Output Momentum

Output Momentum

Brazilian crude production has been posting strong performance in recent months as the key Latin American producer is expected to see crude output this year increase by 380kbd to 3.5mbd and a further 300kbd in 2024 to reach 3.8mbd. Crude exports have also been growing, with Q3-23 averaging 1.8mbd according to the latest IEA data helping to boost Atlantic crude supply alongside other producers such as the US, Guyana and now Venezuela. Much of this increase in output can be explained by the reactivation of several FPSO units in the country’s offshore pre-salt fields. While further output is expected in the coming years, with Petrobras set to increase investment by 31% to $102 billion until 2028 as part of an ambitious plan to increase production further.

Recent export data shows the bulk of Brazil’s crude exports continue to head East to China as well as sizeable volumes to Europe and the US. This year, crude volumes to China have averaged 775kbd, up from 505kbd last year, much of which was medium sweet Tupi and Buzios grades. Meanwhile, exports to Europe have also risen from 280kbd in 2022 to 395kbd in 2023. It is interesting to note that for these additional flows to Europe, VLCCs have benefited the most, with year-on-year flows doubling, (albeit from a low base). Brazilian crude exports to Europe continue to be popular amongst refineries in Spain, Portugal and the Netherlands. Higher VLCC shipments from Brazil to ARA refineries have accounted for much of the increase this year, with a broad mix of mostly medium sweet grades discharging in the region.

Additionally, higher Brazilian output in the coming months could fill the gap left by lower OPEC+ Middle East volumes heading to Asia, depending on how many Middle Eastern barrels will be affected by the latest voluntary production cuts. If there is a shortfall in volumes traded to Asia, then Brazilian supplies could help to fill this void. However, overall Asian demand into next year remains a key sensitivity, especially given recent Chinese demand indicators highlighting concerns in the near term.

Looking further ahead, the IEA is forecasting Brazilian supply to increase 970kbd by 2028, with a total of 15 FPSOs expected to be operational by then. There is also strong potential for an additional three units which are currently at a pre-FID stage but would bring up to an additional 360kbd of output online on top of projects already planned. However, it is also noted that one of the main risks with achieving this output level is the potential for delays in project start-ups or unforeseen operational issues, which combined with a base production decline of 10-15% a year could easily see supply forecasts revised down should current projects not go entirely to plan.

There is also the issue of Brazil aligning itself more closely with OPEC+ in the future, however for now there is little indication this could derail existing plans. Therefore, the next few years will be crucial to see if this output momentum can be sustained and whether these investment projects come online as expected. Overall, we should expect to see higher cargo counts out of Brazil going forward as this momentum gathers pace.

Brazilian Crude Exports (kbd)

Crude Oil

Middle East

It has remained very much ‘steady as she goes’ in the AG where after a little dip at the beginning of the week, the VLCC rates have bounced back to where we were and we expect this to remain for the foreseeable future as the Market is balanced. End of year industry events are having some impact on enquiry but as we enter the last decade, owners remain optimistic of a positive end to the year. In today’s market we are calling a 270,000mt AG/China run at ws 66 and 280,000mt AG/USG at ws 36.

Suezmaxes in the AG have seen a healthier level of enquiry this week, though there is still little on the open market to head West. A number of short runs have helped to thin out the list and there will likely be more resistance here next week, subject to sustained enquiry. A 130,000mt AG/East run we assess at ws 127.5, while AG/West would fix in the region of 140,000mt x ws 68.75.

Aframax tonnage in the AG has grown thin up to 20th and with reports of Urals back trading under the price cap, a number of vessels may leave the mainstream market. Owners have found themselves back into a position of strength and Charterers will have to look to fix further ahead for coverage. The week ends with AG/East at 80,000mt x ws 185 with potential to push back up to ws 190s.

West Africa

The WAF VLCC market has experienced another quiet week which was somewhat impacted by issues in Nigeria and a muted end to December liftings. We have noticed some Charterers make moves for early January on eastbound stems but like in the AG, levels remain steady as owners pushed back against Charterers attempts to chisel off last done. In today’s market we are expecting a WAF/China run to fix at the ws 66 level.

For the Suezmaxes, the firmer feel in West Africa is starting to look more shaky, with a few failed fixtures adding ships to the list. The quieter end to the week hasn’t helped much either, though with the time of year and potential for bad weather, Owners are unlikely to back down just yet. A 130,000mt WAF/East run we would assess at ws 117.5 levels.

Mediterranean

Suezmaxes have been in higher demand here this week, though rates haven’t really pushed up to reflect this just yet. The minimal activity elsewhere in the Med has given Charterers room to maneuver. BSEA/MED is trading at 135,000mt x ws 137.5 levels while CPC/SKOREA we would assess at $6.0 million levels.

As Christmas party week draws to a close, many will reflect on a very quiet week for the Med Aframax market. There were a few market cargoes to hold owners’ attention but was on the whole rather disappointing in terms of volume. We finish the week at around ws 130 levels for an X-Med voyage and we could see this come off further if activity does not surface in the second decade of December.

