2024 will help to lift processing runs. Continued stockpiling could also provide a short-term bolstering effect, as China reportedly has asked its state oil companies to add nearly 60 million barrels to the country’s emergency stockpiles by March 2025 to boost supply security.

The longer-term outlook, however, is more uncertain. Chinese oil demand is expected to plateau by the end of this decade, with EVs curtailing consumption of key transportation fuels. Yet, whilst growth in crude refining runs is expected to slow down drastically, the projected 500 kbd decline in China’s oil production could still see incremental imports, albeit at much slower pace relative to what has been seen in the past.

China’s Crude Imports (kbd)

Crude Oil

East

VLCC activity in the AG was slow as we began a fresh week, although there were enough questions from Charterers to show intent. It was then followed up with a couple of replacement deals done and the outcome was an uptick in freight levels. As we progressed through the week the tussle continued as Charterers try to manage the flow of activity against Owners, with their sights set on more than last done. As we moved into the second half of the week, the pace of enquiry slowed leaving early tonnage needing a home. Unfortunately, the lack of activity has not been enough to allow the market to hold and a fixture was reported 3 points below last done, resulting in weak sentiment. Looking into next week, the tonnage list looks healthy and Charterers should be able to pick ships off at comfortable levels. Today we are calling 270 AG/China at WS55 and 280 Ag/USG at WS34 level.

Suezmaxes in the AG have remained where they started this week as drip fed enquiry has just about managed to turn over early units. Fixing levels remain subdued with little movement in either direction and we estimate rates for TD23 trading at around 140,000mt x WS55 level via C/C.

West Africa

The WAF VLCC market launched into action first thing Monday morning, as one Charterer moved quickly to pay more than last done on a TD15 run. Little activity was required to keep Owners’ sentiment positive and this did everything to give it a further boost. As we moved through the week, the pace of WAF enquiry slowed, however, with upside in the surrounding regions rates ex WAF remaining firm. It is expected that WAF will follow suit, however, a fresh test is needed in the region and Owners will be eager to see next week start off with a healthy amount of enquiry. On today’s market we estimate that the current rate for WAF/China should be around WS57 level.

West Africa Suezmaxes once again started off with a lengthy looking tonnage list on Monday, this resulted in one Charterer coming out of the blocks early on, trying to push the market down. However, this was not easy to achieve, as Owners’ resistance remained firm throughout the week, and Charterers only managed to shave off 5 points. We close this week with TD20 trading around the WS90 level.

Mediterranean

Suezmaxes in the Mediterranean and the BSEA have been oversupplied with tonnage this week, which once again has opened the door for Charterers to chip away at levels. This has left CPC – MED trading at 135,000mt x WS102.5 level.

In the Aframax market sentiment continued to wane, as the weakening of TD25 spooked owners on this side of the pond. This, coupled with a list which remained stocked, allowed Charterers to erode rates once more. Ceyhan rates to the Med dropped to WS135 and then to WS130 and CPC rates dropped from over WS150 to WS140. At this point a flurry of cargoes came to the surface but Charterers played their hands carefully, fixing Owners quietly. In return Owners were happy to finally find employment and this busy stretch did little to change the mood. As we approach the weekend a balance has been reached, but dates have moved on, so a rebound might be hard to achieve.

US Gulf/Latin America

The Atlantic basin faced a subdued week, with cargoes drip fed into the market. Fixtures were being reported around last done for USG/UKC and TD22 received a slight boost in levels. The hope was that the pace of enquiry would improve, however, that did not happen and levels will likely remain on a steady course. The Brazil export market on the other hand jumped up after a flurry of cargos came to the market needing to be covered off earlier dates. We expect a USG/China run will fix in the region of $7.35m, while we estimate a Brazil/China run is paying around WS56 level.

North Sea

An under-the-radar clear out earlier on in the week combined with units ballasting to the US has been enough to afford the region some stability. That said, the market remains at summer low levels and in general Owners continue to find these conditions a challenge. Looking ahead, until we either see some additional stimulus by way of increased cargo base, or surrounding areas picking up, it’s hard to envisage any near-term change in trend. 

Crude Tanker Spot Rates (WS)

Clean Products

East

A tough week for owners in the LR1 and LR2 size classes as substantial negative corrections took place, although it looks like we could have hit the bottom on certain routes. TC1 has been repeated multiple times at 75x WS150 with product moving West being covered completely off market, and as such needs a fresh public test. 90kt of Jet heading West was reported on subs at $4.4m, and Owners will be hoping that we have reached the floor. The LR1s saw a huge correction with 60kt Jet West (ex Kuwait) reported on subs at $3.9m – this fixture drew a line in the sand and pretty much killed off any further enquiry heading into the latter part of the week. TC5 will be tested next week, for now we assess it at circa 55 x WS160 levels. LR2s look like they have bottomed out and should hold; whereas LR1s are missing a lot of enquiry and we expect that they will see action and be in for a busy week ahead.

Far East CPP MRs continued to trade down due to sluggish demand and tonnage oversupply. The early Aug export volume in North Asia turned out to be disappointing. PMI came to buy from the Far East, which only resulted in a big downwards correction in the transpacific rate. Typhoon Gaemi caused some delay but it didn’t change market sentiment. Benchmark SK/OZ dropped another 25 points to WS235, while SK/SG fell by $100k to $500k. In the Straits, TC7 lost another 15 points to WS195 but short haul rate took a bigger hit when earnings reached low teens. Some owners chose to wait but will they keep waiting next week if the situation remains the same? As VLCC rates firm up, cleaning up activity may pause, which could be positive news for AG owners and possibly Far East Owners at a later point in time.

