According to European feedstock traders, the reverberation of Panamax freight rates to a five-month high has closed the Vacuum Gasoil arbitrage to the US, leaving cargoes struggling to find homes at local refineries.
“I haven’t seen any trades recently because there’s no demand,” an exporter of VGO out of the Baltics said Friday. “There’s a lot of HSVGO around, mainly from Russia, anything you want in both the North and Mediterranean.”
The rate for 55,000 mt Panamaxes from UK/Continent to the US Gulf Coast was raised to $22.20/mt ($3.25/b), its highest in five months.
On Thursday, a trader said that the economics of the arbitrage west to the US were now “horrible.”
According to shipping sources, the Caribbean has been very busy with fixtures and this has tied in lots of tonnage in the region, meaning no vessels are ballasting over to UK/Continent, and local charterers facing a short tonnage list.
The Panamax segment has not been immune to the slump in freight rates across tankers; $17.33/mt rates seen in both August and October on the UKC-USGC route were the lowest in seven years, according to S&P Global Platts data.
Traders took advantage by shipping abundant Russian VGO into the US Gulf Coast, but now this trade has become uneconomic, they said.
Adding to the difficulty, many European traders do not have storage in locations where Panamaxes can load, meaning Aframaxes have to be used in STS operations onto larger ships.
“There are only one or two places in Europe where you can load a Panamax, most of us have to STS onto a larger ship, so that’s actually Aframaxes, but they’re more than handy sizes now,” the second trader said.
Aframax freight on the UKC-USG route has risen to $22.43/mt, according to Platts data, their highest since January 4.
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Source: Platts
