In the crude tanker market, we have witnessed a return of spectacular volatility, with spot earnings on several key Suezmax and Aframax trades in the Atlantic Basin briefly spiking close or in some cases even above $100,000/day on a non-scrubber, non eco basis recently. VLCCs, the tanker segment most vulnerable to the Middle East OPEC+ production cuts, have also seen a sizable uplift in earnings, albeit perhaps not as impressive as the one experienced by smaller segments.
What has driven this spike and more importantly is this impressive volatility here to stay? In short, the latest spike has been driven by increases in both OPEC+ and non-OPEC crude exports. In the US, robust domestic crude production coupled with the ongoing refining maintenance season has supported elevated crude exports in recent months. We have also seen a rebound in West African crude exports, largely due to higher Nigerian production. Meanwhile, the Middle East OPEC+ crude exports (excl. Iran) have seen a notable uplift since August lows, helped by regional refining maintenance. Furthermore, and perhaps most importantly for long haul Suezmax and Aframax demand, Russian crude exports from Western terminals have been on the up since September, despite voluntary production cuts and Urals reportedly continuing to trade above the price cup level, seemingly unaffected by the latest US sanctions on two individual ships. Russian crude volumes averaged circa 2.25 mbd in Sep/Oct, up by nearly 400 kbd compared to their average over the previous two months, with exports also being positively impacted by Russian refinery maintenance taking place in autumn. We have also seen a glimpse of weather-related delays, with bad weather in the Mediterranean leading to temporary port closures and Turkish Straits delays increasing.
In recent days, crude tanker rates have started to soften, although they still remain at very healthy levels. Going forward, Russian and Middle East crude exports could face some downward pressure, following the end of the refinery maintenance season. Similarly, US crude exports could also ease back somewhat, given local refining activity; whilst Nigerian outflows could see renewed downward pressure, with NNPC announcing that it will supply up to 6 crude cargoes to the new 650 kbd Dangote refinery to be used in test runs. Furthermore, given the recent slide in oil prices despite heightened geopolitical risks, it seems likely that OPEC+ will maintain its current production quotas and voluntary cuts in place for the time being. Although the above suggests some headwinds for crude tanker demand, there are also pockets of positivity. There is strong demand for Venezuela’s barrels, whilst Guyana crude exports are likely to see an uplift soon, following the start-up of the new Payara oil field, with a nameplate capacity of 220 kbd. A planned increase in Angola’s preliminary loading program in December has the potential to offset lower Nigerian exports at least partially. More importantly, we will be facing a heightened risk of weather-driven volatility in the Northern Hemisphere over the next few months. Turkish Straits delays typically increase towards the end of the year, peaking in January, and remaining at elevated levels in February. In the Baltic, the ice-class season is always unpredictable, but should ice-class conditions develop, tonnage engaged in Russian trade will find an additional element of support. Bad weather in the Mediterranean and the North Sea can also at times disrupt itineraries. The Aframax and Suezmax markets are likely to be the main beneficiaries from these disruptions due to larger trading volumes in the affected markets in the Northern Hemisphere, but VLCCs on intra-Atlantic trades will also find themselves more competitively priced.
Russian Crude Exports in the West (kbd)
Data source: Gibson Shipbrokers