- Q3 usually sees weak earnings due to weather and reduced volatility. OPEC+ cuts and stagnant US crude exports add to the current constraints. VLCC and Suezmax tonne miles show slight increases, while Aframaxes decline.
- Tonne miles for clean products have seen mixed trends, with strong early-year growth tapering off. Regional variations impact the market, with competition from crude carriers and weaker Far Eastern exports influencing rates.
- North American MR rates are under pressure, while Mediterranean Handy rates have fallen significantly. The Atlantic remains relatively stable with the potential for rate increases if weather impacts infrastructure.
With tanker earnings hitting their lowest levels of the year amid recent market chaos, energy transition pressures, and geopolitical risks, the question arises as to whether the current downturn is a typical seasonal slowdown or indicative of deeper systemic issues, reports Gibson.
Seasonal Slowdown vs. Systemic Change
The tanker market is currently experiencing some of its lowest earnings this year, raising questions about whether this downturn reflects a seasonal slowdown or points to a more systemic issue. Seasonal trends, especially in the crude market, often lead to weaker earnings in the third quarter due to factors such as weather and reduced market volatility. This year, OPEC+ cuts and weakened Chinese demand, combined with flat US crude exports, are constraining the market further.
Crude tonne miles have faced challenges despite geopolitical tensions such as the Red Sea crisis. While VLCC and Suezmax tonne miles have increased by 1%, Aframax tonne miles have declined by 1%. Despite these variations, VLCC earnings are in line with the previous year, and Aframax and Suezmax earnings are higher than August 2023 levels. Historically, these markets experienced a rebound from Q3 lows to Q4 highs, and a similar pattern is expected this year. US crude exports are anticipated to increase in Q4, and Asian refiners will begin procuring crude for post-maintenance supplies. Despite concerns over Chinese demand, the outlook for the sector remains positive, suggesting that current weaknesses are likely seasonal.
In the clean products market, the situation is more nuanced. While tonne miles for LR2s have increased by 24% year-on-year, LR1s and MRs have seen more modest growth. Recent months have seen a downturn in tonne miles, especially in the Middle East, where Q3 is traditionally strong due to increased refinery throughput. However, competition from crude carriers and weaker Far Eastern exports have impacted rates. The potential for increased Chinese exports later in the year and a recovery in Q4 is anticipated.
The Atlantic MR market remains strong historically, though rates are below recent highs. European MRs could see an upswing if the anticipated active hurricane season impacts US infrastructure. In the Mediterranean, Handy market rates have declined significantly but are expected to improve later in Q4. Looking ahead to 2025, new refinery projects and shifting demand patterns may alter market dynamics.
Overall, while the current tanker market weakness is partly due to seasonal factors, evolving fundamentals and external risks suggest that the market will likely recover as the year progresses. Structural changes in tanker flow and the aging fleet may also impact supply and demand dynamics.
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Source: Gibson