A spike in activity not witnessed for some time was seen this week on the MRs East of Suez where close to 15 positions went on subs in the first 48 hours of trading, largely off the back of rates being tested down further. Westbound dropped below $2.5m and TC17 saw sub WS200 repeated, with various shorthaul runs also helping tonnage tick over. However, for sentiment to swing in Owner’s favour subs needed to be lifted, but we close the week with a handful of this week’s activity failing and the list very much setting the scene for a flat start to next week. 

Mediterranean

In the Med MR market we have seen rates trading sideways for the majority of the week. 37 x WS190 has been repeated for vanilla Med/TA so far this week, with WAF also tested at its 20-point premium. Heading into next week, there are only a couple stems left to cover and the list for August looks to lengthen but with TC2 trading at 37 x WS200, Owners will look to stand their ground.

All in all, it’s been a balanced week for the Handies plying their trade in the Mediterranean, with steady enquiry throughout. WMed was the real driving force at the start of the week after a handful of replacements were needed and we had a split market for a few days. Since then, however, enquiry has slowed a touch and we see rates settled at the 30 x WS215 mark for XMed across the board with Black Sea tracking at a slightly reduced premium. As we head into the weekend we have seen a ppt on replacement get caught out with 30 x WS265 now on subs for Med/Canaries, but for a vanilla run expect a flat finish nonetheless. 

UK Continent 

Overall a fairly mixed bag of successes for both Charterers and Owners alike this week, causing some confusion and debate as to what “next done” was going to be. Limited enquiry faced up to limited tonnage and as cargoes were covered we saw some lows of 37 x WS192.5 achieved, but with certain trickier stems we also saw 37 x WS215 in a very similar window. The second half of the week was then filled with debate and it is only come Friday with more action that we see TC2 settle around 37 x WS200. Owners should be able to hold on here for now, but once we reach the 5-6 August window we see more laden ships arriving and could see some pressure build on Owners’ shoulders.  

Handies saw an excitable start to the week, with Owners looking to press home the advantage of limited options for Charterers and so we witness rates pick up to 30 x WS210. This has seemed to be the peak of success as rates settle around. Moving into next week Charterers should have enough options to prevent any further gains. 

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The North began the week with a quiet start before cargoes entered the market with Charterers looking for cover. Modern tonnage at the top of the list was chipped away consistently, building positive pressure. WS225 repeated before firming towards the end of the week, leaving the list tight and an equilibrium with Med rates is on the cards as we look to next week.

In the Med, activity started quickly with what felt like held-back cargoes entering the market. Repetition of WS225 cleared prompt tonnage and activity stayed consistent until Thursday, when the market saw some reprieve. With firming carried out off-market, levels rose to WS240, where they remain as we enter next week’s trading. It remains to be seen if levels can firm further, however, unit basis WMed looks thin. If prompt coverage is required, then Owners could push rates here.

MR

Part cargoes remain the order of the day for MRs basis North and Med this week with levels currently at WS175. In recent weeks, levels in the North have been dampened by a soft Handy market, however, a rebound there has left Owners feeling optimistic for basis full-stem as we look to next week. In the Med, a fresh test basis full-stem finally arrived leaving the market with a new benchmark on which to build at 45 x WS175. Units here have been chipped away for part cargoes and any further coverage in the current fixing window may struggle to find vessels as evidenced by a Panamax called upon this week.

Panamax

Panamaxes have seen another quiet week in the Med and Continent, with just one vessel on subs for an MR stem before failing the next day. More units have been available of late leaving Charterers in the driving seat for TA runs should enquiry surface. Some owners are still choosing to ballast back to the USG instead of waiting for potential cargoes in Europe. The ‘Panny Rally’ over in the USG and Caribs has seen the wind taken out of its sails as port delays clear, more tonnage is positioned for the further afield loads and the situation begins to normalise. Some think levels here could soften as quickly as they firmed.

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 25thJul 18thLast Month*FFA Q3
TD3C VLCC AG-China WS1259475054
TD3C VLCC AG-China TCE $/day16,00037,25021,25024,75025,500
TD20 Suezmax WAF-UKC WS-8879511093
TD20 Suezmax WAF-UKC TCE $/day-3,75030,50034,25043,50029,500
TD25 Aframax USG-UKC WS-25160185173164
TD25 Aframax USG-UKC TCE $/day-9,00037,25046,25041,75035,000
TC1 LR2 AG-Japan WS-12148160181 
TC1 LR2 AG-Japan TCE $/day-3,75033,00036,75044,000
TC18 MR USG-Brazil WS-7243250342231
TC18 MR USG-Brazil TCE $/day-75032,75033,50052,00027,250
TC5 LR1 AG-Japan WS-33156189232180
TC5 LR1 AG-Japan TCE $/day-8,00023,50031,50042,75027,250
TC7 MR Singapore-EC Aus WS-36203239300249
TC7 MR Singapore-EC Aus TCE $/day-3,50021,25024,75038,50026,500

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

Bunker Prices ($/tonne)

wk on wk changeJul 25thJul 18thLast Month*
Rotterdam VLSFO  -15557572572
Fujairah VLSFO  -20601621620
Singapore VLSFO  -11606617623
Rotterdam LSMGO  -25706731767

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