The current scenario in the shipping market, particularly for Very Large Crude Carriers (VLCCs) and Large Range 2 (LR2) tankers, is characterized by lower ballast vessel arrivals and weak rates. This trend is particularly noticeable in the Middle East Gulf region, reports Breakwave Advisors.
Low Ballast Vessel Arrivals
Mideast Gulf crude loadings could potentially see downside risks in the weeks ahead as highlighted by several indicators:
➔ Ballast arrivals of dirty tankers into the Mideast Gulf are down for the third week in Oct (week of 21 Oct), reaching multi-year lows
➔ 3-week MA of dirty tanker prompt availability in the Mideast Gulf is trending at the lower end of the historical range
➔ Dirty tanker freight rates, such as TD3C Mideast Gulf-to-China, have remained tepid
Mideast Gulf (excl. Iran) crude loadings have risen marginally m-o-m in October, led by higher Saudi Arabia and Oman loadings
➔ Import appetite from Asia and Europe could remain lukewarm amidst structural demand weakness and ample supplies of Atlantic Basin, as in the case for Europe
➔ With several major Middle East refiners shutting down for planned maintenance this quarter, Middle East producers may be driven to raise exports to dispose of their surplus crude
Tankers Switching Back?
Freight rates for LR2 on the TC1 (MEG-East Asia) and TC20 (MEGEurope) routes have declined due to softer naphtha and diesel demand in East Asia and Europe, down 60% and 50% from early Q3 2024 levels
This has triggered a migration of LR2s from the clean to the dirty trade as dirty freight rates have displayed an upward trajectory post summer losses. Is this trend sustainable?
➔ Aframaxes have found support in the Mediterranean on the gradual return of Libyan volumes and higher employment out of Sidi Kerir since the start of September
➔ Aframaxes have also found support on the TMX trade (read more on Dirty – West of Suez section)
➔ Declining crude prices could bring Urals below $60/b which could entice Western operators back to the trade alleviating competition from the mainstream trade
➔ However, an overall weakness in the crude demand picture could limit transition from clean to dirty trade
Supply Side Story
TC2 (Europe-to-PADD 1) freight rates are currently hovering at 3-year lows, underpinning the weaker freight fundamentals for MRs in the Atlantic Basin
Whilst slowing transatlantic gasoline trade has played a part on this rate decline, this is mainly supply-side driven
➔ Looking at the MR fleet distribution in the Atlantic, there is a higher accumulation of vessels in Europe and West Africa at the expense of the Americas East Coast
➔ As a result of lower employment, MR2s have gained market share from Handysize tankers on the Cross-Mediterranean trade in September and October
Looking ahead, an open arbitrage for pipeline flows from PADD 3 to PADD 1, as well as the start of gasoline exports from Nigeria’s Dangote refinery to the local West African market, is expected to exert further downwards pressure on Atlantic Basin MRs.
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Source: Breakwave Advisors
