- LR2s Shift to Dirty Trades Tighten Clean Product Supply.
- Sanctions and Red Sea Disruptions Reshape Trade Flows.
- Tight Product Markets Extend Voyage Lengths.
After the initial shock of the Red Sea attacks wore off, the earnings for coated tankers in the first half of 2024 took a dip by late 2024. Rates hit their lowest point in the fourth quarter of 2024 but still held up reasonably well, averaging about $18,000 per day for MRs, $26,000 for LR1s, and $31,000 for LR2s. In 2025, things started looking up, especially for the larger coated tankers. LR rates picked up steam early on, while MR earnings lagged a bit due to a surge in newbuild deliveries, but they eventually improved as the year went on, reports Break Wave Advisors.
Crude Market Strength Supports Coated Tankers
A robust crude tanker market, especially in the latter half of 2025, prompted coated tankers to venture into dirty trades. This shift limited competition from uncoated vessels in the clean cargo markets and bolstered product tanker earnings. Key factors included an increase in global oil supply following OPEC’s decision to ease cuts, rising production in the Americas, and refinery disruptions due to Ukrainian drone attacks on Russia. Additionally, sanctions-related discharge delays and congestion further tightened the effective tanker supply.
Impact of Vessel Sanctions
In 2025, over 580 tankers were added to sanctions lists, hitting larger crude tankers the hardest. Smaller coated tankers felt less of an impact, which tightened the compliant fleet and helped support rates. For LR2s in particular, the effect of sanctions outweighed new deliveries, effectively reducing the available tonnage for clean trading.
LR2s Moving Into Dirty Trades
Early in the year, LR2s began shifting into dirty trades as crude tanker earnings soared. By now, nearly 40 more LR2s are engaged in dirty trading compared to the beginning of the year, significantly limiting availability for clean product exports. Seasonal demand patterns and competition from VLCCs and Suezmaxes further capped LR2 clean earnings during the summer months.
The Red Sea and Suez Disruption Continues
Even though there have been announcements about reopening the Red Sea, most operators are still steering clear of the Suez Canal because of ongoing security worries. While there was a slight uptick in oil tanker transits through Bab el-Mandeb compared to last year, the numbers for 2025 are still significantly lower than what we saw before the crisis. This situation is leading to longer voyage distances and keeping the demand for tonne-miles high.
US Policy Risks Mostly Avoided
The threats of US tariffs and proposed port fees on vessels linked to China stirred up some uncertainty, but in the end, they didn’t have a major impact. The tariffs did put a bit of a damper on demand growth for a while, but the port fee proposals were pulled back before they could really disrupt things. Any retaliatory measures mainly hit large crude carriers but were short-lived.
Tight Product Markets Extend Voyages
In 2025, the refined product markets have remained tight due to both planned and unplanned refinery outages across Europe, the US, Russia, and the Middle East. The strong summer demand for jet fuel and diesel, coupled with low inventories, has ramped up inter-regional trade and boosted coated tanker tonne-miles by about 3.5% in the latter half of the year.
Shift in Russian Product Flows
At the beginning of the year, Russian diesel exports were increasingly moving to shorter hauls, but as drone attacks intensified, exports took a sharp hit. This situation pushed buyers like Brazil to turn back to US diesel, which in turn raised transatlantic freight rates and heightened competition for tonnage in the US Gulf.
MR Fleet Distribution Tightens Atlantic Supply
Most of the new MR deliveries have been concentrated east of Suez, while the demand growth in the Atlantic, especially for US diesel exports, has put a strain on vessel availability. This mismatch has led to spikes in rates in the US Gulf during peak demand times.
Asset Values and Ordering Activity
Throughout much of the year, secondhand tanker values saw a dip but started to bounce back toward the end of the year as spot rates improved. Newbuilding prices ended slightly lower overall, and while ordering activity remained robust, it was still below last year’s near-record levels.
Outlook
While earnings are lower than the exceptional levels seen in 2024, 2025 stands out as a solid year for coated tanker owners, shaped by sanctions, refinery disruptions, longer trade routes and shifting fleet dynamics.
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Source: Break Wave Advisors
