Unsettling Shifts in Global Crude Oil Shipping Trends

• Shipping stakeholders are closely monitoring crude oil freight rates as the year concludes, evaluating the impact of geopolitical events on different ship size segments.
• The Suezmax and Aframax segments have notably thrived due to an unaffected flow of Russian crude oil trading, while VLCCs exhibit signs of recovery, driven by increased Chinese crude oil imports.
• Examining oil demand growth forecasts, the IEA’s December report estimates a 2.3 mb/d increase to 101.7 mb/d in 2023, influenced by a weakening macroeconomic climate.

Simultaneously, the US crude oil market has seen a significant rise in exports, with South Korea emerging as a crucial destination, surpassing Chinese imports. China contributes to 80% of the expected global demand increase, reflecting challenges in global economic conditions and energy efficiency advances. Looking ahead, the IEA forecasts a supply growth slowdown in 2024, posing challenges for OPEC+ amid declining demand. While OPEC maintains its demand growth forecast, disparities persist between IEA and OPEC estimates for 2024, reports Signal.

Crude Freight Market Trends

The crude oil freight market experienced a sudden burst following the end of the third quarter that coincided with an increase in Russian volumes, US exports, and the outbreak of tensions between Israel and Hamas. Crude oil freight rates recorded a significant increase on October 20, 2023, both on a monthly and annual basis. The increase was particularly impressive on the Suezmax-Wafr-Cont route as well as on the Aframax-USG/Med and Aframax-Cross-Mediteranean routes.

The crude oil tanker market remains vulnerable to heightened economic and geopolitical risks, and following the attacks in the Red Sea, a new wave of fears about the rise in oil prices is emerging. However, an important factor supporting the positive momentum of crude oil freight prices is also the problem of undersupply. Together with the effects of geopolitical events, this undersupply is creating a robust market outlook. For both the current and the coming year, there are clear signs that demand will exceed supply, as net fleet growth in the crude oil tanker segment is impressively low compared to the previous year.

Fears that the war between Israel and Hamas could lead to a disruption in the supply of crude oil have not yet materialized. However, the recent escalation of attacks on the Red Sea and the Suez crisis threatening the world economy pose a major challenge to the development of crude oil flows with market prices on the Suez-Wafr continent showing increasing momentum. The Egyptian Suez Canal Authority has already expressed its vigilance regarding the situation and several well-known shipping lines are reportedly avoiding the routes near Yemen. In addition, it’s noteworthy that the U.S. sanctions levied on Venezuela in late October are expected to have a minimal effect on supply. This is because reviving production in Venezuela’s struggling oil sector necessitates both time and substantial investment.

Looking at the latest development of freight market trends with a focus on the Aframax vessel class, it is clear that sentiment on the Atlantic market is weakening noticeably towards the end of the year. In contrast, the Eastern market is characterized by continued firmness. The Mediterranean market in particular is subject to increased downward pressure, which is closely linked to the prevailing sentiment on the USG freight market.

Among the larger crude oil tankers, prices for VLCC MEG China were revised significantly downwards and fell below the 60 WS mark. This is in stark contrast to the data from the beginning of November, which showed the highest level since the end of June and approached the 70 WS mark. At the same time, Suezmax Wafr-Cont rates have been consistently well below the 100 WS threshold since mid-November. In the Aframax segment, the USG market initially remained at a level of around 200 WS in mid-November, only to fall to a weaker level of 160 WS by mid-December. The question remains whether this similar weakness will continue at the start of the new year, depending on factors such as the Russian oil price cap on Urals crude sales below $60/barrel and the continued flow of crude from the West to the East.

Crude Oil Flows

Despite several rounds of announced OPEC oil production cuts since the end of the fourth quarter of 2022, the crude oil market remains well supplied, while Saudi Arabia, Russia, and other OPEC members agreed in November to suspend cuts until the end of the first quarter of next year. Looking at the monthly volumes of Russian crude oil supplies, October and November ended with a strong Chinese appetite for Russian crude oil, with an annual increase of 23% in October and 17% in November, while August and September held a decreasing trend from the peaks recorded in May, June, and July.

A look at the landscape of crude oil exports from the United States shows a remarkable increase in supply volume, with Korea in particular overtaking China. Underscoring this trend, a remarkable 33% year-on-year increase in Korean crude oil imports from the U.S., while November’s figures maintained the record pace of the previous month. Interestingly, this year’s trend in US crude oil exports has surpassed the monthly totals of the previous two years, and December is on the verge of ending in the same range.

At the end of the final quarter of the year, there is a discernible trend indicating that crude oil flows are poised to surpass the levels witnessed during the summer season. Notably, the voluntary oil production cuts implemented by Saudi Arabia and Russia have yet to exert a negative influence on the overall volume of shipments. Demand remains robust in the East, with China and India continuing to source from Russia, and Korea displaying a notable preference for U.S. crude. Meanwhile, November has provided strong signals of a heightened Chinese appetite for Iranian crude oil, the persistence of which remains uncertain as we approach the year-end.

Tonne days and Market Rates

Analyzing the most recent correlation between market prices and the growth of the tonne days, it’s noticeable that the dirty Suezmax tonne days increased continuously from October and peaked at the end of the month. At the end of November, Suezmax Wafrcontinent rates fell to new lows, with tonne days growth being further revised downwards. In mid-December, the slowdown from the end of the previous month continued, with the time charter equivalent (TD20-TCE) at around $34,000/day, but still, a remarkable improvement from the end of September when it was struggling to get above $20,000/day.

In the VLCC segment, a positive shift in market sentiment became apparent from mid-October, although the momentum remained notably weaker compared to the peaks witnessed in mid-March when TD3C-TCE neared $90k/day. While the trajectory of VLCC tonne days growth from the AG to FE has not firmly stabilized, it appears that the VLCC Atlantic market is struggling to find a more robust sentiment for December, with an indication of a slight increase in demand growth, however, weakness prevails, while data for a similar period in 2022 indicated firmer levels of both rates and demand.

As December draws to a close and the fourth quarter concludes, there seems to be a generally seamless movement of crude oil across various destinations. The East, in particular, holds a pivotal influence over freight rates and the directional patterns of shipments originating from the Russian Federation, Saudi Arabia, and the United States. Recent geopolitical tensions surrounding Israel-Hamas and concerns about oil supply disruptions have begun to subside. However, the persistent challenge for establishing a more robust momentum in freight rates lies in the trajectory of demand, coupled with the performance of the Asian economy and the fluctuation in crude oil prices.

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Source: Signal

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