Market insight
Over the past month we have seen a resurgence in oil tanker freight rates as the Baltic Dirty Tanker Index (BDTI) has risen from lows of 713 in early September to recent highs of 839, suggesting that dirty tankers are back in demand. Historically, tanker rates rise in the first and fourth quarters of the year as demand for oil increases ahead of winter in the northern hemisphere.
The IEA forecast also supports this narrative. In its latest report, the Paris-based international organisation expects a tight market. Demand is forecast to grow by 1.5mbpd in the second half of the year, while supply will only increase by 1.24mbpd. Supply has been consistently below demand by around 1mbpd throughout the year, mainly due to voluntary cuts by Saudi Arabia of 1mbpd until the end of the year, voluntary cuts by other OPEC members of 1.66mbpd until the end of 2024, and restrictions of 300kbpd from Russia. These cuts led to a rally in oil prices to almost $100, putting even more pressure on importers at the start of the heating season. Adding to the already tight market, US stockpiles have been steadily declining to a low of 349 million barrels, the lowest in 40 years.
This creates a potential demand-driver that can further strike the market.
At the moment the market is in a situation where most participants are betting that China will import more oil as its economy appears to be emerging from recession, with oil imports from the top two exporters, Saudi Arabia and Russia, remaining strong since July at 39.5m barrels and 32.5m barrels in September. The two account for more than 20% of China’s imports and any disruption to the system could alter current trade routes. China is mainly using its oil reserves to boost refined products, as we have already seen diesel exports soar since the start of 2023.
One possibility is that Saudi Arabian crude will head to the US to replenish historically low inventories, which in turn may divert VLCCs to the US, increasing tonne-miles. Oil towards Europe will be carried by smaller vessels, but this will still limit the barrels available for other destinations.
It is clear that competition for crude oil between China and the United States will soon become a reality, if it has not already begun, for different reasons. This competition for crude oil in different destinations can push freight rates even higher in a tight oil market. It will be interesting to watch the OPEC+ production strategy from now on, as prices are at a critical level and the market is in deficit.
Chartering
The effects of OPEC+ production cuts are becoming evident in consumer markets, with a substantial m-o-m decrease in September arrivals. While imports have remained consistent until now, refiners are beginning to feel the impact. Unless there is a significant drop in demand, the crude market is expected to remain tight if Saudi Arabia adheres to its production targets. On the other hand, any increase in Saudi crude exports is likely to be cautious and may not substantially alter market dynamics. The consequences of supply reductions announced by Saudi Arabia and Russia are anticipated to continue shaping oil prices throughout the year. However, the prospect of oil reaching the $100/bbl mark may be short-lived amidst the current supply constraints and the fragile state of the overall economic environment.
In the final week of September, sentiment in the crude freight market was rather mixed. The BDTI on Friday, September 29th, closed at 827, an increase of 37 points w-o-w. In the VLCC segment, despite recent signs of recovery following a challenging summer, the growth of freight rates remains uncertain. The focus shifts to October, with declining supply figures expected to drive market recovery. Rates for major routes to Asia, namely TD3C and TD15, remained rangebound. More specifically, TD3C lost 1.02 points w-o-w to sit at WS 49.67, while TD15 was assessed 1.25 points lower w-o-w at WS 51.65. As China enters Golden Week, we may observe a further decline in the coming week. Meanwhile, the rate for a 270,000mt US Gulf to China (TD22) route fell to $7,944,444, $505,556 lower w-o-w ($25,675 per day round trip TCE). In the meantime, Suezmax rates experienced a week of mixed dynamics, maintaining a generally stable trend. More specifically, TD20 gained 0.45 points w-o-w to sit at WS 67.5 on Friday, marking a 10% m-o-m decline. In the meantime, TD6 has remained rangebound for a third consecutive week. In the Aframax market, the week displayed a blend of developments. In the USG to ARA route rates appear to have bottomed out and TD25 was seen 5.31 points higher on the week, at WS 95.31.VLCC T/C earnings averaged $7,107/day, down + $1,796/day w-o-w, and closed off the week at the -$5,453/day mark.
Suezmax T/C earnings averaged $9,819/day, up + $92/day w-o-w. On the Aframax front, T/C earnings averaged $12,835/day, up + $990/day w-o-w .
The dry bulk market continued to exhibit positive momentum last week. Notably, the Capesize sector remained strong, surpassing the $20,000 per day threshold. At the beginning of the week, gains were observed in both the Australian coal and Brazilian iron ore coal routes, which supported freight rates. However, towards the end of the week, there was a slight negative correction in rates, although the overall trend remained positive. Market sentiment for Panamax vessel owners was mixed. In the Pacific market, there was a decrease in tonnage inquiries, mainly due to stem dates scheduled after the holidays, and charterers were not in a hurry to fix contracts. In contrast, the Atlantic market saw a favourable situation for owners, as a combination of increased cargo supply and a shortage of available vessels allowed them to maintain a stronger position in the region. Activity in the Supramax sector slowed down, driven by weaker demand for tonnage in the Atlantic region. Additionally, owners were keen to secure contracts for their vessels before the commencement of the golden week in the Pacific, resulting in a slight decrease in rates. Handysize vessel owners experienced a slowdown in activity across both basins, with limited market movement.
Cape 5TC averaged $ 20,044/day, up +22.71% w-o-w. The transatlantic earnings increased by $ 6,038/day with transpacific ones rising by $2,077/day, bringing transatlantic earnings premium over transpacific to $3,588/day.
Panamax 5TC averaged $ 15,300/day, up +0.63% w-o-w. The transatlantic earnings increased by $1,995/day while transpacific earnings declined by $1,260/day. As a result, the transatlantic earnings premium to the transpacific widened to $4,881/day.
Supramax 10TC averaged $ 14,482/day, up +0.41% w-o-w, while the Handysize 7TC averaged $ 12,235/day, up +3.06% w-o-w .
The market seems to be taking a break, with few deals concluded and the healthiest scrapping destination heading into Diwali. Firm or stable freight rates across all segments are not helping breakers either. There is still no activity in Pakistan as rates offered by local buyers are well below market standards. At present, the local market is busy with tonnage acquired in the past, while rising steel prices may boost the earnings of local breakers in the future. The main reason for the subdued activity is the declining steel market, which makes buyers reluctant to acquire more tonnage. India continues to outperform the other available scrapping destinations in terms of both pricing and fundamental stability. Sentiment in the country is that steel demand will grow by more than 10% on the back of upcoming infrastructure projects, a trend that will continue next year. On the fundamental front, JP Morgan announced that Indian bonds will be included in its Government Bond Index-Emerging Markets. This positive development brings US dollars into the local economy, pushing the local currency back above 83 against the dollar. The upcoming Diwali period could keep local crushers on the sidelines during the traditionally slower season, providing opportunities for the region’s competitive markets. Pakistani recyclers remain in a dire situation, with quoted prices still the lowest in the region. The falling steel market is discouraging scrap buyers from purchasing local scrap. In addition, the continuing shortage of letters of credit is deterring even willing buyers. In Turkey, the lira is rising rapidly towards 28 to the dollar, making it extremely difficult for breakers to acquire new vessels. Steel mills will also face problems as both industrial and commercial users face a 20% increase in the price of electricity.
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Source : Capital link
