Winter is Coming

Winter is Coming

In the crude tanker market, we have witnessed a return of spectacular volatility, with spot earnings on several key Suezmax and Aframax trades in the Atlantic Basin briefly spiking close or in some cases even above $100,000/day on a non-scrubber, non eco basis recently. VLCCs, the tanker segment most vulnerable to the Middle East OPEC+ production cuts, have also seen a sizable uplift in earnings, albeit perhaps not as impressive as the one experienced by smaller segments.

What has driven this spike and more importantly is this impressive volatility here to stay? In short, the latest spike has been driven by increases in both OPEC+ and non-OPEC crude exports. In the US, robust domestic crude production coupled with the ongoing refining maintenance season has supported elevated crude exports in recent months. We have also seen a rebound in West African crude exports, largely due to higher Nigerian production. Meanwhile, the Middle East OPEC+ crude exports (excl. Iran) have seen a notable uplift since August lows, helped by regional refining maintenance. Furthermore, and perhaps most importantly for long haul Suezmax and Aframax demand, Russian crude exports from Western terminals have been on the up since September, despite voluntary production cuts and Urals reportedly continuing to trade above the price cup level, seemingly unaffected by the latest US sanctions on two individual ships. Russian crude volumes averaged circa 2.25 mbd in Sep/Oct, up by nearly 400 kbd compared to their average over the previous two months, with exports also being positively impacted by Russian refinery maintenance taking place in autumn. We have also seen a glimpse of weather-related delays, with bad weather in the Mediterranean leading to temporary port closures and Turkish Straits delays increasing.

In recent days, crude tanker rates have started to soften, although they still remain at very healthy levels. Going forward, Russian and Middle East crude exports could face some downward pressure, following the end of the refinery maintenance season. Similarly, US crude exports could also ease back somewhat, given local refining activity; whilst Nigerian outflows could see renewed downward pressure, with NNPC announcing that it will supply up to 6 crude cargoes to the new 650 kbd Dangote refinery to be used in test runs. Furthermore, given the recent slide in oil prices despite heightened geopolitical risks, it seems likely that OPEC+ will maintain its current production quotas and voluntary cuts in place for the time being. Although the above suggests some headwinds for crude tanker demand, there are also pockets of positivity. There is strong demand for Venezuela’s barrels, whilst Guyana crude exports are likely to see an uplift soon, following the start-up of the new Payara oil field, with a nameplate capacity of 220 kbd. A planned increase in Angola’s preliminary loading program in December has the potential to offset lower Nigerian exports at least partially. More importantly, we will be facing a heightened risk of weather-driven volatility in the Northern Hemisphere over the next few months.  Turkish Straits delays typically increase towards the end of the year, peaking in January, and remaining at elevated levels in February. In the Baltic, the ice-class season is always unpredictable, but should ice-class conditions develop, tonnage engaged in Russian trade will find an additional element of support. Bad weather in the Mediterranean and the North Sea can also at times disrupt itineraries. The Aframax and Suezmax markets are likely to be the main beneficiaries from these disruptions due to larger trading volumes in the affected markets in the Northern Hemisphere, but VLCCs on intra-Atlantic trades will also find themselves more competitively priced.

Russian Crude Exports in the West (kbd)

Crude Oil

Middle East

VLCC rates have softened this week as market remained very quiet mainly due to the industry events in Dubai. Owners will be hoping there is a rush to cover end November stems early next week as people arrive back in their office and if this is the case we could see a rebound very soon. Today we would expect a 270,000mt AG/China run to fetch in the region of ws 68 and a 280,000mt AG/USG run to go for at least the ws 36 level.  

A much softer feel on in the Suezmax markets in the AG this week. Amidst limited enquiry, a growing tonnage list has pushed TD23 to approximately 140,000mt x ws 80. Enquiry to head East remains infrequent and rates are around 130,000mt x ws 125 today for AG/East.

It has been a quieter week for Afras in the AG. Rates were moving up, but Bahri parties and rates easing in neighboring regions has taken some steam out and a toppy feel all of a sudden crept in. AG/East closes the week at the 80 x ws 195 level.

