Mexico’s Malaise

The Olmeca refinery in Dos Bocas, Mexico, was inaugurated in July 2022 by Mexico’s president Andres Obrador and his successor, president-elect Claudia Sheinbaum. Two years later, it still produces only a fraction of its nameplate capacity of 340 kbd, despite numerous promises of it having reached full capacity over the years. Claudia Sheinbaum was elected to office in June of this year and has promised to steer away from her predecessor’s policy of resource nationalism by investing in renewable energy and capping Mexico’s oil production. She has, however, signalled continuing support for PEMEX, the national oil company, which is underlined by the flagship project that is the $16.8 bn Olmeca refinery.

Kpler data shows cross country clean flows averaging 40 kbd out of Dos Bocas between May and August, largely consisting of diesel. According to Pemex, the refinery processed 65 kbd in July, producing just 21 kbd of diesel and no gasoline. Some sources suggest the refinery is ramping up and currently running at 60% (around 200 kbd), whilst Pemex’ latest statement promised a full start-up by the 21st of August, with production split into 175 kbd of gasoline and 130 kbd of diesel. Yet, it is unclear whether these numbers closely reflect the reality on the ground.

On one hand, CPP imports dropped this year, averaging 670 kbd in the first 8 months of the year compared with 750 kbd last year. On the other hand, the numbers have been edging up in recent months, whilst lower CPP imports during the 1st five months of 2024 could be at least partially explained by increased refinery runs at other Mexican refineries over the period.

In terms of crude exports, average shipments for the year to date have also declined, reaching a low of 850 kbd compared with 1.1 mbd in 2023, which may suggest increased intake into Olmeca. However, one of the main drivers behind declining crude exports is continuous underinvestment in oil exploration and production, of which the latter is down to 2 mbd in 2024 from 2.1 mbd in 2023. The IEA predicts that production will further decrease to just 1.46 mbd in 2030, another 27% drop in six years.

At first glance, the latest developments spell bad news for the tanker market. Once Olmeca is fully operational, CPP imports from the US will be reduced significantly. Further, declining Mexican oil production in the coming years will leave less room for seaborne exports. US refiners also import medium and heavy grades from Mexico, the availability of which will decline. However, this crude could be replaced with further flung Canadian, Middle Eastern, and Atlantic barrels of similar grades. Some additional TMX barrels could be diverted into the USG, but that depends on freight economics. Lastly, if short-haul USG/Mexico CPP flows are at least partially replaced by longer haul exports, this could help to make up for the loss of tonne miles.

All in all, problems at the Olmeca refinery won’t easily be overcome. PEMEX has struggled to keep its promises of full production, and Reuters reports that the company has long relied on capital and tax breaks from the government to keep servicing its large debt pile and keep operations running. With these stumbling blocks in mind, until the flows actually change we remain sceptical.

CPP imports into Mexico (kbd)

Crude Oil

East

Overall it was another positive week for VLCC Owners in the East with rates climbing steadily as Charterers moved to cover remaining September stems. Tonnage availability has tightened, and Charterers are meeting more resistance than expected. It will be interesting to see how quickly we see the October programme move, but one negative could be upcoming holidays in the East next week which could put a temporary hold on the latest upturn. However, the fundamentals suggest we should see a further firming once activity returns to normal levels. In today’s market we are calling Ag/China in excess of WS53 and 280kt AG/USG fetches WS32 via C/C.

The AG list has tightened very quickly under the radar, and Suezmax Owners ambitions for West runs are likely to push up next week. TD23 we assess at 140,000mt x WS55 via C/C but it won’t take too much next week to see improvement here. For East runs, the market is still firm and for modern approved tonnage Charterers should expect to pay 130,000mt x WS110.

With APPEC week in full flow, Aframaxes in the East struggled to gain any momentum as activity remained limited. The list has replenished with a diverse range of candidates available to Charterers for any given direction. As Q4 is just around the corner, Owners will be hoping for fresh enquiry soon as they look to the firming Suezmaxes and VLCCs for inspiration. The week ends with AG/East at 80,000mt x WS145 with sentiment soft.

