Losing Relevance?

The LR1/Panamax market has often been referred to as a dying sector, with investment in new tonnage close to zero for many years. Overall, just 9 vessels in the class were ordered from 2016 to 2022. Demand has also faced headwinds, with clean LR1 tonne miles down marginally and dirty Panamax trade seeing significant declines.  Despite the challenging demand fundamentals, an ageing fleet has encouraged investment in the sector, with further newbuilding contracts likely. However, with threats from the Aframax, LR2 and MR sector, it is uncertain what level of investment is required to meet future demand.

Over the last 5 years, tonne miles for clean LR1s have declined by 2.5%, whilst dirty Panamaxes have seen a 42% contraction. By contrast, clean LR2s have benefitted from a near 29% increase and Aframaxes have witnessed an 18% jump in tonne miles. Evidently the LR1/Panamax sector is being left behind by demand growth for other sectors with numerous factors driving this trend.

The expansion of refining capacity East of Suez and corresponding contraction in the West has tended to favour LR2s, which typically offer better economies of scale. This trend in long haul products trade has also been amplified by supply chain disruptions following the war in Ukraine. From a port infrastructure perspective, analysis of the top 20 ports visited by LR1s shows that restrictions are not a major driver, meaning that LR1s have few captive markets. Despite this, total LR1 CPP volumes in their core Middle East and India markets have remained steady over the past 5 years, with most of the downwards pressure coming from the Far East and Northern Europe due to changes in the refining landscape.

Changes to vacuum gasoil and fuel oil flows have shifted demand away from Panamaxes in recent years, whilst the expanded Panama Canal has meant Aframaxes are more competitive in reaching the US West Coast. Port improvements have also seen market share lost in the US Gulf market. At the same time, refining changes in Europe have crimped dirty product exports on Panamaxes from the region. However, demand for this size in Latin America has remained resilient, and currently generates more than 60% of total tonne mile demand.

Despite challenging demand fundamentals, the supply side outlook remains supportive with the number of vessels turning 20 years old far exceeding those being delivered. By the end of this year, 16.5% of the fleet will be >20 years old, with another 33% turning 20 between now and 2028. Based on the current orderbook and zero scrapping, Gibson estimates that 49.5% of the fleet with be >20 years old by 2028. Whilst cannibalisation from other sizes remains a threat, demand is unlikely to decline by the same degree, warranting further investment in the sector.

LR1/Panamax Newbuilding Deliveries vs. Turning 20 Years Old

Crude Oil

East

The AG VLCC market is ending the week on a firm footing after a plethora of enquiry over the last couple of days brought AG/East rates up towards the WS60 mark. Owners were successful in their efforts to fix above last done and this was helped by a small number of Owners controlling a large chunk of the available tonnage for first decade business. This was further exacerbated by adverse weather off China and India where the monsoon season is causing delays at terminals. We now expect Charterers to slow the pace of enquiry to try and halt the upward momentum, but Owners remain confident as they expect a pickup in the Atlantic to keep the upward pressure going. In today’s market we are calling AG/China in excess of WS60 and 280 AG to USG fetches WS37 via cape.

In terms of Suezmaxes, the AG list remains tighter but for West runs it doesn’t seem to have started to push up rates just yet. TD23 we assess at 140 x WS55 via C/C but there is some potential for Owners to push on here with VLCCs picking up this week. For East runs, the market has firmed and for next-done Owners are likely to try to push to 130 x WS115.

A bit more action was seen this week in the Aframax East market as a number of ships at the front of the list were fixed away. That being said, plentiful options remain on the table for Charterers to choose from with rates expected to remain flat in the near term. Owners will try to drive rates upwards as Q4 approaches and the larger sizes gain momentum, however, increased cargo inquiry needs to be seen before any real swing in sentiment can take place. The week ends with AG/East at 80 x WS145.

West Africa

VLCC rates continued to improve in WAF as tonnage began to tighten for natural dates with some Owners deciding to keep the ships in the improving AG market, while others are ballasting on spec towards USG and South America. Most of the deals concluded here have been done under the radar but there is a noticeable lack of availability for cargoes at the front end of the lifting programme. We could see further improvement in the short term as the AG market sets the tone and Owners’ sentiment appears to be on the bullish side. Today we expect 260 WAF/China to fix in the region of WS62 level.

