The end of last year was marked by a significant increase in attacks on ocean-going vessels
in the Red Sea, with several prominent shipping companies announcing temporary pauses
in their transits through the region. At the same time, we have also seen new international
sanctions against Russia, which among other things saw an increase in due diligence
requirements for companies subject to the G7 price cap. The hastily assembled multinational naval military operation to protect commercial trade transiting through the Red Sea could improve the security situation in the region over time; yet, the latest news that Iran is deploying a warship to the Red Sea reminds us of the risk of further escalation and potentially extreme disruptions to global trade.
Fresh OPEC+ production cuts represent another downside risk to crude tankers; however, global oil demand is projected to grow by 1.1 mbd in 2024 and this demand needs to be met from somewhere. Although consumption in advanced economies, mainly the US and Europe, is projected to decline by 270kbd, demand in developing countries is expected to increase by 1.32 mbd.
Where will that crude come from? The growth in US crude production beat market
expectations in 2023 and further gains are on the cards this year. The latest IEA report
suggests the country’s production could increase by 0.59 mbd this year. This, coupled with
expectations of declining demand, which could apply downward pressure on refining runs,
means incremental growth in crude exports. Strong gains are also projected in Latin
American crude output, driven by Brazil and Guyana. Overall, regional crude production is
projected to increase by 0.52 mbd YoY. There is also some potential for a modest increase
in Venezuela’s exports in the early part of 2024, although the longer-term trend is uncertain, depending on the outcome of Venezuela’s elections. With Middle East exports constrained, increases in America’s crude outflows are set to lead to incremental growth in long-haul trade to Asia, which will be further reinforced by an expected decline in US and European demand.
Growth in trade is also expected in the product tanker market this year, as recently
commissioned refineries in the Middle East reach full-scale operations, with regional runs
projected to increase by 0.6 mbd YoY and more products are likely to head into Europe.
Although manufacturing in Europe is underperforming, regional gasoil stocks as evidenced
in ARA inventories are under downward pressure, following expended autumn refining
maintenance.
In terms of downside risks, the pending start-up of the 600kbd Dangote refinery threatens
WAF crude exports and CPP imports, with 4 cargoes of West African crude already
delivered into Dangote in December. Although it is still unclear when the refinery will be fully operational, even a gradual ramp-up of operations will slowly eat into tanker demand.
Another downside risk is the accelerating economic turmoil in Europe, with regional CPP
imports at risk. Furthermore, any hard landing in China’s economic growth could slow crude
imports. Although in this scenario Chinese CPP exports will be supported, much here
depends on the volume of product export quotas, dictated by the government.
Crude Oil
Middle East
It has been a sluggish start to 2024 for the AG VLCC market with Charterers drip-feeding
cargoes allowing rates to soften and with many deals concluded off the radar or under COAs.
However, things could be about to rebound as Charterers now move to cover the last
decade and with improvements in the Atlantic and the ongoing geopolitical situation, we
could see an upturn early next week.
In today’s market, we are calling 270,000mt AG/China ws 56.5 and 280,000mt AG/USG ws 45.5 Suezmax rates are steady in the AG despite increased tensions, with TD23 around 140,000mt x ws 95. Rates heading East are approximately 130,000mt x ws 125 today.
West Africa
The limited VLCC activity and bearish sentiment seen earlier in the week are now starting to
change as we approach the weekend, with Charterers moving to cover VLCCs for stems to
the UKC against an upturn in Suezmaxes, which is now having a positive impact on freight
rates. We have also seen more movement to India, especially from Nigeria so today we are
expecting a WAF/China to fix at the ws 60 level. Suezmax markets in West Africa have also begun to firm, and going into next week TD20 is likely to push above 130,000mt x ws 130, and to head East, premiums are around 5 points. Sentiment has firmed with plenty of cargoes for Owners to consider this week.
Mediterranean
The Med Suezmax market is also pushing up with ships from the Med being pulled into WAF
cargoes. For TD6, rates are looking to push towards 135,000mt x ws 150. Cargoes heading
East from Libya today will rate approximately $5.6m. After a quiet first half of the week mirroring Aframaxes the North, a firming States market has seen sentiment start to firm. As we close the week, a further enquiry came to light and recent Cross Med levels of ws150 were pushed. With bad weather creeping in, a further push on rates will be expected for next week.
US Gulf/Latin America
The VLCC market is beginning to take off here as we see an abundance of enquiry from the
USG, Caribs and Brazil. This is giving a much-needed boost to the market after a
disappointing end to 2023 and if this pace continues, it could be a happy hunting ground for Owners so expect to see an influx of East ballasters. We expect a USG / China run will fix in the region of $8.2m on today’s market while Brazil/China is paying around the ws 57 level.
North Sea
With the States market firming and owners quickly choosing to ballast across the pond, the
tonnage left in play managed to quickly gain increment and push rates northwards. A consistent flow of local enquiry was seen for the duration and workable positions are
expected to remain thin on the ground heading into week 2 of 2024.
