What’s Next for Clean?

August has seen the weakest clean tanker earnings for the year to date globally across all categories but as we noted in our recent report, the current weakness in the market is in many ways driven by seasonality. The LRs have been negatively impacted by Suezmax/VLCC clean-ups this summer, with Q3 traditionally being the slowest period for crude tankers. In Europe, Handy and MR tonne miles have been pressured by a seasonal decline in regional exports. Similarly, there has been a strong seasonal drop in Russian CPP exports amid peak summer demand, magnified by continued drone attacks on Russian refineries.

As we move into Q4, market drivers are likely to change. Seasonal refining maintenance in the US, Middle East and Russia will facilitate crude exports. Traditional weather factors in the Northern Hemisphere during Q4/Q1 are also a formidable force behind significant freight volatility over the period. For the clean sector, it means lower competition from crude tankers, a key factor behind the recent downturn, whilst autumn maintenance in Europe and the US will not only increase the European shortfall of distillates, but at the same time support greater East/West flows. In addition, LPG prices typically appreciate in winter relative to naphtha due to heating demand, making naphtha more competitive as a feedstock for the petrochemical sector. With this in mind, more naphtha could be pulled from the Atlantic Basin Eastwards, temporarily limiting tonnage availability in the Middle East. Yet, these flows in part depend on relative pricing and Russia’s ability to export the product en mass East of Suez.

Moving into 2025, decelerating Chinese demand growth is major concern; however, consumption in other non-OECD Asian economies is still projected to increase by 400 kbd according to the latest IEA monthly report. Some further modest increases in demand are also projected in non-OECD Latin America and East/South Africa, all of which will support incremental clean import requirements. In terms of refining margins, cracks are under pressure globally, but European refineries are unquestionably the least competitive. This, coupled with an expected decline in regional demand, could see a faster decline in European refining runs relative to demand, supporting incremental CPP imports into the region.

Approaching full-scale operations at Dangote represent a considerable threat to product tanker demand in the Atlantic basin; yet, it will only apply further downward pressure on European refining margins. The 340 kbd Olmeca refinery in Mexico is another threat, although its impact on clean tanker rates depends on the ability of US refiners to redirect at least some displaced barrels further afield into Latin America. In addition, full-scale operations at Olmeca appear to be still some time away, with Pemex recently reporting that the refinery processed just 65 kbd of crude in July. Anecdotal evidence also suggests that secondary units have not been brought online yet.

A sharp increase in tanker deliveries next year has the potential to apply downward pressure on spot earnings, on the upside, however, the number of tankers turning 20 next year will still exceed scheduled deliveries, keeping modern, well-approved tonnage supply in check. On balance, it appears that whilst there are both headwinds and tailwinds, key fundamentals in the clean tanker market next year will not change dramatically relative to 2024. However, the Red Sea diversions are key here, as re-routing via Cape has offered a major element of support to clean tanker tonne miles so far in 2024 and if that is to suddenly disappear, it will remove a major element of support.

Monthly Average Non-Eco Spot TCE Earnings ($/day)

Crude Oil

East

VLCC rates have plummeted to their lowest level this year as Charterers took advantage of weaker sentiment amongst Owners. This is despite seeing more activity this week; yet, the lack of fixing in the Atlantic, in particular West Africa, is having an adverse effect, giving owners fewer options. Next week could also be challenging, as there is a generous amount of tonnage available for second-decade stems.  Today we are calling AG/China at WS44.5, while AG/USG should fetch in the region of WS 30 (c/c).

The Suezmax AG list has tightened up this week and Owners are feeling more bullish. We assess TD23 at 140 x WS57.5 (c/c) and with limited firm itineraries, things could progress. To head East rates remain stable but, with a falling VLCC market, we might start to see part-cargoes taken next week. Owners will push to achieve 130 x WS107.5 for AG/East but may fall slightly shy.

It was a steady week for Aframaxes in the AG compared to last week, which showed soft signs. An improvement in activity has seen a handful of units cleared from the list; however, pressure remains on Owners as rates on AG/East sit at 80 x WS145.

West Africa

A familiar story here as again we saw little VLCC activity reported, especially for Eastern bound voyages and September volume is well below the norm. Tonnage is starting to build up, as Owners are looking to escape the falling AG market struggle to find suitable employment.  It looks like rates will remain under pressure with volumes so low and Owners can only hope October sees some activity return to this region.  On today’s market, we estimate that the current rate for Waf/China is hovering around the WS49 level.  

The Suezmax market in West Africa is steady for now but we are seeing a slight improvement, with ships slipping away under the radar. With competition from Guyana, the list is thinning out. Charterers should tread carefully here. Rates are around 130 x WS82.5 for now but Owners are quietly confident.

Mediterranean

The headline of the week is undoubtedly the disruptions to Libyan crude product and its impact on the tanker market, not only in the Med but the European Aframax market in general. The sentiment is bearish in the short term.  As a result, TCEs for TD19 fell to an 11-month low in the Med, with WS115 being tested lower at time of writing. 

TD6 is steady; yet, with political issues in Libya having the potential to dump a mass of prompt ships in the Med, there are some fears here. As brokers for TD6, we feel the level should be about 135 x WS85. Rates to head East remain stable at approximately $4.6m for Libya/Ningbo (c/c).

US Gulf/Latin America

VLCC freight levels have topped here for now and USG is now starting to follow adjacent areas, with Owners having to consider fixing at below last done in order to find employment. Brazil exports started the week under pressure and faced further large falls, as events in other areas hit sentiment. We expect Charterers to keep the pressure on, as we move into Q4. Today we expect a USG/China cargo to pay in the region of $7.3m and a Brazil/China run is around WS48 level. 