Suezmax markets in West Africa have been relatively unexciting and remain rather stagnant around the 130 x WS80 mark. Prompt tonnage and naturally placed ships are keeping a lid on things and Owners’ ambitions for rates from the USG haven’t quite materialised this week.

Mediterranean

TD6 has pushed up this week and with limited tonnage for those who have difficulty clearing Russian history. Owners will be looking for over 135 x WS92.5 next week. Though with Libya production down we have seen fewer cargoes in the Med and a very competitive Afra market, so Charterers won’t feel things are running away from them just yet. Rates for East runs from Libya today are relatively stable at around $4.6M. 

The Mediterranean Aframax market has been busier in the past days after the quiet end to last week. The tonnage list remains balanced and with Turkish Strait delays remaining more noticeable than usual at this time of the year there has been less rate erosion than some would have predicted at the opening of the week. In fact, there was a quick peek at WS125 for a Ceyhan run, but it transpired afterwards that there was a trickier black sea discharge option attached and as such the following deals were all concluded at the conference WS120 level. CPC deals began the week at WS130 and despite the list tightening up on the back of the Turkish Strait delays, Owners did not want to miss the few cargos left for the first 5 days and discounts were seen first to WS127.5 and then to WS125. As we look to next week, a soft USG market and a stagnant North Sea market point to more of the same.

US Gulf/Latin America

Contrasting fortunes in the USG for Owners as rates have been on the steady side especially off natural dates after a long standoff where neither side was willing to concede. We did see higher freight rates reported on some fixtures with Caribbean and Fuel Oil liftings, and we now await last decade October stems which should be an uptick after positive developments in adjacent regions. Brazil export fixtures are on the firm side with Eastern ballasters looking to be compensated for the long-haul journey and also reflecting the stronger sentiment in the East. Today we expect a TD22 cargo to pay in the region of $7.5m and a Brazil/China run on a VLCC is around WS60 level. 

Aframaxes were busy in the middle of the week compared to last week, but rates only corrected downwards.  WS100 seems a going rate for USG/UKCM as plenty of ships still need clearing out of the area.

North Sea

Tepid is the word that comes to mind to describe the North Sea Aframax market in the last few weeks and the near future. With surrounding markets having issues with supply and a general soft feel in the West, most have little optimism for a rebound despite Q4 being around the corner. Rates hang around WS115 levels leaving little to the imagination for standard trading. Those typically playing for TA business have little incentive to ballast, although there is a hint of optimism for TD25 going forward, we wouldn’t hold our breath though.

Crude Tanker Spot Rates (WS)

Clean Products

East

Very busy and active week for both sizes of LR East of Suez. The front end of the lists has really tightened up and as a result we have seen the rates steadily rise. TC1 pushing ever closer to the 75 x WS145 (currently 75 x WS140) and Jet West edging towards $4.75m, which we assess will be achieved next week. Similar for the LR1s, where the front end has had a real clear out and is very tight to end month for safe units. TC5 pushing toward 55 x WS165 and expect that Owners will be wanting Jet West to freight at levels starting with a 4. Overall, Owners will be encouraged that the summer lull appears to be at an end and Q4 has kicked in with enthusiasm.

Despite the expectation of a turnaround in sentiment in the AG, there has been very little for MR Owners to get their teeth into this week. A slow start to proceedings on Monday continued into midweek where an inevitable drop in rates saw TC17 down to WS210 and East nudged back down to WS140. While the LRs show signs of positivity, activity is still not picking up on the MRs as we close the week with relets going into o/p and just 3 cargoes in the market.

Mediterranean

All in all, it’s been a steady week for the Handies in the Med with rates trading sideways for the most part. 30 x WS135 xMed was the call on Monday with the feeling among many that rates could pick up a touch due to good enquiry and a tight list. However, with enquiry slowing midweek the list soon lengthened, and we found ourselves repeating at the 30 x WS135 mark. Fast-forward to Friday where it’s been a real mixed bag. 30 x WS125 went on subs this morning after a sluggish couple of days enquiry wise but thanks to a few ships being taken out under the radar we now find ourselves back where we started. Market flat into the weekend.