West Africa

VLCC freight rates continued to improve in WAF as activity levels showed some recovery from the recent lull, especially going east. Positions have tightened for natural fixing dates in October and the pickup in AG and in other parts of the Atlantic has led to stronger sentiment amongst Owners, with expectations being raised in anticipation of a stronger market in Q4. Today we expect 260kt WAF/China to fix in the region of WS58 level.

As we finish the week, Suezmax markets in West Africa are firm with a good activity level and a real dent taken out of the early position on the list. TD20 we approximate should be 130,000mt x WS80, and rates are steady around this mark with ample tonnage to cover the current demand.

Mediterranean

TD6 rates remain steady around 135,000mt x WS80 with a few prompt vessels to keep the pressure on Owners. With CPC largely if not completely covered up until end month, ships are beginning to ballast towards Malta. Rates to head East remain relatively stable at $4.6m for Libya/Ningbo via C/C, though the number of ships keen on this run have thinned out.

As the week started Med Aframaxes saw increases in market levels with the benchmark Ceyhan pushing up to WS120 having been aided in their quest by shorter Libya runs being concluded at WS132.5 and WS140. This was driven by a combination of positive sentiment and a tonnage list remaining tight in early availability. From mid-week onwards, however, this momentum slowed and all but dried up towards the end of the week. Charterers’ senses are now alert and some of these recent gains could be undone soon due to news circulating that talks in Libya over a resolution to the recent cut in output have been ineffective. This coupled with what little is evident in the market means negative tests could be in store come Monday.

US Gulf/Latin America

Another mixed bag here as VLCC rates showed an uptick but it was marginal considering the number of cargoes being worked from the USG area. Charterers looking at covering mid-October dates found an ample supply of tonnage, and were therefore able to dampen Owners’ hopes of a return to the generous levels enjoyed earlier in the year. On the other hand, Brazilian exports witnessed a very active week, and rates showed a similar pattern to the upturn in adjacent zones. Today we expect a USG/China cargo to pay in the region of $7.5m and a Brazil/China run is around WS57 level. 

The rest of local Americas was a bit all over the place this week. Small ships remained relatively inactive, as some private deals and lightering business took place while the tonnage lists built. Owners maintain a floor of about WS145 for Caribs on Panamaxes and WS117.5 for Aframaxes USG/TA. Suezmaxes were pressured to rise on the back of WAF but activity was a little lackluster in terms of deals.

North Sea

Aframaxes in the North Sea market have danced their usual merry dance with a light tonnage list balanced against an even lighter cargo list. Some ballasters to the States have aided Owners in keeping the rates from going any lower in the main, but no fireworks have been seen and the prevailing sentiment is one of disappointment. Cross North Sea remains at WS115 in most cases, with some premiums paid for more expensive ports and discounts of 5 points seen for vessels fixed straight out of dock. As we look forward there is not much reason to expect change unless we have a surprise from the States.

Crude Tanker Spot Rates (WS)

Clean Products

East

LR2s in the east have seen decent activity this week, and rates have been very slowly creeping up. TC1 on subs at 75 x WS130 and 90kt jet heading west on subs at $4.3m. Sentiment has been flat, and we are starting to see the first decade October stems trickle into the market. Owners will be hoping that as we enter Q4 activity will pick up after what’s been a quiet summer. LR1s remain busy and Owners will be buoyed entering the weekend. West has been tested and although mostly unpopular with Owners, at $3.65m out of the AG for jet west there is certainly a little more appetite to send units west. TC5 has been busy and ticked up on each fixture, currently on subs at 55 x WS157.5. Positive end to the week for both sizes and expect to see rates pushed further as we enter next week.

MRs in the AG have finally seen some resurgence this week with TC17 up to WS230 – the highest we’ve seen since 23rd July and a move away from the repetitive WS190-205 range the summer market has trudged along in. The week closes with cargoes still to cover and a tighter looking list. As such there is an expectation WS230 now repeats with the potential for a push further, should cargoes flow in early trading next week. TC12 is due a test in line with where TC17 has jumped to, however, we can expect to see some Singapore ballasters in the short term as the far east continues to underperform.

