Migration to the West of Suez is increasing as Atlantic Basin earnings are now more than double Pacific Earnings, says an article published on the break wave advisor website.
Incentives And Challenges For East-to-West Migration
- Current high incentives for MRs to migrate from East to West due to increased earnings in the Atlantic Basin.
- Mixed outlook in the Atlantic Basin due to weak product export demand and potential obstacles posed by Panama Canal congestion.
Migration Trends And Earnings Disparities
- Migration to the West of Suez is on the rise, driven by Atlantic Basin earnings exceeding Pacific Earnings (source: Baltic Exchange).
- East Asia and South East Asia’s MR exports have declined, impacting Pacific Basin freight rates (TC7, TC10, TC11) as East Asia’s prompt availability surpasses multi-year highs.
Atlantic Basin Dynamics
- Despite increased migration to the West of Suez, the outlook for MRs heading to the Atlantic Basin is mixed.
- Bearish outlook in the UK Cont due to low utilization on the US Atlantic Coast and challenges in the UK Cont-to-WAf route after the removal of gasoline subsidies in Nigeria.
US Gulf Outlook
- US Gulf presents a more favorable outlook for MRs with tight prompt availability and high freight rates.
- Resurgence of European demand for US diesel is driving long-haul employment, although challenges such as higher European diesel stocks and refinery maintenance exist.
Panama Canal Transit Issues
- Reduced transit slots in the Panama Canal, influenced by drought conditions, contribute to overall uncertainty.
- Declining transits through the canal for laden oil and gas carriers pose challenges for MRs migrating to or from the Atlantic or Pacific Basin.
- Potential fleet inflexibility, especially if Atlantic Basin rates drop, hindering migration to the Pacific.
Past Challenges And Potential Recurrence
- Observations from August and September 2023 highlight the impact of Panama Canal congestion on MRs, leading to logistical difficulties and increased transpacific utilisation.
- Repeat of this situation is likely as Panama Canal transits decrease, potentially straining tanker supply in the Pacific.
Transpacific Flows And Refinery Dynamics
- Transpacific flows could support MRs, contingent on Asia’s product export volume.
- Refinery run cuts in East Asia, coupled with the lack of CPP product export quotas from China, may limit upside for tanker demand.
Conclusion
- Extended Panama Canal issues offer support for rates, but challenges persist due to the weaker overall product outlook.
- Lack of flexibility poses a risk, potentially leaving the fleet stranded in locations with long tonnage lists and logistical constraints.
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Source: break wave advisor
