Crude Oil Freight Rates Weaken Amid Geopolitical Tensions

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The final week of June saw a notable drop in crude oil freight rates, especially for the VLCC AG-China and Aframax cross-Mediterranean routes. In contrast, the MR clean segment remained relatively stable, though growth in demand tonne days did not exceed previous weekly rates. The supply dynamics and the increase in dirty tonne days in the VLCC segment indicate a challenging outlook for freight rates, further pressured by ongoing geopolitical tensions and uncertainties surrounding Chinese crude oil imports, which have declined in the first five months of the year, reports Break Wave Advisors.

Oil Prices Rise Amid Geopolitical Tensions

Oil prices saw a modest rise on Thursday due to escalating tensions in the Middle East, countering concerns about weakening demand from an unexpected increase in U.S. crude stockpiles. Brent crude futures rose by 70 cents to $85.95 a barrel, while U.S. WTI crude futures increased by 57 cents to $81.47.

The U.S. Energy Information Administration (EIA) reported a significant 3.6 million barrel rise in crude oil inventories, contrary to expectations of a 2.9 million barrel drawdown. Additionally, gasoline stocks increased by 2.7 million barrels, against forecasts of a 1 million barrel decrease, raising concerns about the supply-demand balance despite geopolitical tensions providing some support to prices.

Freight Rate Trends:

  • VLCC MEG-China: Freight rates remained low at 50 WS, down 26% from last year.
  • Suezmax: Rates from West Africa to Europe held steady around 110 WS, and Baltic Med routes at 120 WS.
  • Aframax Mediterranean: Rates held around WS150, down 40% from the previous month.
  • LR2 AG: Rates fell to WS180, a 20-point drop from last week but a 44% increase from last year.
  • Panamax Carib-to-USG: Rates dropped by 10 points to WS170, 32% weaker than last year.
  • MR1 Baltic-Continent: Rates neared 300 WS, a 50% increase from last year.
  • MR2 Continent-USAC: Rates rose to 170 WS, up 40% annually, while USG-Cont rates surged to 240 WS, marking a 130% annual increase.

Supply Dynamics:

  • VLCC Ras Tanura: Ship count reached 73, nearly 10 above the annual average.
  • Suezmax West Africa: Ship count remained around 60, reflecting an increase from the previous low.
  • Aframax Primorsk: Vessel numbers remained significantly below the annual average, indicating market challenges.
  • Aframax Med Novo: Vessel count hovered around the annual average of 10.

Tonne Days:

  • Dirty Tonne Days: Growth for VLCCs remained at its lowest in the past twelve months. The Suezmax and Aframax segments also showed declining growth, indicating broader market downturns.
  • Panamax Tonne Days: Growth showed a downward trend at the end of June.
  • Clean MR Tonne Days: MR1 vessels saw a significant decline over four weeks, with no signs of reversal. MR2 vessels also experienced a decline, nearing the low recorded in week 12.

This overall trend suggests a challenging environment for the tanker market, with multiple vessel classes facing sustained pressure and reduced activity levels.

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Source: Breakwave Advisors