Market insight
The diesel import landscape in Brazil has undergone a significant transformation with a surge in Russian diesel imports, impacting the energy and shipping sectors.
Diesel prices in Brazil experienced significant fluctuations lately, driven by the breach of the Russian price cap. Russia strategically increased exports of petroleum products to Brazil following EU and G7 embargoes and price caps. This reshuffled the global oil supply, prompting Russia to focus on new markets in Asia, Africa, and Latin America. Brazil, being the largest Latin American market, became a focal point, providing Russia with a competitive edge.
Russian diesel quickly dominated Brazil’s import market due to its substantial discount compared to US-origin diesel. The discount settled around 25-30 cents per gallon by spring, maintaining approximately 20 cents per gallon throughout most of the summer. Indeed, Brazilian imports of Russian diesel surged significantly, reaching 21 million bbls ytd, a significant increase from 444,000 bbls in all of 2022. Meanwhile, USorigin diesel imports are currently 49.5% lower y-o-y. Approximately 80% of diesel imports now originate from Russia.
The surge in Russian diesel imports has reshaped the diesel trade landscape, creating more opportunities for spot trading in delivered cargoes.
The proliferation of distributors has increased the demand for market transparency, driving rapid market developments.In the meantime, Brazil’s energy sector witnessed a shift as Petrobras, a key player, adopted a new pricing strategy for domestic diesel and gasoline, replacing the import parity price policy in place since 2016. This strategy aimed to outperform competitors in pricing, safeguard margins, and gain market share. In August, Petrobras adjusted domestic diesel prices by 25.8%, striking a balance between political and financial considerations to remain competitive.
As September unfolds, the trend of Brazil’s diesel imports from Russia is expected to continue. Discounts of 15-20 cents per gallon for Russian diesel compared to US-origin diesel have re emerged after a brief narrowing. However, forecasts suggest that the spread may tighten in 2023, potentially leading to parity between Russian and US diesel imports into Brazil.
In a significant development, Russia has shipped its first crude oil cargo to Brazil since 2016, reflecting Moscow’s pursuit of new outlets for its fossil fuels. Brazil, as part of the BRICs alliance, holds a strategic position in emerging markets, making this crude oil shipment pivotal in Russia’s quest for energy partnerships. In conclusion, Brazil’s increasing reliance on Russian diesel imports has reshaped its energy landscape, bringing significant changes to market dynamics. Indeed, if this trend continues in the coming months, the implications for shipping logistics, trade patterns, and market development will be substantial. Consequently, the ongoing evolution of these trends will be closely monitored to identify their lasting effects on Brazil’s energy landscape and its broader economic implications.
Chartering
Oil prices surged nearly 1% to reach a 9-month high on Friday, driven by factors such as the rise in U.S. diesel futures and mounting concerns about tight oil supplies. Supply-side factors remain the primary driver behind the current oil price trends. Anticipations of continued efforts by OPEC+ to keep the market tight as the winter season approaches have bolstered prices. Saudi Arabia and Russia’s recent agreement to prolong voluntary supply cuts by a combined 1.3 million bpd until year-end reflects a commitment to maintaining market stability. However, the challenge for Saudi Arabia lies in ending these cuts without causing a detrimental price decline. Saudi Arabia’s move to extend production cuts, however, poses a significant challenge to the crude oil freight rates, particularly by reducing demand for long-haul voyages. This has a direct and pronounced impact on the VLCCs, which are specifically designed to carry out high-volume, long-distance runs. With Saudi Arabia producing less, there’s a reduced requirement for these vessels to transport oil over extended distances. As a result, the demand for VLCCs is negatively affected, leading to decreases in freight rates for these massive tankers. On the other hand, the changing export dynamics in Russia have a direct impact on tankers designed to fit into Russian ports, namely Suezmaxes and Aframaxes. The declining seaborne crude exports from Russia limit the need for these types of tankers which are tailored to navigate the infrastructure limitations of Russian ports. As Russia exports less crude via the sea, the demand for these tankers wanes, influencing different segments and their corresponding freight rates. The oil market remains wary of China’s demand outlook due to its sluggish post-pandemic recovery, which has fallen short of stimulus expectations. This volatility in the crude oil market has had an immediate impact on crude freight rates, highlighting the shipping industry’s sensitivity to fluctuations in the energy market. The interconnectedness of these factors underscores the importance of closely monitoring developments in both the energy and shipping sectors.
