On the Margin

Refining margins across the world surged to record levels in 2022, following Russia’s invasion of Ukraine. Although margins have declined since then, they have generally remained healthy, even in Europe, where the structural shortage of middle distillates prevailed over the competitive disadvantage of relatively simple and ageing refineries compared to large and sophisticated plants in the Middle East and Asia.

However, going forward European refining sector will face renewed challenges, with more modern refining capacity coming online. According to the IEA, Middle East refining throughput is anticipated to increase by 650 kbd this year due to recently commissioned facilities. Kuwait’s 615kbd Al Zour plant reached full operational status last month, whilst the 230kbd Duqm refinery in Oman was also formally inaugurated in early February, with product exports starting in September last year. Bahrain’s expansion of its Sitra refinery is also expected to increase regional runs later in 2024.

In the Atlantic Basin, we should see gradual increases in refining runs at Nigeria’s 650kbd Dangote refinery. The plant has been importing crude since December and earlier this month exported two naphtha cargoes. The IEA expects throughput to average 200 kbd in 2024, considering the long lead times to ramp up a new refinery. Meanwhile, in early February Shell Nigeria reported that it supplied circa 475,000 bbls into the recently refurbished 210kbd Port Harcourt refinery, with the facility initially planning to process 60kbd. Elsewhere, the start-up of the 340,000 kbd Olmeca refinery in Mexico is another major wild card. Although company officials recently stated that the facility will begin initial operations during Q1, reaching fullscale operations in 2025/26, there is no apparent decline in the country’s crude exports, which suggests that even initial runs are still some time away. 

Perhaps with this in mind, some European refining capacity is already pencilled in to close. In November last year, Petroineos announced its plans to cease refining operations at its 150kbd Grangemouth refinery in 2025 (following an 18-month conversion to a fuel import terminal) due to growing international competition and the energy transition. More recently, Shell has announced the plan to convert the hydrocracker at its 150 kbd Wesseling site in Germany and to cease crude oil processing at the facility by the end of 2025. BP has also announced plans to shut or convert several units at its admittedly uncompetitive Gelsenkirchen refinery in Germany in 2025, which will reduce its processing capacity by around a third.

Announced refinery closures will reduce regional crude intake, freeing more Atlantic Basin barrels for longhaul shipments East. Product imports into the region are also expected to increase, although this depends on domestic demand levels, which are facing headwinds due to decarbonisation efforts. Yet, with sales of battery electric vehicles in the EU and the UK sharply falling in January, as a number of European countries removed costly subsidies, perhaps the much-predicted decline in European gasoline and diesel consumption will be somewhat slower and shallower than previously thought.

European Refining Margins ($/bbl)

Crude Oil

Middle East

The AG VLCC market is ending the week on a firm footing as we continue to see Charterers even at this late stage taking tonnage off March dates. The April programme should come out over the weekend but we have only seen a few COA’s and Basrah questions so far, so this should increase owners expectations that next week will be busy hence creating an uptick in rates. Today we are calling 270,000mt AG/China run at ws 75 and 280,000mt AG/USG is now at the ws 48 level.

For the AG Suezmax market, tonnage has thinned out for Basrah causing a slight improvement. Rates heading West currently stand around 140,000mt x ws 70 via the Cape with potentially less available without options. To head East there’s a healthy number of ships available and ws 120 should be achievable.

There has been little activity reported in the AG region this week and with that, TD8 has continued down the slide, finally breaking 80,000mt x ws 190. With a handful of Owners still searching for an AG/East run, rates are expected to continue on a downward trend next week. That said, the LR2 market has picked up again which might see 2-3 vessels move on to pastures new, meanwhile a warm Indo region and warming Med market have also helped to stem the bleed a little. Tonnage is nicely balanced for all stakeholders heading into the weekend.

West Africa

WAF VLCC rates have held up this week despite it being quiet on the surface but tonnage remains tight for the first half of April and owners have managed to make some gains especially off earlier dates. Owners will remain optimistic as the USG is making a recovery and AG April stems should be out and working next week and therefore in today’s market we are expecting a WAF/China run to fix at the ws 75 level.