Clean Products
East
The first week of the New Year has been as expected: interesting to say the least. The onongoingituation in the Red Sea has led to a disparity in East versus West rates as Owners
understandably seek a premium for heading West. Even whilst short of cargoes on both the
LR1 and LR2s the softening seen centrally have not been as aggressive as it could have been,
however, we expect that there is still more to come. TC1 was tested down to 75,000mt x was 170 and the West needs a fresh test but in the $4.85m-5.0m levels. TC5 is at 55,000mt x ws 190 and a West run at circa $4.0m. Both sizes are a little short on the cargo count. Expect that the LR1 will see a further negative correction next week as they adjust in line with the LR2s. Owners will be hoping that it’s not too big of an adjustment.
An active week to kick off 2024 has been seen on the MRs East of Suez which has served to
begin the clear down of tonnage built over the festive period. As such, levels came under
pressure where prompt and ballast units have taken what has been on offer with ws 210
(2023) on subs for TC17 – a drop from ws 240 at the loss of play in 2023. East runs have fallen in line however West numbers have held at $2.65m and we close the week with the potential that with sustained activity we should see the bottom reached as we hit the mid-month fixing window. North Asia starts the new year with a flurry of fresh cargo, mainly due to the granting of a new Chinese CPP export quota, on the back of a tight position list. The benchmark SK/Singapore run went up 200k to around 900k and SK/OZ was up 20 points to ws 230 (2023 ws). The list looks tight for the next window so the rally should continue next week. In the Singapore area, it was a different case which has been trading sideways with limited public cargo. However, private cargo was still emerging. Some ships chose to ballast to North Asia where earnings are currently better. By the end of the week, Singapore tonnage looks balanced for now.
Mediterranean
All in all, it’s been a slow start to the year in this Med handy market with rates coming under pressure from the offset. Lists pulled on Tuesday morning showed an armada of prompt tonnage and with fresh cargo enquiry on the sluggish side, the writing was on the wall for Owners. X-Med soon slipped around 25 points to the 30,000mt x ws 205 (23) level which was swiftly followed by the first fixture on subs basis 2024 rates at 30,000mt x ws 200 (30,000mt x ws 190 basis 23 flat rates). Black Sea levels are therefore expected to
negatively correct when tested with the +40 point premium to be maintained. Heading into
the weekend little remains left to cover but with bad weather coming into play over the
weekend and into the start of next week Owners will be hoping for a stabilization of rates.
Finally, to the Med MR market where it’s been a tough start to the year for Owners with rates falling. We finished 2023 with Med/TA trading at the 37,000mt x ws 195 (23) mark which was around a 20-point premium on TC2 but with a replenished list on Tuesday rates soon came under pressure. 37,000mt x ws 150 (24) was achieved by Wednesday despite good enquiry in the Med sector which saw levels back in line with TC2 for the first time in a few months. WAF has also received a fresh test with the premium now down to +15. At the time of writing nothing is outstanding and with TC2 now at 37,000mt x ws 130 we expect further pressure to come.
UK Continent
It was never going to be easy for Owners to dig in and hold rates in this UKC MR sector
once tonnage lists were pulled on Tuesday to reveal a glut of available tonnage, but partner
this with a lack in enquiry, rates have taken a beating. We find ourselves now on
Friday around the 37,000mt x ws 125 mark for TC2, with many a discussion on how
inclusive or exclusive the ETS affects rates, but with a few more cargoes than before we
now have the additional debate of how much further we can fall. Short X-UKC stems are
keeping some ships moving, but in reality, this week has been a bit of a write-off for Owners, with the hope next week these longer haul runs start flowing more frequently.
Then to the UKC Handies which have faced an equally troublesome start to the year,
especially with the glut of MRs ready to feast on 30kt clips. Unfortunately for Owners to be
able to be competitive despite minimal stems, we’ve seen rates slip to the 30,000mt x ws
200 mark and expected below now, with MRs sliding further. Owners hope the UKC wakes
up next week.
Dirty Products
Handy
The New Year kicked off with the Handies in the Med fixing at ws 285 at the onset of the
week. But as the week progressed, minimal replenishment coupled with steady enquiry
continued to chip front-end tonnage off the list, thus allowing Owners to claw back a bit more value with the last done now sitting at WS 295. The Med may have hit its ceiling rate before the weekend, but attention remains focused on the list next week as Owners seek to make more incremental gains if Charterer’s options remain limited. It’s been a reasonably steady week in the North as enquiry matches tonnage supply. Rates peaked at ws 312.5 mid-week before one Owner with a prompt vessel went on subs at ws 307.5 at the week’s close. Take this with a pinch of salt, however, as with tonnage now very tight for the next fixing window, the owners will be quietly confident going into next week.
MR
There has been very little activity in the market this week for MRs in the Continent. The
market hoped to see a fresh test to identify true market levels for the limited number of
available units, but this is yet to happen. Weather delays and change of orders contributed to the lack of units marketed this week, keeping the list favourable to Owners if and when a 45kt test surfaces. A similar story has played out in the Mediterranean, where there has
been a shortage of firm tonnage, but for the couple of MRs who managed to fix basis 45kt
(all behind closed doors). While activity has been relatively slow for the MRs, certain Owners did not hold back on waiting for a full stem to appear and decided to throw their hat in the ring for 30kt cargoes.
Panamax
With a lack of TA enquiry over the past couple of weeks, Owners have succumbed to taking
on the ballast across the pond in a plea to utilise the firming States market. Tonnage
availability is now limited, which could work out in the Owners’ favour if an enquiry surfaces next week.
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Source: Gibson
