- 70kt USGC-UKC freight up 36% from May 1
- April FFA volumes spiked 74% from 2022 average
- Brent/WTI spread narrows to $3.58/b so far in May
A surge in demand for trans-Atlantic freight movements out of the US Gulf Coast on midsize Aframax and Suezmax tankers has propped rates up midweek May 4, rebounding after it reached two-year lows just over a week ago April 26, reports SP Global.
Surge in demand
Platts assessed freight for the benchmark 70,000 mt USGC-UK Continent run at w170 or $39.4910/mt May 4, up w5 on the day, but up w45 from May 1.
There were at least seven fixtures reported May 2-3 for USGC-UK Continent/Mediterranean, with one cargo remaining outstanding May 4, all looking to load in the USGC midmonth May for delivery in the first decade of June.
This comes at a time when WTI Midland has been included in Dated Brent and Cash BFOE from June cargoes onwards.
“The question becomes is this an uptick in trans-Atlantic volume just due to less moving on VLCCs or is there actual more volume moving,” a shipbroker said.
Market participants pointed to a lack of trans-Atlantic VLCC business booked for May as cause for the return in Aframax chartering, which has seen cannibalization from larger ship classes in recent months. Only three VLCCs have been booked for May loading trans-Atlantic voyages, down from the 10 seen for April and the 14 in March.
FFA volumes surge
In the forward freight agreement market, volumes have also surged in recent months with market participants looking to hedge positions for May freight loadings with June deliveries amid ever increasing freight volatility and the impending inclusion of WTI Midland volumes into the Brent basket.
April saw an all-time high of open interest in the 70,000 mt USGC-UKC contract, at 22.055 million mt, up just over 74% from the average monthly open interest volume in 2022 of 12.655 million. March saw the highest trade volume however, at 13.827 million mt.
Platts last assessed the current month May contract up w5 day on day at a w185 equivalent, or $42.9755/mt. June clocked in slightly lower at a w165 equivalent, or $38.3295/mt.
Firm freight adds to softening differentials
In the crude market, rising tanker rates look poised to insulate North Sea crudes from US competition with grades such as WTI Midland recently trading at their lowest differentials in weeks in line with a sharp decline in freight costs through March and April.
The grade was last assessed on a CIF Rotterdam basis May 4 at $1.3750/b above Dated Brent, its weakest since February 21. This softness comes a time when sweet crude differentials are under pressure across Europe, compounding headwinds from soft refinery margins and abundant supplies of sweet crude from West Africa among other places.
US crude export volumes have continued to grow in 2023, with US barrels seeing high demand from end-users in both Europe and Asia.
On flows to Europe specifically, while April export volumes slipped to 1.437 million b/d, the lowest since July 2022, US crude exports to Europe have averaged 1.631 million b/d through the first four months of 2023, compared to an average of 1.453 million b/d in 2022, and an average of 1.036 million b/d in 2021, data from Kpler showed.
While French refinery strikes in March and the start of April cut into some demand for barrels into Europe, export volumes have remained high, particularly compared to levels seen prior to Russia’s invasion of Ukraine.
Meanwhile, despite the recent narrowing of the Brent/WTI spread, one indicator used to track the competitiveness of US crude on the international market, WTI values on the US Gulf Coast have seen differentials slide, benefitting competitiveness. After averaging $5.25/b in March, the Brent/WTI swaps spread has narrowed to just $3.58/b over the first three days of May. With this narrowing, the differential for WTI crude at the Magellan East Houston terminal against cash WTI as weakened from a $1.52/b premium in March to just an 85 cents/b premium through the start of May. However, WTI FOB USGC values compared to MEH have only slide from an average of 43 cents/b in March to an average of 37 cents/b through the start of May.
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Source: SP Global