There has been an increase in VLCC activity at Saudi ports in November. More tankers are loading crude oil from Saudi Arabia, and a higher number of tankers are arriving in ballast. This suggests that Saudi crude oil exports are increasing, reports Breakwave Advisors.
Waning Appetite
Cleaned-up supertanker E-W voyages still occurred in November, although voyage counts were 60% lower than the Jul/Aug peak
This plus high volumes of middle distillates arriving in Europe have once again limited LR employment to the Atlantic Basin, and LR transits past the Cape of Good Hope reached 10-month lows last week
As a result, LRs are increasingly staying in the Pacific Basin, where voyage mileage is significantly less
- With Europe’s decreasing demand, middle distillates loaded in the Middle East and India are staying within Asia
- Notably, Asia exported no jet/kero cargoes to Europe so far this month (days 1-15), and India’s jet exports to Singapore reached a multi-year high over the same period
- The lack of LR voyages to the Atlantic Basin has the potential to put further downward pressure on LR freight rates in the Middle East due to reductions in tonne-mile demand
- MEG vessel supply will likely remain quite high, as the backhaul after a Pacific Basin discharge is shorter
Rising VLCC Usage
In the second half of this year, falling demand for PADD 3 crude exports to Asia due to lackluster Chinese buying, has severely curtailed VLCC tonne-miles from PADD 3
- As a result, VLCCs are competing with Aframaxes and Suezmaxes on intra-Atlantic Basin routes, specifically USGC-toEurope
- The share of VLCC tonne-mile demand from PADD 3 on the TA route to Europe has been steadily increasing since June, and last week accounted for 20% of all VLCC tonne-mile demand from PADD 3
- This is likely contributing to falling tonne-mile demand for the past 3 weeks for Aframaxes and Suezmaxes on the TA route
The recent sharp increase in TA VLCC employment is likely in anticipation of a late Q4 pick-up in longer-haul demand to the East, leading VLCCs to stay nearby the Atlantic for now
Although fixing activity is picking up for voyages East, reports of fixing on VLCCs for mid-December loads to Europe (Argus) point to continued competition from VLCCs and possible headwinds on Aframax earning potential on TD25 to close out the year.
Front Haul Movements
As we have discussed in previous issues, TC2 (Europe-to-PADD 1) voyages remain quite soft, triggering tonnage oversupply issues within Europe
- The tonnage overhang is also exacerbated from record-high TC14 (US Gulf-to-Europe) voyages
- The number of transatlantic ballast voyages have caught up with the softening of TC2 flows
- These are indications of a shift in flows, with the US Gulf becoming the traditional front-haul voyage for the Atlantic Basin MRs
- Structural changes related to Europe’s refining challenges could make this shift to US Gulf –origin voyages more persistent in the long run
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Source: Breakwave Advisors