Suezmax markets in West Africa have given Owners little to get excited about. TD20 today is around 130,000mt x ws 102.5 but this market needs a fresh test.

Mediterranean

TD6 is being propped up by a firmer Aframax market. Though with ships still in play on early dates we feel 135,000mt x ws 110 is achievable. There is a slightly tighter list for ships willing East, and rates are around $5.4M for Libya/Ningbo via the Cape

Aframax Owners have managed to keep up the momentum from the beginning of the week as rates have continued to rise throughout. With more cargoes expected next week, Owners are firmly in the driving seat. Suezmaxes seem to be the only limiting factor to rates pushing further. We close the week at ws 177.5 for a XMed voyage and we expect this to push up as we look into next week.

US Gulf/Latin America

We are finally beginning to see a recovery in USG here after a recent lull. Activity levels have improved during the later part of the week and the over tonnaged list we saw last week is finally starting to shrink a bit which should gives Owners some confidence. Brazil exports have enjoyed a busy week with plenty of enquiry especially for second decade with a lot of cargoes going to the UKC and today we expect a USG/ China run will fix in the region of $9.4M while we estimate a Brazil/China run is paying around the ws 73 level.

North Sea

The North market has remained relatively constant throughout the week in terms of rate fluctuation. There was a slight pick up towards the end of this week as sentiment improved due to a warming Med market. We close the week at ws 135 levels for XNsea voyage. As we look to next week we expect more of the same in terms of volume and a list that will remain balanced in the short term.

Crude Tanker Spot Rates (WS)

Clean Products

East

The LRs this week have seen a big jump as the number of cargoes entering the market continued to build. LR2 owners are really pushing hard to inflate rates, but they need realistically to push to levels where for charterers it makes sense to go on subs and get fixed. Mid to high $7.0M levels being offered for jet going West is maybe a touch too much for a Friday and the standoff continues. We estimate $6.75M for Jet West and 75,000mt x ws2 75 for TC1.

The LR1s have very much enjoyed following the drive of the larger sizes but owners have taken slightly less aggressive steps on last done rates and as such there has been more activity seen on this segment. TC5 is at the 55,000mt x ws 280 level and needs another test and Jet West is at $5.3M levels. Charterers will be looking forward to some respite that the weekend brings, but suspect owners will be looking forward to Monday.

For the MRs, the week opened with an expectation of an early push on rates off the back of a busy week last week and a tight tonnage list littered with uncertain itineraries. Despite there being only a handful of positions in play with firm itineraries, rates seen for the first cargoes up were largely sideways with even a drop seen off forward dates with ws 320-325 repeated on TC17. We close the week however with TC17 now up to ws 355 and TC12 reported at ws 257.5 As the LR numbers climb more questions are surfacing for the East as Naphtha stems downsize, so going in to next week expectation is for the push on rates to continue East of Suez.

It was another slow week in the Far East CPP MR market, partly due to higher LR lifting volume. The benchmark Korea/Spore route lost another $300k to $1M and Korea/OZ dropped 20 points to ws 340. TC7 also dropped 20 points to ws 305. At the end of the week, activity levels improved in the North but sustained cargo flow would be needed for a change in sentiment. The quickly firming AG market was giving some support: one back haul LR2 stem may be split to two MR stems as the charterer could not find any LR2s.

Mediterranean

All in all it was another positive week for the Handies here in the Mediterranean with rates holding for the majority before jumping late Thursday. 30,000mt x ws 320 has been the call for Xmed for the best part of the week with a mix of a balanced list and good enquiry keeping rates trading sideways. Fast-forward to Thursday night where we saw a prompt replacement go on subs at the 30,000mt x ws 345 mark. Heading into the weekend, a couple of naphtha stems need covering but expect others to hold off quoting till Monday if they can.