Finally, to the Med MR market where it’s been a rather lacklustre week with sluggish cargo enquiry throughout. Med/TA was at the 37 x WS135 mark on Monday with many feeling optimistic off the back of an improving TC2 market. However, enquiry levels have been poor since then allowing the list to grow longer which was showcased when a market quote received 6 offers on Thursday. At the time of writing this cargo is now on subs at 37 x WS115 ex Sines for TA and with nothing outstanding expect a pressured start to proceedings next week.

UK Continent 

Not the most enthralling week for the UKC MRs as we see Charterers drip feed enquiry throughout keeping tonnage turning over slowly. Short xUKC has been a popular option with many 30kt stems being gobbled up by the larger tonnage, but that also means tonnage has remained local. Come the end of the week with dates pushing to end month now, we see cargoes receiving several offers. This has seen rates slip once again with 37 x WS120 being achieved and less ex Sines also.

Handies have struggled to gain any momentum this week. Despite a tonnage list offering limited options, the larger MRs continue to enjoy the short runs, and this has meant we see limited fixing for the natural sized ships. With the MRs also slipping we now see 30 x WS160 as the call for the market and we will have to wait for those vessels to be fixed further away if this handy market is to be able to breathe again. We expect rates to stay flat.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

For Handies in the North the recent pattern of an active week followed by a quiet week continued with very little by way of enquiry or questions. Cargoes have been elusive and questions minimal. Prompt units at the top of the list will carry to next week with a fast start required if levels are to hold at WS220 with many feeling levels will soften upon next test. The Med saw its awaited correction this week with 30 x WS192.5 done on Monday. This got the ball rolling with consistent activity chipping away at the list, however, levels continued to soften with WS182.5 on subs by week’s end. Owners will look to hold the line here against the backdrop of a healthier-looking list, however, units remain, and Charterers will be hoping for the wind to be taken out of the sails here.

MR

Another quiet week basis full stem for MRs across both regions with just one fixture to report in the North with 45 x WS160 fixed for a UKC-Med run. We feel this is not repeatable but will play into the minds of Charterers and Owners upon the next test which should bring levels to the WS170 mark for a XUKC run, despite a tight list. In the Med, a fresh test is needed, although tonnage is now well stocked throughout, keeping negative pressure on Owners.

Panamax

Panamaxes in Europe have seen enquiry fail to surface again and thus continue to ballast stateside immediately, leaving units thin on the ground. Over in the USG surrounding Aframax markets have seen a busier week but levels have corrected downwards, having a similar effect on the Panamax market where levels currently trade at WS140-145, with sentiment remaining steady/soft 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 changeSep 19thSep 12thLast Month*FFA Q3
TD3C VLCC AG-China WS660545352
TD3C VLCC AG-China TCE $/day6,75040,25033,50030,50024,250
TD20 Suezmax WAF-UKC WS180787985
TD20 Suezmax WAF-UKC TCE $/day-50027,25027,75025,75026,250
TD25 Aframax USG-UKC WS-16102118136138
TD25 Aframax USG-UKC TCE $/day-7,00017,25024,25029,00027,000
TC1 LR2 AG-Japan WS14140126131 
TC1 LR2 AG-Japan TCE $/day4,75031,00026,25027,000
TC18 MR USG-Brazil WS5190185236221
TC18 MR USG-Brazil TCE $/day1,00024,00023,00032,25027,250
TC5 LR1 AG-Japan WS13163149126162
TC5 LR1 AG-Japan TCE $/day3,25025,75022,50015,75023,250
TC7 MR Singapore-EC Aus WS-3174177191205
TC7 MR Singapore-EC Aus TCE $/day-75016,50017,25019,25019,000

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

Bunker Prices ($/tonne)

wk on wk changeSep 19thSep 12thLast Month*
Rotterdam VLSFO  +28514486526
Fujairah VLSFO  +3567564595
Singapore VLSFO  +10581571608
Rotterdam LSMGO  +17616599644

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