Freight Rates Decline by 61% Due To Supply Drop and Low Demand

By
Mfame Team
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  • A drop in cargo supply has pushed clean tanker freight down to 61%.
  • Refineries have slowed throughput and oil product demand is low.
  • Arbitrage opportunity for USGC in Northwest Europe closed at minus $1.12/b.
  • USGC is taking in fewer barrels or even exporting diesel and gasoline to other regions.
  • Oil product exports decreased by 19% and gasoline exports witnessed a 41% drop.
  • Distillate exports dropped almost 30% and distillate imports increased by almost 43%.

According to an article published in Platts and authored by Marieke Alsguth, a recent drop-off in cargo supply out of the US Gulf Coast has pushed clean tanker freight down as much as 61% on the week on some routes.

Freight rates decline

  • This has been coupled with refineries slowing throughput and oil product demand low globally amid the coronavirus pandemic.
  • The Americas clean tanker market experienced a decline in activity in the first decade of May.
  • It mirrored a dramatic decline in freight seen in the European market as cargo supply dwindled and dried up demand for spot tankers.
  • In late April, when freight skyrocketed in response to tightness in tonnage and on-shore storage for petroleum products.
  • Arbitrages out of the USGC closed, and most remained closed Tuesday despite freight’s dramatic drop.

Arbitrage opportunity for USGC

  • Platts Analytics data showed the arbitrage opportunity for USGC ultra-low sulfur diesel into Northwest Europe closed on Tuesday at minus $1.12/b.
  • The 38,000 mt USGC-UK Continent route, typically a route for diesel flows, dropped 47% week on week on a lack of testing as well as weakness in the USGC region, assessed Monday at w95 or $19.64/mt.
  • Tuesday morning, market participants talked of potential activity on the route at a lower value, around w90.
  • Amid a global excess of refined products, regions that typically import products from the USGC have been seen taking in fewer barrels or even exporting diesel and gasoline to other regions.

Slow in activity

  • Activity on the typically very liquid USGC-East Coast Mexico route has slowed, with market participants reporting ships waiting to discharge products for a month or longer with no storage space on land.
  • Freight on the USGC-East Coast Mexico route was assessed at lump sum $225,000 Monday, dropping almost 61% week on week and 76% from the route’s peak between April 24-28 at lump sum $950,000.
  • Though activity has decreased out of the USGC, exports out of Brazil have increased, with Petrobras placing tankers on subjects to ship diesel and gasoline to Europe and the US Atlantic Coast.
  • Platts fixture logs show 14 Medium Range tankers and two Long Range 1 tankers booked since March to export petroleum products from Brazil, totaling 652,000 mt.

Decrease in oil exports

  • Data from the US Energy Information Administration showed oil product exports decreased 19% from the week ended April 24 to the week ended May 1.
  • Gasoline exports stood at 532,000 barrels the week ended May 1, a 41% drop from the previous week’s 905,000 barrels.
  • Distillate exports dropped almost 30% week on week, reported at 929,000 barrels.
  • Distillate imports increased by almost 43%, with 273,000 barrels imported into the USAC.

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Source: Platts