VLCC T/C earnings averaged -$3,594/day, down – $2,935/day w-o-w, and closed off the week at the -$4,309/day mark.
Suezmax T/C earnings averaged $12,000/day, down – $73/day w-o-w. On the Aframax front, T/C earnings averaged $8,911/day, down -$2,788/day w-o-w With the Capesize sector taking the lead and the remaining vessel sizes concluding the week with positive gains, the dry bulk market experienced a notable week-on-week increase of 121 points. Notably, on the Capesize sector, the Pacific market witnessed a robust demand for tonnage, particularly from West Australia. Additionally, there was an uptick in activity during the middle of the week in the Atlantic region, primarily from ECSA (East Coast South America) and West Africa, which led to a substantial 24.9% week-on-week improvement in the C5TC index. The Panamax segment maintained a stable performance overall, with its average earnings continuing to lead the market for yet another week. Activity in this sector displayed a mixed pattern, with support stemming from NoPac (North Pacific) grain shipments and Indonesian coal cargoes counterbalancing the weaker market conditions in North Europe and ECSA. In the realm of geared vessel sizes, rates continued their upward trajectory for another week, with both sectors witnessing 24 consecutive days of index increases.Cape 5TC averaged $ 9,256/day, up +0.22% w-o-w. The transatlantic earnings increased by $ 3,143/day with transpacific ones rising by $2,514/day, bringing transpacific earnings premium over transatlantic to $3,053/day.
Panamax 5TC averaged $ 13,296/day, down -1.50% w-o-w. The transatlantic earnings decreased by $640/day while transpacific earnings rose by $1,747/day. As a result, the transatlantic earnings premium to the transpacific narrowed down to $563/day.Supramax 10TC averaged $ 11,382/day, up +8.85% w-o-w, while the Handysize 7TC averaged $ 10,110/day, up +6.30% w-o-w.
The new building market took a breather last week with a mediocre number of sales. The 5 orders include a total of 12 firm orders and 2 options, 8 of which are Greek. Specifically, Tsakos ordered two 50,000 dwt tankers from Yangzijiang in China for $43m each, with delivery expected in 2026. Another Greek owner, Sea Traders, has ordered four Form Kamsarmaxes from Qingdao Yangfan. The quartet will be fitted with scrubbers and will also comply with NOx Tier III, EEDI Phase 3 regulations. On the container front, Neptune Shipping ordered two 4,200 teu PCC vessels from Mawei, China, which will also be able to run on LNG. Apart from the Greeks, Chinese owner Winning Shipping ordered two bauxite carriers from Qingdao Beihai, with delivery expected in 2026. The vessels cost $108.0m each and the owner has an option to convert them to methanol dual fuel vessels.
The recycling market continues to rise as it did last week, although not all destinations are doing equally well. Tanker rates are under pressure, as are container rates, while dry bulk rates are rising moderately. More scrap vessels are expected in the near future. In India, steel demand is also increasing as the construction season gets underway and steel mills are increasing production. In Pakistan, steel demand appears to be robust. This is driving up prices, but this has not dampened demand. Few shipbuilders have been able to open a letter of credit, while more tonnage is available. Since only a few can use an L/C, prices can go down. In Bangladesh, L/C opening problems continue, and local steel prices are flat. Local buyers are unable to secure new tonnage and owners do not prefer to scrap their vessels in a country with little or no steel demand. In Turkey, the steel market is experiencing a stability resulting from a lack of activity. There is no new tonnage for local breakers and as a result offer prices are also flat. In terms of fundamentals, the country continues to struggle with inflation, which has reached 58.9% on an annual basis.
Macro-economic headlines
- US: The ISM Non-Manufacturing PMI for August rose to 54.5 from 52.5 last month, the highest reading since February, showing strength in the services sector. In a similar vein, initial jobless claims for last week returned to February lows.
- EU: The bloc’s GDP fell by 0.5% on an annual basis. The barometer Germany, posted a mediocre 0.3% rise in CPI for August on a monthly basis, while the figure was at 6.1% year on year.
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Source : Cyprus shipping
