OPEC’s Dilemma

Oil markets once again are carefully watching for any comments from OPEC+ officials, with speculation building what the group will decide during their upcoming meeting on June 2nd. Will OPEC+ continue with their current production cuts or will they cut further, allowing non-OPEC members to grab an even larger market share? Alternatively, what are the chances of any easing in voluntary production cuts, particularly for countries that are in need of increasing their revenue stream? The importance of OPEC+ for the crude tanker market should not be understated, with all member states accounting for 41.3 bpd or 41% of global supply in April 2024.

According to OPEC’s monthly forecast, global oil demand is projected to grow by 2.2 mbd this year. The analysts attribute the increase to robust demand growth in non-OECD countries, where consumption is projected to rise by 1.98 mbd. The lion’s share of demand gain is coming from China, with an annual increase at 0.71 mbd. Strong growth is also seen in India, other non-OECD Asia, Middle East and Latin America.  Assuming OPEC’s demand projections materialize, member states need to boost their production in order to meet the expected level of demand.

However, not many oil analysts are as bullish about growth prospects for oil demand. For example, the IEA’s demand prediction for this year is much lower, at 1.1 mbd, amounting to half of the OPEC’s level. The agency believes that post-Covid surge in demand led to over 2 mbd growth in consumption both in 2022 and 2023, but demand will grow at a slower pace this year as post-Covid boost has run its course.  Total OECD demand is expected to dip by 140 kbd, almost entirely due to declining oil demand in Europe. According to the IEA, the industrial downturn and a mild winter has undermined gasoil demand in all three OECD regions during Q1 2024, with deliveries down by 330 kbd YoY. Non-OECD demand is expected to increase by 1.2 mbd, with China accounting for over 40% of total non-OECD growth.

On the supply side, non-OPEC+ supply is expected to rise by 1.4 mbd in 2024, according to the IEA. Although this is comfortably above the agency’s demand predictions, OPEC+ production will fall by 0.84 mbd, assuming voluntary cuts are maintained through the year. The analysis suggests a deficit, as total global oil supply will grow only by 0.58 mbd, just over half of the projected demand level. With this in mind, there could be upward pressure on oil prices, offering an incentive for OPEC+ to ease production cuts.

However, the reality appears different. Brent prices are trading around $81-83/bbl, after averaging $89/bbl in April as concerns over geopolitical tensions in the Middle East ease. The downward trend in oil prices suggests a current oversupply, and the faltering demand growth supports this notion further. As such, the prevailing market fundamentals may deter OPEC+ from loosening their existing production cuts too soon.

IEA Global Oil Demand Growth (mbd)

Crude Oil

Middle East

VLCC rates suffered a gradual decline in the AG as the week wore on, with Charterers mainly keeping fresh enquiry off market and thus creating a softer sentiment amongst Owners as opportunities to fix were limited. The list remains balanced, so if enquiry does pick up, we could see an upturn next week. Today we are calling 270,000mt AG/China at ws 67 and 280,000mt AG/USG is now at ws 39 level.

The AG has firmed this week, with healthy level of enquiry and a tight list Owners will be looking to push above 140,000mt x ws 67.5 via the Cape. To head East the market is also pushing up and we estimate ws 130 to head East.

The East continues to firm on Afras this week with TD8 pushing to break 80,000mt x ws 200. The list remains absent of well approved tonnage in the AG and with Suezmaxes no longer coming to the rescue, Charterers are forced to reach ahead or try to clear some of the rustier units. With the Med also heating up, Owners are in a strong position to drive rates onwards and upwards. Sentiment is expected to remain firm in the near term.

West Africa

Owners experienced a positive start to the week, as enquiry picked up and tonnage remained tight, especially for earlier dates. However, rates started to come under pressure as a plethora of ships, being released in the USG, began to hit sentiment and Charterers feel confident they can regain the upper hand for last decade June enquiry. We estimate that the current rate for WAF/China should be around the ws 69 level.

Suezmax markets in West Africa pushed up early in the week but they do seem to be stalling with enquiry drying up towards the weekend. For TD20 today we estimate this at 130,000mt x ws 110.

Mediterranean

TD6 is firm, with a number of ships chopping and changing due to delays in Mediterranean ports, rates are approximately 135,000mt x ws 125. Rates to head East have firmed slightly but there are still ships putting their hand up to go that way. Rates are around $5.4M for Libya/Ningbo via the Cape.

