- LR rates hit new 2021 highs
- East bound naphtha cargoes stuck
- West bound gasoil, jet fuel delayed
Long Range 2, or LR2, clean tankers rates across Asia have flipped to a premium in Worldscale points over the LR1s for the first time in 10 weeks as supply tightens and uncertainty rises over the delays for ships to cross the Suez Canal, reports Platts.
Bullish market
An already bullish scenario has been exacerbated by the traffic disruption in the Suez Canal where more than a dozen LRs are waiting for their turn to go to the other side, they said. Rates on the Persian Gulf-Europe routes are up by as much as 25%, close to hitting $2.5 million, a level not seen so far this year.
The LR2s, typically enjoy a discount over the LR1s in Worldscale points on the benchmark Persian Gulf-Japan route, but now there is a role reversal, not seen since mid-January as supply of the bigger tankers has tightened significantly.
There are loading windows, or laycan in the Persian Gulf and West Coast India where there are hardly any LRs available in the April 10-20 window. “So far no ship has been released by charterers due to the delays but if it keeps lingering, it will have a big impact on supply and rates,” said a source with an LR owner.
Another chartering source said that gasoil and jet fuel shipments from West Coast India and Persian Gulf to Europe are now indefinitely delayed until traffic resumes.
Backhaul voyages
LRs bringing naphtha from the Mediterranean to North Asia typically do a backhaul voyage in the East and then go to the Persian Gulf for picking up their next cargo. Delay at the Suez Canal means that such LRs will now arrive in the Middle East later rather than sooner.
Delayed LRs include South Korea and Japan bound naphtha in the Bowfin and the Spetses Lady, Unipec and ATC’s Europe-bound diesel in the STI Broadway and Torm Hermia; Trafigura’s jet fuel in the Nautical Deborah and Total’s Gasoline in the STI precision, brokers and shipping agents said.
Several shipping executives in Tokyo, Seoul and Singapore said that this can further tighten supply. Chevron has placed an LR2 on subjects at w137.5 on the benchmark PG-Japan route, a whopping w20 Worldscale points higher than the previous deal. The LR1s are now enjoying a discount of 6-10 Worldscale points to the LR2, they said.
This is a situation where there are no LR2s to load in the Persian Gulf around April 11, said a broker in Singapore. A chartering source described the quick jump in rates as “outrageous” because the rates were below w100 at the beginning of this week.
To cape or not to cape
There are few upcoming gasoil cargoes from India and PG heading to Europe via the Cape of Good Hope, said a regional trader based in Singapore. Even if Suez Canal blockage is cleared, it will take some time to clear the congestion as there is a long queue, the trader said.
“Cape is a longer route than Suez, but it’s better than getting stuck and waiting.” However, several market participants said before these ships arrive via the Cape, the traffic would resume, congestion cleared and cargoes delivered via the Suez Canal itself.
The East-West arbitrage to move middle distillate barrels remain closed on paper amid a still-strong Exchange Futures for Swaps. At 0300 GMT, the front-month April EFS was pegged at minus $4.50/mt, widening from the minus $3.13/mt assessed at the Asian close March 25.
Viable arbitrage economics
In spite of a widening EFS spread, traders deemed the current levels were still too high for viable arbitrage economics to work.
The EFS — which measures the spread between Singapore 10 ppm sulfur gasoil swaps and the corresponding ICE low sulfur gasoil futures — is an arbitrage barometer for the movement of gasoil barrels from the East of Suez to Europe.
A wider negative EFS spread shows that gasoil can command a higher price in the West than in Asia. Traders previously said that arbitrage economics are generally workable when the spread widens to minus $10-minus $15/mt.
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Source: Platts