Finally to the Med MR market, which has firmed up this week off the back of a tight list (especially for non-Russian tonnage). We began the week with Med/TA trading around the 37,000mt x ws 240 mark but with TC2 firming and tonnage lacking in the Med we soon saw rates spike to 37,000mt x ws 290 with UKC openers heading our way to load. At the time of writing, a couple cargoes remain to be covered and with this list still tight Owners are bullish.

UK Continent 

It was a steady week of enquiry for Handies in the North which has now seen supply tighten on the front end of the tonnage list. Some Biscay positions have ballasted down to Med for higher returns or achieved higher numbers ex North Spain with 30,000mt x ws 270 on subs to the Cont. A fresh test is now required ex ARA as owners will look to close the gap with last done at 30,000mt x ws 250 to get closer to the North Spain number. Potential here.

An active end to this week for the MRs plying their trade in the UKC, gives Owners that extra little bump in rates and enthusiasm coming into the weekend. For the majority of the week, rates have slowly been building and with some sneaky Charterers being busy behind the scenes, come Friday we saw a number of ships on subs. TC2 has now picked up to the 37,000mt x ws 250 mark and with a few bits still outstanding, there are some good foundations for Owners to build next week. Cargo flow will be crucial early next week but in general a strong week for the Owning fraternity.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A noticeable lack of enquiry is the story for the North this week where many are left pondering why this sector has been so slow! Some insight offering rationale to why this is the case can be attributed to refinery maintenance, however it’s worth noting that a large volume of FO has been shifted into the Red Sea on Aframaxs all loading in Rotterdam. Looking now at the dynamics of this market, prompt availability is still showing at the top of the list meaning we could see levels come under pressure early into next week.

It’s a different picture in the Med with regards to activity, as the week started off strong with plenty of activity particularly on Tuesday. This however, did taper off as the week progressed and with it, sentiment was tarnished. Subsequent trading showed decline after a few deals were repeated at ws 247.5, and with this sector still to find a floor, tonnage remaining on the front end of the list is a growing concern.

MR

There was scarce availability for tonnage in the north with just one prompt MR before the 23rd up in the continent, with the lack of available stems to match, expect owners to be looking at both 45KT and 30KT cargos heading into next week. The market needs a fresh test to truly determine rates.

In the Med full stem enquiry remains flat, as the weekend approaches expect owners to throw their hat in the ring for part cargo stems. Despite this, rates are around ws 200 and sentiment is steadier compared to the surrounding handies.

Panamax

Hopes for a cleardown on availability took a turn for the worse at the closing stages of the week where subjects on two separate deals were lost, where furthermore not only does this mean additional negativity could now creep in, but also the waiting time for one of the units in question becomes more problematic. For now then we have at least a benchmark of ws 155 set, which still looks healthy when comparing against an Aframax.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

wk on wk changeMar 14thMar 7thLast Month*FFA Q1
TD3C VLCC AG-China WS+072728969
TD3C VLCC AG-China TCE $/day+25045,50045,25067,00041,500
TD20 Suezmax WAF-UKC WS-1102103114114
TD20 Suezmax WAF-UKC TCE $/day-75033,50034,25041,00041,000
TD25 Aframax USG-UKC WS-20181201211210
TD25 Aframax USG-UKC TCE $/day-7,75040,00047,75051,50050,750
TC1 LR2 AG-Japan WS+126278152247 
TC1 LR2 AG-Japan TCE $/day+44,75073,75029,00062,750
TC18 MR USG-Brazil WS-24283307260239
TC18 MR USG-Brazil TCE $/day-4,50036,00040,50031,25027,250
TC5 LR1 AG-Japan WS+110283173246254
TC5 LR1 AG-Japan TCE $/day+28,75053,25024,50043,50045,500
TC7 MR Singapore-EC Aus WS-13312325333310
TC7 MR Singapore-EC Aus TCE $/day-2,50037,00039,50040,75036,500

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

Bunker Prices ($/tonne)

wk on wk changeMar 14thMar 7thLast Month*
Rotterdam VLSFO  +5586581568
Fujairah VLSFO  -5641646609
Singapore VLSFO  +6640634637
Rotterdam LSMGO  +23776753793

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