VLCCs Say Yes to Scrubbers

It has been over four years since the IMO’s global sulphur rules were introduced. Prior to implementation, there had been much speculation about potential lack of compliant 0.5% sulphur bunker fuel, the economics of installing exhaust gas cleaning technology and the future direction of Hi5 spread – the difference between high sulphur bunker fuel (HSFO) and compliant very low sulphur fuel oil (VLSFO).

Indeed, the Hi5 spread has proved to be volatile, fluctuating between a high of $485/tonne and a low of $60/tonne over the past four and a half years, being pulled in different directions not only by regional supply/demand factors and the fallout of the pandemic, but also by fundamental changes in oil prices and changes in global HSFO flows following the introduction of sanctions against Russia.

In terms of scrubber uptake, the technology as expected became most popular with VLCCs, where 51% of the existing fleet have gone through installations. For this size group, it makes most practical sense, considering typically long distances involved and high bunker consumption. On an Eco basis, the scrubber premium on the TD3C voyage has averaged $6,750/day since Jan-20, although currently is around $5,000/day due to a recent slide in the Hi5 spread.

Scrubbers are also predominantly installed on more modern vessels, with 74% of VLCCs under 10 years of age being scrubber-fitted. The uptake is lower for older ships: 47% of VLCC built between 2005 and 2014 have the technology onboard. Even less are installed on vessels over 20 years of age but these units are largely missing from the conventional tanker market anyway and are instead engaged in shipping sanctioned Venezuelan and/or Iranian crude or are in permanent storage.

Scrubber uptake on Suezmaxes and Aframaxes/LR2s is smaller but still significant. Approximately 29% of the existing Suezmax fleet and 23% of the Aframax/LR2 fleet have scrubbers on board. The average delta in TCEs vs non-scrubber tonnage is understandably smaller, considering typically relatively shorter distances and lower bunker consumption. Since the start of 2020, the eco scrubber premium on TD20 voyage has averaged $5,000/day and $4,250/day on TD19 route.

On smaller sizes, scrubber uptake is even lower – 8% of the LR1/Panamax fleet, 17% of MRs and just 2% of Handies have the technology installed. The delta in Eco TCEs vs non-scrubber tonnage is also smaller, ranging between $4,000/day and $2,750/day on benchmark trades.

Without doubt, larger tankers that have installed the technology, particularly those that have gone through retrofits back in 2020/2021 have had their investment paid off. For smaller tankers, it is less clear cut, and much depends on installation dates, the number of operating days within a year and trading patterns.

Singapore Hi5 Spread ($/tonne)

Crude Oil

East

The AG VLCC market started the week on shaky grounds, there was ample tonnage supply for the current fixing dates which gave Charterers a good opportunity to apply pressure with market quotes achieving a healthy amount of offers. Levels continued to ease throughout the week and Charterers were able to capitalize on this. There has been little confidence that the bottom has been found just yet, however, the pace of enquiry on the surface has ground to a halt and ships continue to exit the list with off market fixing. Looking into next week, Owners will hope to see a rush of enquiry for the remaining second decade stems with the hope the tonnage list shrinks to a level where an uptick could be on the cards. Today we are calling 270 AG/China WS46 and 280 AG/USG is now at WS34 level.

The AG Suezmax market remains soft with very few cargoes for Owners to consider. TD23 we assess at 140,000mt x WS52.5 via C/C. To head East, the picture is equally bleak and rates stand around WS95.

Eastern Aframaxes remained quiet this week with little activity to report on the surface. Despite minimal cargo inquiry, rates remain flat due to the lack of tonnage in the region. We finish the week with AG/East assessed at 80 x WS170.

West Africa

The WAF VLCC market has been rather dormant on the surface this week and there has been little to get inspired about as rates ease following the decline in surrounding regions. Charterers have been asking questions for early September stems off market and with a weakening sentiment and well-placed tonnage, below last done levels were there to be achieved. Looking into next week, the tonnage list looks healthy and with the earnings better than the AG, further Owners may commit to the ballast. On today’s market we estimate that the current rate for WAF/China is around WS51 level.