West Africa

Freight levels on VLCCs in the WAF sector managed to beat off the downturn witnessed in other areas, as activity remained constant for both East and UKC runs with Owners remaining bullish as they anticipate a strong end to the year in the Atlantic with seasonal factors giving cause for further optimism. In today’s market we are expecting a WAF/China run to fix at the ws 69 level.

Suezmax markets in West Africa, have come under some pressure yet again with a variety of prompt tonnage available. Today we estimate TD20 at 130,000mt x ws 110, and we expect to see the return of a 5 point premium to head East.

Mediterranean

The market in the Med is also softer with low levels of enquiry. For TD6 today we think 135,000mt x ws 160 is likely achievable. Cargoes heading East today will be somewhere around the $5.9M mark for Libya/Ningbo with potentially some room for Charterers to chip away at this. However, with the season for delays in the Turkish straits very much among us, there is always potential for sentiment to turn very quickly and those with less prompt dates shouldn’t be too bold in calling things off.

A week which promised much, delivered little for shipowners. Weather patterns had threatened disruption but in the end most ports began to reopen and as such a few extra ships were added to availability. This coupled with a lower-than-expected level of activity allowed rates to soften, with Ceyhan voyages on normal dates dropping from ws 260 tows 250 then the ws 240 levels by the close. CPC cargos after reaching a high of ws 290 last week on a prompt position basis also saw little of note and so the next done for normal fixing was concluded at ws 265. Most think the majority of the damage has been done now but a weak Suezmax sector threatens to limit any ambition to push on next week.

US Gulf/Latin America

The VLCC sector is showing signs of improvement after some recent downward pressure mainly caused by a large percentage of failed deals which added to the tonnage availability. We are also seeing the effects of a large number of ships deciding to ballast from the East in the hope of catching some of the attractive freight levels that we witnessed in November stems.  We expect USG / China run will fix in the region of just $10.2m on today’s market while a Brazil/China is paying around ws 68. level.

Afras in the USG had a quiet start to the week, we have seen a correction downward for the USG/TA run. As the week progressed market activity was met with a healthy amount of offers. Sentiment is flat for now.

North Sea

X-North Sea has had a very flat week unsurprisingly. Activity had been muted with most business going under the radar. Some long run enquiry has attempted to tickle people’s interest but in reality, There isn’t a huge amount of change on the cards. Levels are trading at ws 195 levels with little expected to change in the short term.

Crude Tanker Spot Rates (WS)

Clean Products

East

A slightly chaotic week as the shipping world descended on Dubai for Bahri week. As expected, a lot of off-market direct deals were conducted. Expect these fixtures to come out in the open early next week.  However, on the whole, we are still short on both LR1 and LR2 stems and as such the lists have been building and rates have seen a negative correction.  TC1 at 75 x ws 140 and TC5 at 55 x ws 140. Jet West for now at $3.9m for a LR2 and $3.2m for a LR1. Expected that next week we will see more cargoes making their way to the surface, as a sense of order returns.

Despite Bahri week events taking most of the focus away from the recent flattening on the MRs, the market has experienced some stabilising this week. With off-market cargoes being traded in between and over meetings, Owners have managed on the whole to maintain last-done levels, with ws 210 holding for TC17 and short-haul x AG runs still managing to keep earnings in the mid $20’s. Westbound runs have come under pressure, however, with $1.8m on subs bss UKC. Going forward, as the dust settles from a disjointed week, there is once again a hope that the cargo base will return to reasonable levels.

The downward correction continues in the Far East MR market. Whilst North Asian demand improved in the current window, the tonnage over-supply remains; therefore, the rate retreat has continued but at a slower pace compared with last week. TC11 dropped from $600k to $560k and Korea/Australia went down from ws 190 to ws 177.5. The tonnage glut in Singapore is substantial, with some saying this could be the longest of the year. The only cargo most owners can see is a Pertamina market order. Meanwhile, a Singapore/Tuban run went on subs at $230k, which smashed the earnings down to $6-7k, provided there is no waiting.

Mediterranean

For Handies, it’s been a week of 2 halves in the Med market, which saw a busy start followed by a slower end. We began the week with X-Med trading at the 30 x ws 195 mark, but with a plethora of cargoes quoted on Monday/Tuesday combined with uncertain itineraries in WMed, we saw rates begin to push. Fast forward to Friday and we see X-Med at 30 x ws 225, but the last couple of days have been much quieter in comparison. Rates steady into the weekend.

