Shifting Supply Chains

With the one third of the year already over and the Red Sea still off limits to the majority of the tanker market, we examine how crude and product trade flows have changed to account for the necessary rerouting.  Evidently different subsectors have been impacted differently. Volatility in clean product freight rates has been far higher than in the crude market. However, both sectors have had to adjust supply chains in response to changes in freight and commodity prices.

For products trade, Europe was always going to be the most impacted given its import dependence on Middle distillates, with the Middle East becoming the single largest source following sanctions against Russia since early 2023. Volumes from East of Suez into Europe have dropped, with the United States increasing its foothold in on the Continent as a result. So far in 2024, total US clean product exports to Europe have risen almost threefold vs the same period of 2023, whilst volumes from East of Suez have dropped almost 20%. Part of the drop from the East is due to stockpiling early in 2023 as the embargo on Russian products into Europe took effect, but still that doesn’t account for the increase from the United States, which evidently is linked to better economics vs. Eastern cargoes.

Flows from the Middle East/India to East of Suez have edged higher due to fewer logistical challenges vs. trading to the West, and stronger regional demand growth, contributing to a glut of products in the region and pressure on domestic refining margins for middle distillates. Russian product flows from West to East have also not been immune, although in general terms do not appear to be a primary target of the Houthi’s. Exports from Russia have also been affected by drone strikes on their own refineries.

For the crude market, flows have also been impacted by similar dynamics with European refineries where possible looking to take advantage of crudes with fewer logistical challenges. Again the United States has benefitted here, alongside Guyana and Brazil. Volumes from the Middle East have declined but VLCCs have been clear beneficiaries, with cargoes shifted from Suezmaxes to benefit from improved economies of scale when routing via the Cape of Good Hope.

On a macro level, tonne miles are up across the board, but not to the extent that they would be have been if volumes remained the same, albeit with routing via the Cape of Good Hope. Overall this highlights how the global crude, products and associated freight markets have adapted to major logistical challenges. However, with supply chains now stretched and persistent geopolitical stability the tanker markets remain on a knife edge.

LR2 Middle East – Europe Freight Rates ($m)

Crude Oil

Middle East

There was little movement in VLCC rates here,  despite a pick up in activity especially towards the latter part of the week. However, there are some signs that we could be about to see an upturn,  as a clear-out of early tonnage availability has encouraged Owners to show more resistance, especially on long East runs.  Today, we are calling 270,000mt AG/China at ws 60 and 280,000mt AG/USG is now at ws 39 level.

The AG Suezmax list has tightened marginally this week, but rates remain steady in the region, with little to get excited about. TD23 remains steady at around 140,000mt x ws 65 via Cape. To head East, the market is around ws 110 and is relatively stable, with maybe a touch less there on a compromised unit.

Activity picked up this week on the Afras ex AG which has piled the pressure on Charterers. As a result, cargoes are now being worked further forward, with market cargoes struggling to cover off early second decade. Owners remain in the driving seat for now as prompt, well-approved tonnage becomes hard to find. The week ends with AG/East at 80,000mt x ws 175 with opportunity to push.

West Africa

There have been no VLCC fixtures reported this week from WAF, which indicates why this area has a softer feel with tonnage starting to build up. The market does need a fresh test to establish where exactly this zone is heading but on today’s market a Charterer would be under little pressure and rate for WAF/China should be around ws 61 level.

Suezmax markets in West Africa have been busier this week and Owners would have been expecting more, but an oversupply of tonnage has prevented things from picking up drastically. TD20 today we estimate at 130,000mt x ws 105.

Mediterranean

TD6 remains steady, with rates for CPC/Med hovering at around 135,000mt x ws 115. Rates to head East are steady and for the few runs that are still being done, we freight at around $5.3m for Libya/Ningbo via Cape.

As we have moved into the first decade fixing window for May, the Med Aframax market has seen a flurry of activity. Off the back of this, rates have continued to test northward as units were plucked from the front end of the list. This, combined with the US market heating up, caused sentiment to be given a boost. As a result, the week finished at ws 185 for a TD19 voyage. However, with fixing date progression by Monday, we could see some of the edges smoothed from this recent resurgence.

US Gulf/Latin America

The VLCC market here experienced a lower level of activity than the previous week, as Charterers moved cautiously to complete remaining May stems from the USG. The sentiment remains steady, but owners would need to see a step up in activity, if they are to have any chance of making gains with early June stems around the corner. The Brazil export market also has a steady feel about it, with last done levels being the norm. Today we expect a USG/China run will fix in the region of $8.6m, while we estimate a Brazil/China run is paying around ws 59 level.

North Sea

A bit of a damp squib this week, with little capturing the market’s attention. A quoted TC garnered some interest from Owners but that was really the only bit of excitement to tickle our fancy. Despite timid fixing, levels have remained pretty stable, kicking around the ws 140 level with things seeming unlikely to shift from this.

Crude Tanker Spot Rates (WS)

Clean Products

East

Full clear-out of the LR2s as the week ends. The list is super tight and the levels seen this week will almost certainly get pushed forward come Monday. Rates at present sit at $6.3m for UKC (via Cape) and TC1 at 75 x ws 215. However, with such a tight list and Owners well aware of just how tight it is, it will be interesting to see how big the push is next week.

The LR1s have ticked along quietly in the background. Not making a huge noise publicly but come the close of the week the list is very tight at the front and as a result, rates will undoubtedly see a positive correction. Both UKC and TC5 really need a fresh test, but for now assess TC5 at 55 x ws 240 levels and UKC at $5.0m (via Cape). Owners will take the weekend to stoke their boilers and get ready to go full steam ahead into the new week.