In the Med, positive pressure continued for a second successive week, as with tonnage lists trimmed and activity in full flow, Owners found increasingly more support for higher freight levels. Furthermore, with fewer Suezmaxs in play to take out part cargo employment, ceiling caps which had placed a dampener on Owners spirits were now lifted. The end result has seen levels climb to just below mid ws 200’s for a benchmark Ceyhan/Augusta run, with shorter voyages peaking at ws 290. Looking ahead however, owners will have their work cut if they are to keep momentum rolling, as temporary drivers will soon cease and such stimulus isn’t likely to be long term. Furthermore, whilst this had been being seen in surrounding markets such as the US, rates have actually softened slightly. With this in mind, the inevitable tonnage replenishment will happen which includes units arriving from the US, this in turn would point towards the recent supply imbalance being addressed.

US Gulf/Latin America

A more challenging environment for owners in the USG as the recent upsurge in rates began to level off. Fresh enquiry remains limited and Charterers were able to secure tonnage at below last done, with more ships coming back into the market. Brazil exports had a steady week but it too began to see rates plummet downwards on the back of the downturn in adjacent zones, albeit at a slower pace . Today we expect a USG/China run will fix in the region of $9.35M, while we estimate a Brazil/China run is paying around the ws 67 level.

North Sea

Owners with units in the Continent must have been feeling some frustration this week as with a Med market in full flow, Positive volatility of any real note continues to elude this region. As such Owners have been keeping units ticking along at conference levels, but for the voyages offering a reposition to the Med or round trip Med/UKC run. For these voyages at least we have seen a more malleable trend with some mutual cooperation being struck outside of normal market parameters.

Crude Tanker Spot Rates (WS)

Clean Products

East

The list remains very tight on both the LR2 and LR1s, however slightly less was quoted into the market this week and as result we need to see rates tested. Currently waiting days are proving to be hugely expensive and charterers will be hoping that the next round of stems opens up the incoming ballasters which can provide slightly more attractive freight levels. TC1 for now is at 75,000mt x ws 270 and TC5 is at 55,000mt x ws 295. LR2’s heading West are at circa $7.5M levels and LR1’s for West runs are at $5.8M levels. However, these both need a fresh test. It will be interesting to see how these levels fare as we move into the next window.

The MRs East of Suez started this week with sentiment firmly in owner’s favor off the back of the top of the list thinning last week. TC17 hovered between the ws 405-415 level, while TC12 pushed up to
to the ws 275-280 level. The benchmark Westbound UKC run remains untested, but Argentina has been retested at close to $3.9M. Despite a slower feel to the end of this week, the list is tight and
and we are yet to see much of a flow of cargoes in the 1-5 window. Some of the steam is expected to come out of the market with the long weekend in the UK. However, strength on the LRs and an injection of pace early on will at least see Owners confidence spike once again

The early June CPP MR volume is lower than expected in the North Asia this week. The benchmark Korea/Spore route went down slightly to $860-$870k levels off the natural fixing window. Although a prompt replacement paid $925k at the end of the week, we still think that tonnage is over-supplied here and the market is under pressure off the natural fixing window. We have seen decent cargo enquiries in the Straits area, both short haul and long haul. Shout haul returns has climbed up to the low $40k level per day. TC7 traded up 2.5 points to ws 312.5 but we were expecting higher for next done. AG sentiment remains strong enough to attract Singapore ballasters.

Mediterranean

Overall it’s been a steady week for the Handies here in the Mediterranean with rates trading sideways for the most part. We began the week with XMed trading at the 30,000mt x ws 240 mark but with the list looking well-supplied after the European bank holiday rates soon tumbled. Since then 30,000mt x ws 225 has been repeated for XMed with BSea/Med is in need of a fresh negative test. Heading into the long weekend and there isn’t a great deal left to cover but with the list looking tight on the front end anything still to cover off May dates, we could see some punchy ideas.

Finally to the Med MR’s where its been a bit of an up & down week in terms of rates. 37,000mt x ws 225 was the call for Med/TA as we kicked off the week but with TC2 trading down in the 37,000mt x ws 180’s it was only a matter of time before the Med came under further pressure. Come Wednesday and we saw Sines/TA on subs at 37,000mt x ws 195 with many believing this was the nail in the coffin. Since then however we have seen a couple more cargoes come into play including a replacement for the Sines run. This combined with a fairly tight list for vanilla Med ships should see some positive ideas to come from Owners. Potential.