Aframaxes this week have been a letdown in the US Gulf region. Rates are down for USG/TA to WS130-132.5 levels, while rumors stir of a WS95 being done on a Caribs/USG move. The sentiment is soft, with prompt ships available and the UKC/Med ballasters on the way.

North Sea

Despite Libyan disruptions and a weaker Med market, the Continent’s resilience continues, with a conference Aframax rate of WS120 holding.  Some relief is being afforded both to the North and the Med through the migration of ballast tonnage heading to the US. In turn, this is helping to shorten the length of excess availability across both the Med and the UKC but stimulus is lacking for Owners to take any advantage from this.

Crude Tanker Spot Rates (WS)

Clean Products

East

LR2s have seen a slight dip as the tonnage list built over the week: 75 x WS115 is a new benchmark for TC1 and with ships still there looking for employment, it will be hard for Charterers to justify paying more than last until we see more volume. West runs were reset and the $4.0m mark holds flat.

TC5 has jumped around a little, with a 55 x WS132.5 on subs for a replacement. Then in quick succession, a bounce back to 55 x WS140 was seen and all this happening whilst the LR2 were seeing a dip. However, as the dust settles assess TC5 holds at 55 x WS140. Westbound is still the difficult cargo to cover, with a lack of natural West players in position or those that are willing for West runs not a workable unit for all Charterers. Assess when covered, it will freight in the $3.4-3.5m levels.  However, for both sizes more stems are required early next week.

Another flat week in the AG for the MRs as rates have not moved an inch. There has been enough activity and rates should have nudged higher, but Owners and Charterers alike seem very content to fix at last done and move on. Expect more of the same next week.

Mediterranean

It’s been a tough week for Handy Owners plying their trade down in the Med. with rates tumbling throughout. After a positive last week (where rates pushed up to 30 x WS210), fresh tonnage lists pulled on Tuesday made a pretty grim reading after the long weekend. This, combined with sluggish cargo enquiry, now sees last done XMed slump to 30 x WS137.5, with further losses expected before the week is out. The market is weak.

All in all, it’s been a quiet week for the Med MR market, with little fixing action to report. Med/TA has been trading around the 37 x WS120 mark all week, with Waf tracking at its standard WS20-point premium. Improved activity in the UKC has seen TC2 rates firm; however, with little outstanding in the Med, Owners have been unable to jump on the UKC coattails. Slow into the weekend.

UK Continent 

Reasonably active week for MRs, with a good number of ships being fixed combined with the front of the list bulked by Russian candidates. As such, it proved to be a slightly trickier 1-5 Sep window for Charterers. As a result, rates finally improved to WS140 for TC2, except for an anomaly for WS150 from a tricky load port. As we finish the week, we see much of the same, with laden ships coming in behind the scenes and helping to contain the excitement as we push into the 10-15 Sep window.

Handies have fluctuated this week, from WS135 to a high of WS165 for a very brief time, before it failed. Now it seems to have settled at WS155. A decent amount of XUKC cargoes in the 1-5 Sep window gave enough opportunity for Owners to chance their arm to some success, but the 5-10 Sep window looks less favorable for the rise to continue.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The Med has seen the better of the two regions regarding activity. As we started the week, the sentiment was soft, with expectations of WS220 soon to be realised. Off-market activity chipped away at the list until midweek when enquiry started to slow. Tonnage is still available to Charterers but Owners will be looking to hold their ground, with the repetition of WS220 likely to follow at the start of next week. Yet, enquiry will need to emerge early, if sentiment is to stay that way, with tonnage build-up looming.

MR

It was not the week Owners would have hoped for basis full-stem in the North or Med, where part-cargoes have been the source of employment. The Med started the week with multiple units softening rate expectations before part-cargoes helped to clear build-up steadying sentiment, with ideas for next done hovering around the WS160 mark. In the North, units are available to Charteres should enquiry surface, but sentiment here remains steady with ideas of 45 x WS175 for XUKC runs. 

Panamax

It’s been another week of elusive enquiry for Panamaxes, with units looking to ballast back stateside rather than risk extended idle days for a laden voyage. Tonnage is available and, with some units needing TA voyages post drydock in the Med, this will no doubt apply pressure upon the next done. In the Caribs and USG, it has been the familiar story of freight ideas following surrounding markets. As levels soften on the Aframaxes, so does sentiment for Panamaxes, where levels continue to slowly trend down.

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 29thAug 22ndLast Month*FFA Q3
TD3C VLCC AG-China WS-845534750
TD3C VLCC AG-China TCE $/day-11,25019,25030,50022,50020,250
TD20 Suezmax WAF-UKC WS482798086
TD20 Suezmax WAF-UKC TCE $/day2,00027,75025,75026,00025,750
TD25 Aframax USG-UKC WS-3132136128146
TD25 Aframax USG-UKC TCE $/day-1,50027,50029,00025,50028,500
TC1 LR2 AG-Japan WS-15116131151 
TC1 LR2 AG-Japan TCE $/day-6,25020,75027,00033,750
TC18 MR USG-Brazil WS-31204236228226
TC18 MR USG-Brazil TCE $/day-6,50025,75032,25030,00027,000
TC5 LR1 AG-Japan WS13139126155157
TC5 LR1 AG-Japan TCE $/day2,50018,25015,75023,00020,750
TC7 MR Singapore-EC Aus WS-2188191191214
TC7 MR Singapore-EC Aus TCE $/day-1,00018,25019,25019,00019,750

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

Bunker Prices ($/tonne)

wk on wk changeAug 29thAug 22ndLast Month*
Rotterdam VLSFO  +28554526560
Fujairah VLSFO  +19614595590
Singapore VLSFO  +15623608611
Rotterdam LSMGO  +16660644703

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