The Long Way Round

As Europe steps into spring having survived its first full winter without Russian diesel, the Continents fuel supply is once again disrupted. Ultimately, the world appears sufficiently supplied with refined products, however, with freight costs, delivery times and product prices all being dramatically impacted by the Red Sea crisis, the clean trade is set for another shift, even if it proves to be just a temporary one.

Disruptions in the Red Sea coincide with the start of global refining maintenance season, with US outages projected to peak in February and European overhauls around March. Given lower domestic output from the US and Europe, it makes supplies from East of Suez even more vital to the Europe’s energy security in the near term.

Logically, the disruptions to the Red Sea route should increase the attractiveness of barrels from the US Gulf particularly given healthy distillate stocks in the region. However seasonal maintenance will tighten balances, limiting the Gulfs ability to redirect supplies, particularly if recent attacks on Russian refineries impacts product flows into Latin America. Last year, the Middle East and India supplied over 1 million b/d of refined products into Europe, most of which transited via the Suez Canal. The United States supplied over 280kbd out of total exports of 2.3mbd, suggesting that although the States could in theory supply Europe, it would need to divert barrels away from its core Americas markets to do so. It is also worth noting that despite new logistical challenges for exporters in the Middle East and India, the region has a large product surplus that will be exported, if not West, then to Eastern destinations. Supplies into the West from the Far East may also increase. Long haul barrels from Asia are now less disadvantaged compared to Middle Eastern supplies than they were before the crisis. Accounting for the Cape of Good Hope routing, the delivery time from Singapore vs. the Middle East Gulf is just 1.5 days longer. Although cargoes are more likely to come from North Asia than the Singapore market, it increases the chance of higher flows from China and Korea to Europe. Yet for these flows to materialise, Europe has to price itself above both local Asian and West Coast Latin American demand, which has drawn increased volumes from North Asia in recent months due to Panama bottlenecks.

The biggest challenge for traders now is that rates have risen to such an extent that in some cases, it no longer makes sense to move the product. To overcome this barrier, something will have to give either in terms of commodity prices or freight costs. Ultimately, the Red Sea crisis will continue to add volatility to the market. Whilst the current strength of clean tanker rates is unlikely to be sustainable, being driven in part but the uneven supply of tonnage across the globe, the rate floor has been set higher, all the while the Red Sea remains off limits for many tanker owners.

90kt AG-UKC CPP($m)

Crude Oil

Middle East

VLCC rates faltered again this week despite more first decade stems reported than the previous couple of months.  Charterers continue to drip feed cargoes into the market and as we now enter second decade Owners can only hope we have reached or at least are close to the bottom. The security concerns on shipping in the Red Sea appear to have little impact on VLCCs, which reflects most long-haul trips are done via Cape and today we are calling 270 AG/China ws 57.5 and 280 AG/USG ws 44.5.

The AG hasn’t seen a great deal of long-haul enquiry, although there has been a consistent level of short-haul cargoes to keep the list balanced. Very few are willing to head via Suez at the moment, and rates to head West are capped by VLCCs. Those who require a Suez will be looking at somewhere around 140,000mt x ws 105 for BOT/UKCM. Rates to head East remain soft and Charterers will likely be looking to break 130,000mt x ws 125 today for AG/East.

The week began with Charterers facing a very lengthy list of Aframax options, a combination of prompt tonnage and vessels in ballast from Singapore. Charterers were in the driving seat to chip away from last done on any routes avoiding the Red Sea region. However, a ripping LR2 market has come to Owners’ aid. We close the week with a small handful of Aframaxes on subs or fixed into the clean market where possible, helping to trim the tonnage list. A steady flow of AG/East type runs has also kept the list ticking. Rates close the week a little steadier. Owners should now be able to achieve 80 x ws 180-185 levels on AG/East, when at the mid-week stage it looked possible to drive AG/East into the 170s.

