EG Suezmax demand is in the doldrums but rates are supported by limited tonnage and demand from the East, while China-Americas WC gasoline arb supports MR tonne-miles, but ex-China utilization remains subdued, reports Breakwaveadvisors.
Meg Suezmax Demand In Doldrums
Suezmax tonne-day demand out of the Middle East Gulf remains at multi-year lows predominantly influenced by Red Sea attacks which have limited East-to-West crude flows.
- A slight pick-up on Suezmax employment towards the Pacific Basin has provided a floor on the the segment’s demand out the MEG
- Tonne-day share of MEG Suezmax loadings towards the Pacific Basin has rebounded to 57%, the highest recorded since the start of June
Despite softer demand fundamentals, Suezmax availability in the Middle East has continued to drop since the end of July, providing support in rates in August, following a drop to yearly lows
- MEG-to-India and MEG-to-SE Asia Suezmax rates have risen around 15% over the past two weeks (Argus)
- However, as the Indian monsoon season is underway, demand for crude imports might soften, capping the potential of any considerable freight rate increase
Demand Surge
China-Americas West Coast MR tonne-mile demand surged in August due to favorable gasoline arbitrage
- Four MR2-size gasoline cargoes departed China for Mexico and Chile between August 1-20, boosting China’s gasoline exports to the Americas West Coast to nearly 60kbd for the month, the highest level since July 2019
- In contrast, China’s gasoline exports to Asia remained flat month-on-month during the same period, as Asian cracks softened in recent weeks
While MR tonne-miles found support from long-haul routes, overall exChina MR tonne-miles held steady to lower in August due to capped Chinese CPP exports
- Looking ahead, China’s CPP exports are likely to pick up in the coming months, driven by seasonally stronger production and additional export quotas
- However, these additional exports will likely remain within Asia due to narrowing arbitrage opportunities, limiting MR tonne-mile growth
Crude Loadings Decline
Suezmax utilization out of the Gulf of Mexico was high early in August, but then tumbled as the number of crude loadings to Europe on Suezmaxes declined, as the month progressed
- Additionally, Suezmax utilization in South America East Coast and the Med remains below H1-levels, which could change as no VLCCs can load from Guyana currently due to seasonal restrictions
The Atlantic Basin region poised for increased Suezmax demand is West Africa
- This increase in demand presages the seasonal uptick in demand out of WAf expected in early Sep as European crude demand increases in Q4
- Especially with the ongoing issues of light-sweet Libyan crude surrounding the field outage, Europe may increasingly look to WAf as a source of light-sweet crude in addition to WTI
However, higher crude demand from the Dangote refinery as it continues to increase production could provide a ceiling to the usual seasonal uptick in Suezmax demand expected at this time of year
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Source: Breakwaveadvisors