Suezmax markets in West Africa have fallen quite sharply, but there is some resistance at current levels. For TD20 today, we estimate at 130,000mt x WS77.5 but there is a feeling that things may have bottomed here.

Mediterranean

They say a week can be a long time in politics but such is also the case in shipping. Roll on to the end of week 31 and with the Med Afra market now sitting some WS17.5-20 points higher than where the week began. What is perhaps the most surprising here is the degree of volatility. Coming into the week, anyone reading the tonnage lists could see how front-end availability looked thinner and therefore expected something to happen. However, with an early flurry of availability, combined with steady requirement levels thereafter, Owners have raised the bar as far as possible before Suezmaxes started to make sense on part cargo basis. That said, Charterers did try to protect against increment where possible, with Ceyhan reaching out 16 days ahead at one point. Furthermore, with CPC doing the same, perhaps we can now expect a period of physical dates catching up with working windows, but the bar has now been set, and for those who can’t take a Suezmax, resistance is almost guaranteed.  

TD6 is steady, but there hasn’t been a great deal of enquiry. Today we estimate rates are around 135,000mt x WS95. Rates to head East remain steady at around $4.5M for Libya/Ningbo via C/C.

US Gulf/Latin America

The Atlantic basin VLCC market sat below expectations at the end of last week as levels did not jump up like anticipated. This week the region faced much of the same difficulties as cargoes were drip fed into the market where there was enough available tonnage to cover the supply which pushed levels to fall below last done. As the week progressed, a few failings took place in the region which did not help the already weakening sentiment. The Brazil export market has been active with a handful of cargoes being worked, levels, however, remain soft, and looking into next week the feeling is that below last done will be achieved. We expect a USG / China run will fix in the region of $7.0m while we estimate a Brazil/China run is paying around WS50 level.

North Sea

For Aframaxes on the Continent, conditions weren’t so fortuitous, with an extremely prevalent WS120 as the benchmark.  That said, Owners have had at least some alternate employment options starting to open up, with Med/UKC runs growing in attractiveness as the week progressed. The usual migration of tonnage back to the US has also helped to keep the lists ticking over, reducing any overhang.

Crude Tanker Spot Rates (WS)

Clean Products

East

A slight recovery has been seen on the LR2s this week with renewed activity. West runs returns dropped below TC1 so were first to see improvement with 90 Jet AG/UKC up $200k to $4.6m today. Lists are tighter – and this was best also for ULSD showing fewer clean up opportunities. TC1 remains at WS150 for now.

LR1s are still quiet generally, although the Red Sea has been busier. Rates have struggled with 60 Jet AG/UKC only at $3.7m for now. TC5 also hit bottom at WS155 but more activity should now come as the value is now in this size.

The MRs East of Suez continue to trade with a generally flat/bottomed trend, however, sustained activity has given the region a more positive feel with indications that should this continue, there may be opportunities for Owners to push on levels. TC12 was the most obvious headline this week where a fresh test saw WS155 on subs whilst TC17 continues to trade around the WS200 level. There have been a handful of deals failed which has kept the prompter units well stocked and able to cover any replacement business without too many outlying rates. Going forward, this steadier trend is expected to continue for now.

Mediterranean

All in all, it’s been a lacklustre week for the Handies plying their trade in the Mediterranean, with rates coming under pressure throughout. We began the week with XMed trading at 30 x WS200 but with fresh lists looking well-stocked, rates soon started to tumble. 30 x WS165 was reached by midweek and then followed by 30 x WS155 going on subs yesterday, which is where we now see the market. Heading into the weekend there is very little left to cover and with prompt tonnage still on the list, expect this negativity to continue next week. 

The Med MR market has seen a bit of an up & down week for Owners. 37 x WS185 Med/TA was achieved on Monday and in the days that followed rates started to firm a touch off the back of improved enquiry and a positive TC2 market. This was evident on Wednesday, with 37 x WS200 going on subs for Med/TA. However, since then enquiry has slowed and there have been a couple of failures, which resupplied the list. Fast-forward to Friday and we are now at 37 x WS180 for Med/TA with WAF to land at a 20-point premium when next tested. Quiet into the weekend.

