Short voyage distances for this route mean that only a small fleet of replacement vessels is needed to maintain crude oil flows from Kozmino to China, even with sanctions in place.
The reorientation of middle distillate trade in the Wider Arabian Sea is negatively impacting the demand for larger tankers (LR – Long Range tankers) due to the reduced transportation distances involved, reports Breakwave Advisors.
Small Replacement Fleet
To maintain current levels of Russian Far East crude exports to China, assuming OFAC-sanctioned tankers cannot discharge in Chinese ports, several scenarios could unfold.
One scenario involves all crude oil being transported via direct Kozmino-to-China voyages on non-sanctioned Aframax and Suezmax vessels. This scenario requires a significantly lower number of vessels (approximately 19) compared to the 75 sanctioned vessels, highlighting the feasibility of maintaining exports.
Another scenario involves the use of Very Large Crude Carriers (VLCCs) for Ship-to-Ship (STS) transfers offshore Yeosu, followed by discharge in Chinese ports. This method enhances logistical efficiency by maximizing the volume discharged per vessel.
A third scenario considers a 50/50 split between direct Kozmino-to-China voyages and STS transfers at Yeosu.
While potential delays in discharging could increase the vessel supply requirement, the relatively small number of vessels needed to maintain exports demonstrates the feasibility of this endeavor. This is particularly true considering the availability of a larger pool of vessels for over-price cap trade than is required for these scenarios.
Counter Season Gasoline Buying
Since September, weakening middle distillate demand in Europe, coupled with high stock levels and ample Transatlantic diesel barrels (TC14), has driven a shift in Wider Arabian Sea (Middle East Gulf, India West Coast) middle distillate flows from the Atlantic to the Pacific.
This shift is exerting downward pressure on the freight market due to shorter voyage distances and consequently, reduced tonne-miles for LR tankers carrying these volumes to the Pacific.
The narrowing differential between tonne-miles for Pacific-bound versus Atlantic-bound shipments from the Wider Arabian Sea reflects the high number of voyages to the Pacific.
Given that voyages to the Pacific Basin are typically 70% shorter than those to the Atlantic due to the Cape of Good Hope diversion, global LR tonne-miles are likely to remain under pressure unless European middle distillate demand rebounds and Atlantic-bound volumes increase. The potential reopening of transits via the Bab-el-Mandeb could further pressure tonne-miles, although concrete evidence of this development is yet to emerge.
Aframaxes ballast towards the Black Sea
Following discharges in Europe, fewer Aframax vessels are ballasting towards the Mediterranean and Gulf of Mexico as Cross-Med (TD19) and transatlantic (TD25) rates slow down amid the European refinery turnaround season. Instead, a higher number of Aframaxes are ballasting towards the Black Sea and Baltic Sea regions.
Most of these vessels ballasting towards the Black Sea have previously loaded CPC Blend, suggesting they are not likely to be employed for transporting Russian crude subject to the price cap. Similarly, vessels heading to the Russian Baltic have loaded Russian crude in the past.
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Source: Breakwave Advisors