Finally to the MRs in the Mediterranean, where overall it’s been a positive week for the Owning fraternity. 37 x ws 200 was the call for Med/TA on Monday, but with TC2 firming and some good enquiry in the Med, we saw rates begin to improve. 37 x ws 210 is now last done Med/TA, with WAF tracking at its standard +10 premium. As we approach the weekend, we have seen TC2 starting to slip a touch, but with outstanding’s still in the Med, expect Owners to stand their ground.

UK Continent 

MR Charterers have slowly gained the upper hand back this week, with slow levels of enquiry as we see TC2 slip to 37 x ws 200 now. An active States market will keep ballast units away, which should keep our fixing levels around this mark, but enquiry levels as always are crucial.

It has been a fairly steady week for Handies plying their trade in the North. The tonnage list by close of play today is starting to lose some fat, as X-UKC for ULSD closes at 30 x ws 165. Naphtha/Jet cargoes have been tricky to cover as higher premiums have been paid. More of the same is expected here as we head into the weekend.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A busier back end to the week saw workable positions thin quickly and owners were able to achieve quick incremental gains on levels. The Monday morning position list will prove key as owners will be ready to push further, seeing local runs hit the ws 330 mark.

The Med has seen consistent enquiry throughout this week as Owners have steadily gained ground on rates. Cross Med runs are trading around the ws 325 mark, but a few more ships due to open in the West Med region may just see rates settle here for the front half of next week.

MR

Very little to report in the North again this week as the 45kt dry spell continues, with Owners having no choice but to take part cargoes to maintain operational momentum. Rates desperately need a public test to alleviate the ambiguity around true market levels. Still, Owner’s will undoubtedly retain an element of confidence on the next done whilst the surrounding handy market continues to firm and natural MR tonnage in this region is tight. 

In the Med, a sole Owner secured a full stem cargo around the ws 250 level earlier in the week. However, as the week advanced, it soon became evident that part cargoes have become the primary recourse for MR Owners as they aim to take coverage before the weekend. Although prospects for full stem enquiries appear more promising in this region, the scarcity of available vessels has led to rates being negotiated on a case-by-case basis, leaving the market in suspense as to where actual market levels fall. A fresh test is needed to bring clarity going forward.

Panamax

Little has changed in this sector as Owners with units positioned on this side of the pond await to see long haul enquiry surface, ultimately keeping TA levels in guesswork for all parties. This week, we have seen local moves keep some availability fed with employment, but the general feeling remains that an injection of pace is needed to give this sector some life.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

	wk on wk change	Nov 9th	Nov 2nd	Last Month*	FFA Q4
TD3C VLCC AG-China WS	-4	68	72	53	61
TD3C VLCC AG-China TCE $/day	-3,750	49,250	53,000	28,500	39,750
TD20 Suezmax WAF-UKC WS	-49	112	161	109	109
TD20 Suezmax WAF-UKC TCE $/day	-32,750	48,500	81,250	44,750	47,500
TD25 Aframax USG-UKC WS	-39	220	259	198	199
TD25 Aframax USG-UKC TCE $/day	-14,500	64,000	78,500	52,750	55,750
TC1 LR2 AG-Japan WS	-8	138	146	150
TC1 LR2 AG-Japan TCE $/day	-2,500	28,750	31,250	34,000
TC18 MR USG-Brazil WS	+9	237	197	224	215
TC18 MR USG-Brazil TCE $/day	+9,500	34,000	24,500	30,000	29,500
TC5 LR1 AG-Japan WS	-13	142	155	169	157
TC5 LR1 AG-Japan TCE $/day	-3,250	19,750	23,000	28,250	24,500
TC7 MR Singapore-EC Aus WS	-19	166	185	252	211
TC7 MR Singapore-EC Aus TCE $/day	-3,500	13,250	16,750	31,000	22,500

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

Bunker Price s ($/tonne)

	wk on wk change	Nov 9th	Nov 2nd	Last Month*
Rotterdam VLSFO	-26	559	585	596
Fujairah VLSFO	-25	656	681	636
Singapore VLSFO	-18	669	687	647
Rotterdam LSMGO	-90	767	857	859

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