A week started full of expectations as we began with a tight position list and Owners with firm itineraries in the driving seat. Come mid-week TC17 rose to mid-300s and TC12 pushed ws 300 and cargoes up to 12th continued to surface. Despite another big jump on Thursday, sentiment suggests we’re not at the top yet, as the list into early May is tight and ballasters are limited in the first decade. As such, rates will push further. Expect to see some gamble on itineraries to lock in rates, while those Owners with firm positions will look to push.

North Asia started with a quiet beginning but followed up a super Wednesday, with more than 15 ships going on sub in one day. This, together with a short list of next window, sentiment changed overnight. Benchmark Korea/Australia rate went up ws 17.5 points to ws 300 and Korea/Spore up $125k to $940k on a replacement job. As pre-holiday fixing continues and fresh China export quota to be expected, the momentum will roll over to next week. The Singapore area still has been in the shortage of cargo but it is definitely supported by the spike in AG. As a result, TC7 gained ws 7.5 points to ws 295 and Owners’ mind is bullish.

Mediterranean

After we reached the heights of 30 x ws 335 for XMED last week we have seen rates come off due to a build up of prompt tonnage at the start of the week. Fresh lists pulled Monday showed a plethora of tonnage available and as a result XMED soon slipped to the 30 x ws 255 levels on Monday. Fast-forward to the present and we see rates bouncing around the 30 x ws 235-245 levels with final numbers very much date dependent after a clear out of end-month vessels. Heading into the weekend, a few cargoes remain left to cover with a steady finish expected.

The Med MR market has been very lackluster this week. We began with Med/TA trading at the 37 x ws 225 mark but since then we have seen little to no fresh cargoes and as a result, Med/Waf soon slipped to 37 x ws 220. This, combined with a soft TC2 market (37 x ws 165) should see Med/TA negatively correct when next tested with sub 37 x ws 200 potentially on the cards. Market quiet into the weekend.

UK Continent 

With limited market cargoes throughout the week, Charterers in the MR UKC sector have managed to keep a strong grip on any aspirations and come Friday, we see rates chiseled down to 37 x ws 165 for TC2. Mondays pace was similar to the end of the previous week, with little for Owners to get their teeth into and with tonnage seemingly building for end/early dates, pressure started to build. Despite a good number of ships taken out quietly on Wednesday, this pressure continued and with some further poking and prodding of this market, we find ourselves slipping further with little support from the Handy market. We expect this sentiment to carry on into early next week until enquiry picks up.

It has been a week to forget for Handy Owners in the North with limited fixing opportunities on offer throughout. Diesel stocks remain well supplied in NWE which could be one of the main reasons why XUKC volumes have been subdued. XUKC closes at 30 x ws 220 but an injection of cargoes are required if Owners are to steady the ship at current levels.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Activity in the North has been sluggish this week, where ws 235 repeats creating a steady feel to the region despite a tightening list. Furthermore, enquiry is surfacing and has been chipping away at available units, although this is happening a little too slowly, putting on hold on any ideas of firming. Available tonnage begins to open up towards the start of next month, perhaps keeping ws 235 as a conference level.

It’s a mixed bag in terms of activity in the Med, where the week started off in a typical fashion, with activity at healthy levels, clipping away units before a very busy Tuesday evening/Wednesday brought a flurry of activity, clearing units from what was beginning to look like a lengthy list. This then fizzled out, killing any further momentum. The list is left looking tighter though and both charterers and owners will be keen to see what levels of replenishment occur come Monday for forward guidance.

MR

MR Owners in the Continent have enjoyed the better of the two regions in terms of trading conditions, as 45kt enquiry has been present steadily clipping units from the list. Sentiment would suggest that levels should remain balanced now, as forward availability looks rather more evenly spread.

This week in the Med, however, full stem enquiry has been elusive. Owners have found employment via part cargoes in the meantime and have benefited from an overall tightening – helping to keep negative pressure at bay. Owners will hope for a return to full stem cargoes sooner rather than later, which is much needed in order to provide validation of correct market strength.

Panamax

Enquiry has picked up overall in this sector, leaving units thin on the ground until mid-May at the earliest. That said, this activity hadn’t caused the market to react, where confidence ultimately still lacks because of pressure from surrounding Aframaxes. In the US and surrounding markets, rates have picked up, which going forward could yet have an impact.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeApr 25thApr 18thLast Month*FFA Q2
TD3C VLCC AG-China WS-059606463
TD3C VLCC AG-China TCE $/day-75036,00036,75042,50034,750
TD20 Suezmax WAF-UKC WS-6103109111110
TD20 Suezmax WAF-UKC TCE $/day-3,50038,25041,75042,75038,000
TD25 Aframax USG-UKC WS-10180189147192
TD25 Aframax USG-UKC TCE $/day-3,50043,75047,25031,75044,000
TC1 LR2 AG-Japan WS+1208207246 
TC1 LR2 AG-Japan TCE $/day+25053,25053,00066,250
TC18 MR USG-Brazil WS-20218239321233
TC18 MR USG-Brazil TCE $/day-3,50027,25030,75047,25027,000
TC5 LR1 AG-Japan WS+7238231278227
TC5 LR1 AG-Japan TCE $/day+1,75044,00042,25052,00038,500
TC7 MR Singapore-EC Aus WS+5285281305272
TC7 MR Singapore-EC Aus TCE $/day+75035,50034,75038,75029,750

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

Bunker Prices ($/tonne)

wk on wk changeApr 25thApr 18thLast Month*
Rotterdam VLSFO  -6600606596
Fujairah VLSFO  +2641639629
Singapore VLSFO  +5642637637
Rotterdam LSMGO  +5744739770

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