US trade/foreign policy has been one of the biggest headaches this year, and a key input into many of the issues mentioned below. The speed of changes, volatility in decision making, and backtracking/pausing of measures have made it impossible to accurately predict the impact on oil and tanker demand. Oil (not gas) has largely been exempted from trade measures, whilst the USTR section 301 measures have been diluted sufficiently to a level where the tanker market will be able to largely absorb the measures (see our report here for more insights), reports Gibson.
Crude Oil
East (Arabian Gulf & Asia)
- VLCC: Rates in the Arabian Gulf (AG) have been under pressure throughout the week, softening further towards the weekend. The Golden Week and May 1st holidays in Asia contributed to market inactivity, with the anticipated pre-holiday rush failing to materialize. While the third decade of May remains untouched, there are still around 10 more cargoes to be covered for the second decade. The tonnage list is currently balanced, but further downward pressure is expected at the start of next week before a potential improvement mid-week as the East reopens. Current assessments are AG/China at WS66 and AG/USG at WS35.
- Suezmax: Another quiet week in the AG, with larger sizes dominating inquiries for both East and West voyages. Despite low inquiry levels, Suezmax rates have remained generally steady for both directions. A few replacement fixtures helped maintain slightly elevated levels. A Basrah/Mediterranean run via the Cape/Cape route is expected to pay around 140 x WS 57.5, while a Suez transit is estimated at WS 92.5. Rates for eastward voyages haven’t moved significantly and are around 130 x WS 110.
- Aframax (Asia): The Asian Aframax market saw a consecutive week of downward correction due to weaker fundamentals. TD14 dropped another WS5 points to 80 x WS 120. Reported cargoes were quickly covered, with owners accepting charterers’ initial offers, reflecting the situation in the Indo region. Surplus tonnage and limited outstanding requirements suggest continued softer sentiment. Rates are expected to remain under pressure until market participants return after the Labor Day and Golden Week holidays.
- Aframax (AG): Despite limited activity in the AG Aframax market this week, sentiment has shifted towards owners due to a growing list of vessels willing to load in the Gulf of Aden. The weak Indo market will likely cap rates, but the lack of ships willing for the standard TD8 run gives owners hope of pushing AG/East to 80 x WS 150 going into next week.
West Africa
- VLCC: Inquiry in West Africa (WAF) was limited this week, and sentiment has begun to soften. Owners struggled to secure employment for the last decade of May, exacerbated by the downturn in the AG and overall lack of activity in adjacent markets. Rates are expected to decline further as the market awaits June cargoes, with charterers feeling in control. The current assessment for WAF/East is around WS 66.5.
- Suezmax: The West African Suezmax market experienced a negative correction from the middle of the week as limited inquiry and an increasing tonnage list eroded sentiment. There is some fresh inquiry at the close of the week, with charterers testing the region, but no fixtures have been reported yet. TD20 is currently below WS 110 but is expected to settle closer to WS 100 by Tuesday’s London opening.
Mediterranean
- More Suezmax owners covered part cargo stems to keep vessels moving amid a relatively quiet period in the Black Sea. The loading program is expected to condense slightly, with charterers likely to seek coverage early next week. The list of available vessels remains long as fewer ships were fixed for WAF business. With limited inquiry and a softer sentiment in the Atlantic, the market could be tested next week at around 135 x WS 130. Rates for a long eastward voyage (Libya/Ningbo) are currently around $5.5 million as owners are hesitant to book out before the summer period.
- The Mediterranean Aframax market has shown more positive behavior since the post-Easter negative correction. Owner resilience, aided by a significant portion of vessels having uncertain itineraries, became a decisive factor, allowing for premiums on short voyages. Trading is around the WS 180 level, and the week ends with another long weekend. Tuesday’s activity will be key in determining if this break has altered the balance of vessel availability.
US Gulf/Latin America
- The US Gulf (USG) VLCC market had a positive week, with freight rates continuing their recent recovery due to good cargo volume and decreasing vessel availability. Some May cargoes are still reportedly uncovered, and charterers are facing resistance for early June positions. Brazil export activity was quieter compared to recent weeks, and rates slipped following declines in WAF and the East. Current assessments are USG/China at $8.90 million and Brazil/China at WS 65.
North Sea
- An oversupplied North Sea Aframax market put downward pressure on rates, reflected in fixtures. The market is expected to stabilize somewhat next week following another short week due to national holidays in several countries. For now, the market is considered flat.
Clean Products
East (Asia)
Despite the ongoing Golden Week holidays, the LR (Long Range) tanker market in the East has seen limited quietness. Both LR1s and LR2s have been active, with a tight supply of vessels for prompt loading dates. While owners haven’t necessarily achieved higher rates than previous fixtures, they are in a strong position heading into the new week. TC1 (AG to Japan, LR2) has been busy with numerous deals around 75 x WS125 and is expected to see upward movement next week. UKC/Far East (LR2) voyages are around $3.55 million but are also likely to be positively tested. TC5 (AG to Japan, LR1) is holding at the last done level of 55 x WS135, but with the tight prompt market, owners with open vessels for second-decade stems are aiming for higher numbers. Westbound voyages are seeing fixtures around $2.7 million for a 2007-built unit, suggesting rates closer to $2.8 million for younger vessels.
UK Continent
The dynamics of the MR (Medium Range) Atlantic market have shifted. Weakness in the US Gulf has led to tonnage moving towards the UK Continent (UKC) and the Mediterranean. This, combined with slow export activity from Northwest Africa (XWAF) and West Africa (WAF), has resulted in vessels arriving at Bishops Rock and Gibraltar from across the Atlantic. While there has been a reasonable flow of cargoes, the LRs taking the majority of WAF volumes has left insufficient volume for MRs, leading to a weak outlook for this segment.
Sentiment in the General Handy market took a downturn this week. The North had been stable for many weeks, but that stability has broken. Rates have corrected downwards, with 30 x WS152.5 now the prevailing rate for XUKC voyages. Mediterranean runs are expected to price around 10 points lower, but owners are currently reluctant to go south due to the impending summer lull east of Gibraltar.
Mediterranean
In the Mediterranean MR sector, charterers have regained the upper hand. With limited cargoes being quoted, rates have eroded. The last done fixture is at 37 x WS132.5, and with the UKC market also declining, this softer sentiment is expected to persist unless there is a surge in complex stems.
A challenging week concludes for Handy owners in the Mediterranean, with rates under pressure throughout. A week disrupted by bank holidays, power outages, and the upcoming UK bank holiday saw rates for 30,000 dwt vessels fall from WS160 to WS135, with little positive stimulus. With both MRs and UKC Handies also struggling, little optimism is expected in the near term.
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Source: Gibson
