China’s Shandong Port Group has privately instructed its ports to ban vessels sanctioned by the US Office of Foreign Assets Control (OFAC). This decision follows an increase in the number of sanctioned tankers visiting Shandong ports in recent weeks, reports Breakwave Advisors.
LR Rates Surging
Since the beginning of the year, TC1 and TC5 (Middle East-to-NE Asia) freight rates have experienced a notable increase. This upward trend is attributed to a decline in the number of available vessels, tightening supply in the market. Additionally, vessel utilization on this route has surged, further intensifying demand.
Naphtha imports from the Middle East Gulf to NE Asia have increased significantly, rising by almost 25% month-on-month (January 1-13). This surge in demand has driven the need for more clean tankers on this route.
The narrowing price differential between LPG and naphtha has made naphtha a more attractive and competitive feedstock for various industrial applications.
Asian cracker manufacturers are increasingly favoring naphtha as their primary feedstock due to its economic advantages and suitability for petrochemical production. This shift in feedstock preference is expected to further support the utilization of TC1 and TC5 vessels.
Sanctioned Vessels
The recent US sanctions on Russian oil tankers represent the largest round of individual vessel designations related to Russian trade. These sanctions have proven highly effective in limiting vessel employment in Russian trade.
The lack of available tonnage due to these sanctions is likely to create significant logistical difficulties for Russian crude exports. This could force the price of Russian crude below the price cap, potentially enabling Western operators to participate in the trade.
To circumvent these sanctions, Russia may resort to sourcing older vessels. However, the pool of suitable older vessels is limited, and the involvement of EU-linked entities in such transactions is restricted.
The majority of the sanctioned tankers primarily handled shipments from the Russian Far East to China. While Shandong province has banned these vessels, the response from other Chinese ports remains uncertain.
Clean Tankers
Since February 2023, 139 clean tankers involved in Russian trade have been sanctioned by the EU, UK, and US. The recent US sanctions package targeted 31 tankers involved in Russian refined petroleum product (CPP) exports.
Within the Russian CPP market, EU and UK sanctions have proven more disruptive to trade than US sanctions, which have primarily targeted crude tankers. Sanctions by any entity (EU, UK, or US) on clean tankers have been effective in largely halting further employment of those vessels in Russian trade.
Despite the sanctions, disruptions to total Russian CPP exports have been limited. This is primarily due to the fact that Russian CPP prices have largely traded below the price cap, incentivizing Western operators to participate in the trade.
While sanctions have impacted the tanker fleet involved in Russian CPP trade, the size and growth trajectory of this fleet are primarily driven by market dynamics and demand for Russian CPP exports.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: Breakwave Advisors