Mediterranean

With the majority of the market in Copenhagen this week a lot of activity has been taking place under the radar and as a result the Handy list has tightened. XMed began the week at the 30 x WS115 mark, but this improved enquiry has seen rates creep up to the 30 x WS135 mark. We expect BSea/Med to positively correct off the back of this. At the time of writing a couple of cargoes remain looking for cover before the weekend so expect further positivity from Owners.

Finally to the Med MR market where despite improvement on TC2, rates have been unable to follow suit. Med/TA has remained steady around the 37 x WS120-125 levels with Med/WAF tracking at a 20-point premium. Heading into the weekend a couple of cargoes remain but expect a flat finish, nonetheless.

UK Continent 

We saw many vessels travelling in and out of Copenhagen in the second half of the week, and any cargoes needing covering needed to be quoted early on. This certainly happened here with Monday seeing a glut of fresh MR stems quoted, which dragged along a little but ultimately pulled TC2 up to the 37 x WS140 region. The question we now have is just how many cargoes have been covered over a lunch table and that will only really be visible come Monday next week where a fresh look at the list can be had. 

The front end of the Handy tonnage list has been tougher to navigate through this week for vanilla ships as supply has been on the light side. XUKC by midweek jumped up by 10 WS points as we saw 30 x WS170 paid and also a busy MR market was also another factor for Owners positive sentiment. Levels close the week at current levels with a few uncovered stems expected to roll over to Monday morning.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Handies in the North got off to a sluggish start this week. A 30 x WS222.5 for an xUKC run reported on Tuesday seemed to turn the heads of Charterers as a flurry of cargoes soon hit the market. This clipped away units and left the list in much healthier shape for Owners with few naturally positioned units available. Given the lengthy looking list in the Med, Owners positioned wMed are willing to ballast to meet demand and bring some reprieve to the list. 

It’s a different story in the Med. Despite what looked like a promising start to the week, enquiry soon faded and remained muted for the remainder of the week. What activity we did see was covered off-market with Charterers and Owners alike opting to keep details buried. Looking ahead to next week, the tonnage list is lengthy and we expect to see WS200 tested and unless enquiry picks up, tested down further. 

MR

It’s been another slow week for Owner’s in the Med as basis full stem with part cargoes once again the norm. Availability in the North has diminished leaving the list tight and few options available with levels around the WS175 mark for a vanilla xUKC. In the Med, the market still awaits a well-publicised test at full stem as enquiry remains elusive and details kept off-market. Tonnage is relatively thin in the Med given the overall length of the list although this could soon change with replenishment on the way – we assess levels here at the WS155-160 mark.

Panamax

Enquiry continues to elude the market with Owners choosing to ballast to the USG rather than stay idle and waiting for cargoes that rarely surface leaving tonnage thin on the ground. Over in the Caribs/USG, storm Francine failed to cause too much disruption leaving itineraries intact and little opportunity to take advantage leaving sentiment soft.

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 12thSep 5thLast Month*FFA Q3
TD3C VLCC AG-China WS754485952
TD3C VLCC AG-China TCE $/day10,75033,50022,75038,25025,000
TD20 Suezmax WAF-UKC WS-178797585
TD20 Suezmax WAF-UKC TCE $/day1,25027,75026,50022,75027,750
TD25 Aframax USG-UKC WS-10118128122140
TD25 Aframax USG-UKC TCE $/day-2,00024,25026,25023,25029,000
TC1 LR2 AG-Japan WS10126116137 
TC1 LR2 AG-Japan TCE $/day5,25026,25021,00023,250
TC18 MR USG-Brazil WS-14185199202222
TC18 MR USG-Brazil TCE $/day-2,25023,00025,25025,00027,500
TC5 LR1 AG-Japan WS8149141124160
TC5 LR1 AG-Japan TCE $/day3,75022,50018,75015,25023,000
TC7 MR Singapore-EC Aus WS-2177180190207
TC7 MR Singapore-EC Aus TCE $/day50017,25016,75019,00019,750

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

Bunker Prices ($/tonne)

wk on wk changeSep 12thSep 5thLast Month*
Rotterdam VLSFO  -51486537560
Fujairah VLSFO  -47564611589
Singapore VLSFO  -54571625600
Rotterdam LSMGO  -42599641691

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