West Africa

Activity has picked up here on VLCCs as Charterers move to take advantage of Owners’ weaker sentiment and rates continue their downward momentum, with Owners struggling to find employment in the Atlantic area. Further pressure is being applied by the downturn in the AG and the USG, so today we are expecting a WAF/China to fix at ws 58 level.

Suezmax markets in West Africa seem to have bottomed out, with the USG beginning to pick up again. TD20 today we estimate at 130,000mt x ws 110. Rates to head East currently have a premium of around 5 points.

Mediterranean

The Suezmax market in the Med we consider to be steady. With larger numbers paid on the Aframaxes, there is likely to be a greater level of resistance from Owners. TD6 we estimate today at 135,000mt x ws 130. Cargoes heading East remain untested since the trouble began in the Red Sea.  Despite a few Charterers looking to transit the area, rates are approximately $5.5M for Libya/Ningbo.

This week has seen a tale of two halves for Aframaxes in the Mediterranean. At the beginning of the week, sentiment was soft and those Charterers working easily eroded last done. However, as the week progressed, X-Med went from ws 170 to close at ws 220, with the number of workable vessels diminished and Owners firmly back in the driving seat. With Turkish straight delays at 11 days in both directions, Charterers had to reach, and as a result, CPC rates are back to ws 230 levels. Looking ahead to next week, we expect the same volume of activity, with both Charterers and Owners keeping a close eye on the vessels returning from their US excursions.

US Gulf/Latin America

Freight rates on VLCCs dipped this week on both long-haul East runs and shorter hauls to Europe, but at least we appear to have hit the bottom of this cycle. However, recovery will be challenging as we continue to see an influx of Eastern ballasters, along with a number of vessels failing subjects. We expect a USG / China run will fix in the region of just  $8.9m on today’s market, while Brazil/China is paying around ws 56 level.

North Sea

The North Aframax market remained steady this week, with rates staying consistent at the benchmark of ws 180. Looking ahead to next week, we expect more of the same. Although strong winds are expected to continue, we don’t anticipate any significant disruptions that would unbalance the list on the front end.

Crude Tanker Spot Rates (WS)

Clean Products

East

A market that appears to have no limit. The LR’s this week have seen some monstrous numbers going on subs and being fixed. Owners are really jumping on the hype and trying their hardest to push even further on last done levels. The lists on both sizes is really very tight and Charterers if needing coverage are having to move fast and accept these super high freight levels. At time of writing TC1 is on subs at 75,000mt x ws 350 and TC5 at 55,000mt x ws 350. For West runs via the Cape, $7.25m is on subs for a LR1 and an LR2 is assessed at $9.0m levels but is in need of a fresh test. At these levels, expect that Charterers will sit back as the weekend approaches to try and take stock of the situation.  However, expect that come next week Owners will not be easing off their rate ideas.

The MRs East of Suez continue to perform well off the back of sustained cargo flow, little to no resupply of tonnage from East or West and the LRs continuing to climb. For now the LRs on a $/mt basis make more sense than MRs both West and East however it is still uncertain the extent to which rates will climb and how long this current spike will last with Charterers looking to cover 2 weeks out on both EAFR and East. We close the week with Owners willing to take last done with ws 420 repeated on TC17 and with over $1.0m for Cross AG there are no signs of a swing in sentiment any time soon. 

Mediterranean

A positive week for the Owning fraternity in general this week as rates managed to jump onto the coattails of surrounding sectors and saw some good levels of improvement throughout. Come midweek, we saw levels into the ws 300s and come Friday X-Med sits comfortably at 30 x ws 330. A touch slower end to the week but that’s no surprise with the increases seen and expect Charterers to be looking for better stocked shelves come Monday for their next shopping spree. 

And finally, to the MRs here in the Mediterranean, where unsurprisingly they have followed a similar pattern to that in the Continent. An active week with limited ballasters gave Owners the chance to push rates into the ws 300s. Partnering this with a very strong East market and some Owners keeping a keen eye on Red Sea stems, there has been enough activity to hold rates for the majority. Come Friday, the slip in the UKC has trickled down into the Med with 37 x ws 240 on subs now for TA, but how much more this market has to lose is yet to be seen as we expect this sector to hold stronger than the UKC.