UK Continent 

This MR sector in the UKC started off with a surprise bang this week with 7-8 cargoes quoted early on Monday morning to give Owners a real boost of confidence. Certain Charterers were able to navigate the tonnage lists quickly and repeat the 37 x WS200 from last Friday but also saw a few Owners able to make some gains as come midweek, the call for TC2 was around 37 x WS210-215. Unfortunately, this was about as far as rates got with Charterers slamming the brakes on the quoting and a slow couple of days ended the week. A few cargoes have been covered under the radar with varying levels of success but we call a vanilla TC2 run at the WS200 mark, although Charterers will need to remain cautious with limited tonnage at the top of our lists. 

Lacklustre is really the word for this week’s performance by the Handies in the UKC with such limited enquiry giving Owners little to get their teeth into. With that we saw rates being chiselled away at by Charterers and come the end of the week we see rates dip under the 200 mark to around 30 x WS195 and potentially lower to follow shortly. With Med Handies also offering very little support expect a tough start to next week for the Owning fraternity across the board.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

It’s been a quiet week in the North with minimal enquiry. Due to a lack of activity, the wind was taken out of Owners’ sails and brought some reprieve to the list. Units positioned WMed are willing to meet demand and keep levels competitive for Charterers. Ideas of firming have taken a back seat for now with the last done equivalent of WS230 likely to be repeated at the start of next week. That said, it won’t take much to thin out natural units and apply some upward pressure on levels. 

It’s been a different story in the Med with the repetition of WS240 steadily chipping away at the top of the list before a quieter finish to the week’s trading saw the return of off-market activity and deals concluded under the radar. As we look to next week, the top of the list looks tight for prompt coverage with this likely coming at a premium and levels currently sit between WS240-245. 

MR

Not the week owners would have been hoping for as much like the Handies, enquiry was lackluster. Levels are currently sat at WS175-180 but as we look to next week, more units begin to arrive early second-decade leaving charterers in the driving seat if dates can be pushed slightly. 

In the Med, few units were available to Charterers who looked to Panamaxes to cover full-stem cargoes as levels here firmed to WS185. A lack of availability is set to continue as we look to next week where if enquiry surfaces, Owners will look to press their advantage and push rates.

Panamax

Another quiet week for Panamaxes, however, due to a lack of MRs in the Med, Charterers have looked to them to cover 45kt stems. More units are available in the Med and UKC than usual putting the power in Charterers hands for TA runs who will look to test levels down should enquiry surface. In the USG and Caribs, levels softened sharply as soft surrounding Afra and Suezmax markets are currently the better-valued option. We expect this downward trend to continue over the coming week.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeAug 1stJul 25thLast Month*FFA Q3
TD3C VLCC AG-China WS-1247594851
TD3C VLCC AG-China TCE $/day-15,00022,25037,25022,75022,000
TD20 Suezmax WAF-UKC WS-7808710090
TD20 Suezmax WAF-UKC TCE $/day-4,50026,00030,50037,00027,750
TD25 Aframax USG-UKC WS-32128160171153
TD25 Aframax USG-UKC TCE $/day-12,00025,50037,50041,00030,750
TC1 LR2 AG-Japan WS3151148182 
TC1 LR2 AG-Japan TCE $/day75033,75033,00044,250
TC18 MR USG-Brazil WS-16228243282230
TC18 MR USG-Brazil TCE $/day-2,75030,00032,75039,75027,250
TC5 LR1 AG-Japan WS-1155156227182
TC5 LR1 AG-Japan TCE $/day-50023,00023,50041,25027,750
TC7 MR Singapore-EC Aus WS-12191203292235
TC7 MR Singapore-EC Aus TCE $/day-2,25019,00021,25036,75024,000

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

Bunker Prices ($/tonne)

wk on wk changeAug 1stJul 25thLast Month*
Rotterdam VLSFO  +3560557587
Fujairah VLSFO  -11590601635
Singapore VLSFO  +5611606634
Rotterdam LSMGO  -3703706756

Print the report