A potential lifting of the Russian crude ban could significantly impact the global oil tanker market. It might lead to increased demand for larger vessels to transport crude from the Black Sea and Baltic regions to East of Suez destinations. Conversely, demand for Aframax vessels in the West of Suez region could decline as European refineries opt for heavier crude from more distant sources, reports Breakwave Advisors.
Divergence Expected
Flows reshuffling resulting from the Russian invasion and crude ban boosted Aframax tonne-miles as Baltic, Russia Arctic and Black Sea grades (excl. CPC and KEBCO) pivoted East instead of to close-by European countries
➔ Aframax tonne-mile gains compared to the pre-war 2021 average range from around 25-35 billion per month
What would a lifting of the Russian crude ban mean for the Aframax segment?
➔ If the ban ends, we are likely to have varied responses from NW European countries in terms of Baltic and Russia Arctic crude imports. Assuming 50% of the pre-war volumes goes back to NW Europe and the remainder goes East, this is a loss of about 14bn tonne-miles per month
➔ Assuming Med/Black Sea European countries return to their prewar import levels for Black Sea volumes, those tonne-miles East are lost
In total with this predicted scenario, we expect to see 9% of global Aframax demand lost as some Russian crude is absorbed closer to home, though full unwinding of reshuffled flows will likely take time
LR2 Looking Towards East
For November 2024, the % of LR2 tankers loading in the Middle East Gulf signalling towards the Atlantic, dropped at the lowest level since October 2022
➔ This is reflective of the saturated diesel demand in the Atlantic which has brought a sharp decline of LR2 East-to-West diesel transits via COGH in November after record highs in October
➔ At the same time, naphtha voyage departures out of the MEG recorded their 2nd consecutive m-o-m increase.
➔ Going into December, muted petrochemical demand in Northeast Asia on the back of lacklustre margins might limit buying activity and result to lower vessel enquiries
On the supply-side, tight prompt LR2 supply provides a floor on rates, but a lengthening tonnage list on natural fixing windows for smaller vessel classes (such as LR1s) could exert downward pressure on rates
Heavy Crude
Trade reshuffling triggered by sanctions on Russian crude has driven refineries in Europe to source heavy crude from origins further afield
➔ Voyages from South Atlantic have more than doubled, and those originating from Wider NWE have had a 40% decline from 2021
The shift to longer voyages for crude imports has favoured larger vessel classes, fuelling increased Suezmax utilisation
➔ In 2024 ytd Suezmax motnhly employment on transatlantic routes to Europe has increased by approximately 52% from 2021
➔ Rates from US Gulf, Guyana, and West Africa-to-Europe have surged by approximately 35-45% since late November
Aframaxes struggle, as tonne-miles demand on the North Sea-to-UK Continent (TD7) route hover around eight-year lows for most of the year
➔ Coinciding with a growing portion of the Aframax fleet employed in Russian-origin crude trade
Looking forward, strong transatlantic demand for Suezmaxes faces uncertainty, as stagnant European refining margins and declining crude imports could curtail a seasonal rally
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Source: Breakwave Advisors
