The Aframax market faced challenges this year, particularly due to increased short-haul sanctioned trade and stagnant mainstream trade. As the market shifts towards cleaner fuels, there’s a potential for relief in the clean tanker segment. However, the Aframax segment, which primarily handles dirty petroleum products, may continue to face pressure, reports Breakwave Advisors.
Aframax Tankers Face Challenges
Aframax tankers, particularly those operating on the North Sea-to-UK Continent (TD7) and cross-Mediterranean (TD19) routes, have experienced decreased utilization this year. The expected fourth-quarter rally hasn’t materialized due to weak refining margins and reduced crude import demand in Europe.
Demand for Aframax tankers has been primarily supported by sanctioned trade, carrying Russian crude to India and China. However, the recent increase in Chinese demand for Russian Far East crude has boosted Aframax tonne miles to China, particularly to Shandong, where independent refineries have been actively purchasing discounted barrels. Additionally, China’s growing strategic petroleum reserve (SPR) stockpile has contributed to this demand.
Softening Demand and Market Shifts
A decline in motor fuel demand in the latter half of the year, coupled with the cleaning of supertankers, has led to a significant drop in LR2 tanker rates. As a result, LR2 tankers have shifted from clean to dirty trades. This shift has caused the global distribution ratio of clean-to-dirty LR2 tankers to decrease to 51%, a level not seen since the start of the year when the Red Sea attacks disrupted shipping.
Similarly, the decline in middle distillate flows from East to West of Suez has led to a reduction in supertanker CPP voyages. While this shift from clean to dirty trades may temporarily alleviate the supply pressure on clean freight, it could exacerbate the pressure on dirty freight.
While a full-scale resumption of the supertanker trend in 2025 seems unlikely, the wide clean-to-dirty margins may encourage more frequent use of supertanker clean-ups. This means that supertankers could be more readily employed for clean trades in the future.
Gulf of Mexico to Europe Trade
The number of voyages from the Gulf of Mexico to Europe is increasing, driven by refiners’ efforts to avoid end-of-year storage taxes. This has particularly benefited Aframax tankers, which have seen increased utilization since late November. In the week ending December 15th, the number of voyages for Very Large Crude Carriers (VLCCs) and Suezmax tankers on the Transatlantic (TA) route increased significantly. This is likely due to a combination of factors, including higher Aframax rates and a lack of demand for larger vessels in the Atlantic Basin.
The traditional Q4 seasonal rally for larger crude tankers, especially VLCCs, has not materialized. This suggests a lack of longer-haul flows from the US Gulf Coast (PADD 3) to East. Weak crude demand in Europe and the need to move excess oil from PADD 3 are contributing to the increased TA utilization for VLCCs.
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Source: Breakwave Advisors