UK Continent 

It has not been the most thrilling week for Handies in the North as the combination of good supply and drip-fed enquiry has pushed levels down (30,000mt x ws 222.5 for XUKC). MRs have also been the thorn in Handy owners side as they have competed on short haul stems to avoid locking in TA/WAF numbers at the bottom of the market. That being said, as the week comes a close, enquiry has picked up and the list is looking more balanced which could see a bounce back happen here.

It was a game of two halves for this MR UKC sector as a fairly slow start to the week saw rates slip to the 37,000mt x ws 175 mark, which then in turn seems to have kick started things off. Wednesday afternoon saw a number of vessels clipped away under the radar and come Friday morning we see a glut of market enquiry also to give some positivity back to the Owning fraternity. With a bank holiday for both the UK and US on Monday it’s not a surprise to see Charterers reach out a little further into the 1st decade of June and with Posidonia also the following week, there is a strong argument that next week should be rather active. Are rates going to fly… unlikely… but certainly for now, it feels a positive sentiment is casting a shadow over this market.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The Northern Handy market started the week strongly with multiple fixtures to report right out of the gate, as ws 260 was reported on subs. As the week progressed, naturally positioned units began to dwindle as would-be WMed ballasters made up the majority of tonnage on the list. Activity continued through the week clipping away at the list with a slower yet consistent pace. The week ended with sentiment firm at ws 270 and a clear benchmark that owners will be hoping they can build on early into next week.

In The Med, firming and tightening is the main story. The week started with ws 265 reported on subs and as enquiry kept chipping away at a tightening list, freight levels began to rise. The main reason for this can be attributed to prompt coverage required in the Eastern Med where tonnage was thinnest, causing rates to spike and giving owners an advantage to press – which they did. The first rise in rates came early with ws 280 reported to cover prompt dates, before some 20 points were added towards the end, leaving levels at ws 300 before the week was out. As a result, levels are at their highest in The Med in just over 3 months.

MR

MRs in The North have seen more full stem enquiry surface than in previous weeks with rates steady at ws 200. Initially, tonnage was made up of mainly WMed vessels who would have looked to take advantage and push levels if given the opportunity. However, naturally positioned units met demand to keep ballast days short and idle days down helping to keep any additional premiums at bay.

In the Med, MRs continued to throw their hat in the ring for 30kt stems and take advantage of a tight list to drive levels up. Full stem enquiry did surface and owners made sure to beat last done levels and leave sentiment around the ws 200 mark. Should enquiry surface basis the Emed early into next week, they will feel confident of beating last done levels again.

Panamax

The Panamax market has seen another more active week than those previously with a vessel fixed for the first TA voyage in a while and another in the Med, reported to be on subjects for a TC. This does, however, leave workable tonnage, for at least the next few weeks, at very thin levels. This coupled with support from surrounding the Afra markets by way of a tight list, owners will feel confident they can beat last done levels should enquiry surface. In the USG, idle and ballast units have been building with enquiry surfacing but not keeping pace with replenishment quickly as owners would like, rates are in a slow downward trend.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeMay 23rdMay 16thLast Month*FFA Q2
TD3C VLCC AG-China WS-468725966
TD3C VLCC AG-China TCE $/day-3,75049,50053,25036,00040,250
TD20 Suezmax WAF-UKC WS+9111102103109
TD20 Suezmax WAF-UKC TCE $/day+5,75044,75039,00038,25039,500
TD25 Aframax USG-UKC WS-7158166180184
TD25 Aframax USG-UKC TCE $/day-2,25037,25039,50043,75042,750
TC1 LR2 AG-Japan WS+23270247208 
TC1 LR2 AG-Japan TCE $/day+9,00077,00068,00053,250
TC18 MR USG-Brazil WS+10213203218231
TC18 MR USG-Brazil TCE $/day+2,00027,00025,00027,25027,250
TC5 LR1 AG-Japan WS+24293269238239
TC5 LR1 AG-Japan TCE $/day+7,25059,75052,50044,00043,000
TC7 MR Singapore-EC Aus WS-4310314285289
TC7 MR Singapore-EC Aus TCE $/day-25041,00041,25035,50034,000

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

Bunker Prices ($/tonne)

wk on wk changeMay 23rdMay 16thLast Month*
Rotterdam VLSFO  -12550562600
Fujairah VLSFO  -23594617641
Singapore VLSFO  -23596619642
Rotterdam LSMGO  +7738731744

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