US Gulf/Latin America

The USG had a quiet week compared to recently with activity levels remaining low and rates have suffered as a consequence with Charterers holding back and moving January cargoes. Brazil exports continue to dominate this area although even here we saw some softening and the market is being supported by Venezuela liftings which tend of be off prompter dates. We expect a USG/China run will fix in the region of just $9.3 million in today’s market while a Brazil/China run is paying around the ws 63 level.

North Sea

This week concludes in a similar fashion to which it began… quiet. Sentiment has remained flat throughout the week despite fluctuations in levels of inquiry. The week started with X-Nsea trading at ws 145 and as we close is hovering around the ws 140 levels. With Russian oil trading below price cap charterers will need to monitor the list carefully as we could see several ships disappear from the list as we move into next week.

Crude Tanker Spot Rates (WS)

Clean Products

East

The LRs have started to finally see the anticipated Q4 push that was always predicted – all be it rather later than expected. The LR2s have been busy with the Satorp Refinery getting back up to speed and with other general maintenance over, the stems are now coming through. The tonnage list is seeing the effect of the firmer Atlantic Aframax market as well as more CPP business West of Suez leading to both added volume and a shorter list. TC1 saw a base of ws 115 paid a week ago but with ws 129 now done and ws 130 now confirming that progress, all ideas are now looking for the next leap. A 90,000 mt Jet AG/UKC run is underpriced at last done levels so should now see $3.75 million done, up some $500k on last week. Next week is likely to start strongly and will only enhance Owners optimism.

LR1s have been busy with plenty of stems both long and short but the list was long and has taken time to see much progress. TC5 has struggled but with TC1 now trading higher it has to see improvements to leapfrog over that. West runs are still hampered by Russian history vessels keeping a lid on freight but for those that cant use those ships, rates will now be at $3.0 million again. The coming week will be a test as to whether Owners can bring this upward pressure to anything sustainable.

Despite a quieter finish to the week, the Owners in the east have managed to claw back some of the ground lost in recent inactive weeks. The MRs now remain relatively tight for well approved tonnage with fewer ballast units from the East now and plenty of shorthauls in the past ten days leaving the position list looking like it will be easier to cover ex AG than WCI. With the LRs busy and Singapore firming again, it feels a like we have a little bit of a lull to finish the week but overall sentiment for the remainder of the year is strong and we should see rates challenge higher next week.

Mediterranean

It’s been a steady week in this Med handy market with activity predominantly taking place off market due to the London Christmas party week. Xmed has traded at the 30,000mt x ws 265 mark throughout with the BSEA receiving a fresh test which saw the premium increase to +40 ws points. Heading into the weekend there is little left to cover on the surface but expect a busier week to come with the pre-Christmas rush beginning to come into play.

Finally to the Med MR market, where it has been an active week with consistent enquiry throughout. We began the week with Med/TA trading at the 37,000mt x ws 220 mark with WAF at a +20-30 ws point premium and many Owners keen to head TA. However with TC2 coming under pressure and 37,000mt x ws 195 achieved ex Sines we started to see some pressure form in the Med. Last done is now 37,000mt x ws 210 for Med/TA but with a handful of cargoes left to cover, expect Owners to hold their ground into the weekend.

UK Continent 

Off the back of some lower rates seen last Friday, Owners have remained on the back foot during this London Christmas party week with seemingly little TC2 activity partnered with limited WAF stems. With the States market still looking strong, Owners have had the benefit of limited ballast units to dilute the lists which is why we still see fixing levels of around 37,000mt x ws 195 for TC2 and a healthier premium of around 30-40 ws points for the less desirable WAF run. That said, if next week is slow and with a good number of laden vessels heading this way, we could start to see cracks in Owners’ defense’s with lower rates plausible… Next Monday will be a key day for all parties.

It has been another positive week for Handy owners in the North as consistent enquiry partnered with a tonnage list which is lacking supply pushed XUKC up to 30,000mt x ws 215. At the time of writing a few cargoes still remain uncovered as bullish owners look to push this market once again. Potential.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

In the North this week, the general consensus was that an injection of cargoes would be needed to swing sentiment in the Owner’s favor whilst availability was there for charterers to utilise. This week’s level of enquiry has seen rates push to ws 310 for a cross-ARA voyage, but activity levels in the latter half of the week have seen Charterer’s confidence grow again. As we close the week, ws 297.5 is on subs and Owners will be hoping for a busy start next week.

In the Med, tonnage supply and the rate of enquiry have been going hand in hand as ws 260 became the conference level throughout the week. Despite a brief build-up of prompt vessels at the start of the week, steady enquiry has kept the Med units occupied. Going forward, if enquiry continues to feed into the region without a restock of tonnage, there is potential for Owners to look to claw back some value

MR

A much-needed 45kt test finally arrived both in the Continent and the Mediterranean. Although 45,000mt ws x 210 failed for the cross-continent voyage, we can now use this rate as a benchmark for the next 45kt stem. As we look further south in the Mediterranean, one Owner managed to go on subs at ws 215 for a cross-med voyage. There is potential for Owners to push on from here whilst activity has started to pick up on both full and part cargo.

Panamax

Another dull week for the panamax’s this side of the pond, as both long and short haul enquiry sustains a rather flat feel. Owners have been actively looking at local employment and part cargo opportunities as a time filler, but they remain hopeful that TA enquiry will dust itself off.

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

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