UK Continent 

A rollercoaster of emotions for all parties this week as after a very strong start to the Week for the Owning fraternity pushing rates into the ws 300s, we see this market fall just as quickly now, down to 37 x ws 230 for TC2. Tonnage has been on the thin side for the end January dates and, with momentum going in Owners’ favour, they took advantage and pushed this market up quickly. A slow day and threat of relets around the place though has since knocked this market back on its backside with 37 x ws 230 the call for TC2 and expect this pressure to continue. 

A tough start to the week for the Handy Charterers in the North, with continued demand and limited supply on the front end of the tonnage list pushing X-UKC fixing levels up to 30 x ws 340. Naphtha clean and certain load areas were also the catalysts for a big jump on freight. But with that being said, after a collapse seen on TC2 on Thursday (37 x ws 330), demand has slowed, which will see freight now negatively tested when cargoes come back out of the woodwork.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Despite the recent lack of replenishment in the North, we started the week by seeing a few units added to the list after receiving berthing prospects over the weekend. Charterers soon capitalized on the change of sentiment by fixing a combination of ws 320-322.5. To the Owner’s relief, an active week of enquiry prevented further rate decline, keeping the region steady.

Handies in the Mediterranean have witnessed a steady week of trading. Monday started with a reasonably well-populated tonnage list, and sustained activity for most of the week saw ws 315 become the conference level. Despite the repetition, there is a feeling now that the last done levels could be tested, as a market quote came out on Thursday and attracted several boats in the region.

MR

It’s been a mixed bag this week in the Continent as 45kt cargoes have been somewhat drip fed into the market. One Owner managed to push the market up to ws 235 at the front end of the week due to a lack of naturally placed tonnage, with others making no hesitation in jumping on part cargos due to uncertainty about when the next full stem cargo would come. 

It was a mirrored feeling in the Med where part cargoes have remained the prime source of opportunity with only one Owner scouting out full stem cargoes at a repeated rate of ws 240.

Panamax

A long-awaited test finally arrived this week for Panamax’s, as we saw one Owner find a UKC/TA run, which was fixed at ws 137.5. While options remained limited, Owners who still had ships to fix this side of the pond found long and short haul enquiry throughout the week. Although we saw levels rise to 55,000mt x ws 140 for TA, a quieter end to the week has left Owners wondering when the next test will arrive. Expect Owners with ships positioned in the States to remain put where the employment opportunity remains greater.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeJan 25thJan 18thLast Month*FFA Q1
TD3C VLCC AG-China WS-858665763
TD3C VLCC AG-China TCE $/day-11,75028,25040,00029,75035,250
TD20 Suezmax WAF-UKC WS-34110143125118
TD20 Suezmax WAF-UKC TCE $/day-22,00039,00061,00049,75044,500
TD25 Aframax USG-UKC WS-34203237227212
TD25 Aframax USG-UKC TCE $/day-13,50048,75062,25058,75052,500
TC1 LR2 AG-Japan WS+153354201183 
TC1 LR2 AG-Japan TCE $/day+54,000101,50047,50041,750
TC18 MR USG-Brazil WS-3216219228216
TC18 MR USG-Brazil TCE $/day-1,00023,75024,75026,75023,750
TC5 LR1 AG-Japan WS+125379254197266
TC5 LR1 AG-Japan TCE $/day+32,00078,75046,75032,00049,000
TC7 MR Singapore-EC Aus WS+32321289236264
TC7 MR Singapore-EC Aus TCE $/day+5,25039,00033,75024,50028,750

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

Bunker Price s ($/tonne)

wk on wk changeJan 18thJan 11thLast Month*
Rotterdam VLSFO  -4542546551
Fujairah VLSFO  +5590585616
Singapore VLSFO  +16606590610
Rotterdam LSMGO  +0740740769

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