Key takeaways from this report:
Dirty – East of Suez: Suezmaxes find employment WAf-to-EoS as Chinese teapots renew interest in West African crude
Clean – East of Suez: Supply-side fundamentals limit upside for TC17
Dirty – West of Suez: Suezmax employment from Guyana soars, but momentum could be capped by weak European demand
Clean – West of Suez: NW Europe MR2s losing out on Atlantic routes seek intra-Europe employment in a challenging market
By Mary Melton
Dirty – East of Suez: Suezmaxes find employment WAf-to-EoS as Chinese teapots renew interest in West African crude
Suezmax employment for West African crude shipments to East of Suez is increasing in November, while VLCC voyage counts are steady
A weaker Atlantic Basin market has seen VLCCs displace Suezmaxes and Aframaxes in transatlantic trade
➔ Suezmaxes have sought alternative employment, as European purchasing remains subdued amid low refining margins
Pressure on Suezmax demand has caused a narrowing spread between VLCC and Suezmax freight rates out of West Africa (Argus)
Meanwhile, Chinese teapots' interest in WAFR grades has resurfaced after a hiatus in recent years. This change is driven by rising prices for their traditionally favoured Iranian crude and Russian Far East ESPO Blend, as competition intensifies from larger Chinese refiners, with ESPO especially sought after for SPR stockpiling
➔ West African crude loadings bound for Shandong teapots (Nov days 1-24) are nearing a 32-month high
➔ The lower parcelling requirements of teapots make Suezmax tankers a more practical and efficient option for these shipments
Clean – East of Suez: Supply-side fundamentals limit upside for TC17
Middle East Gulf-to-East Africa (TC17) freight rates continue to hover around 1-year lows
➔ This is evident despite high CPP MEG-East Africa exports
The main reason for the lack of upward momentum on freight prices lies in supply-side dynamics
➔ Laden average voyage distance for MEG-origin MRs, has declined since the spring, effectively reducing turnaround times
➔ The number of MR ballasters headed towards the Middle East was around record levels in October, limiting any upside opportunities for rates
Looking ahead, MR availability in the MEG for natural fixing windows remains at 12-month highs, whilst the ramp up of refining maintenance activities in the region will provide challenges to clearing out the lengthy tonnage list
Dirty – West of Suez: Suezmax employment from Guyana soars, but momentum could be capped by weak European demand
Due to the seasonal ban in place in from September-January because of swells in the Atlantic, VLCCs cannot load from FPSOs in Guyana
➔ Instead, Suezmaxes undertake these loads
Suezmax voyages from Guyana have soared since the seasonal ban was in place, reaching seasonal record-highs in Sep, Oct and so far in November (days 1-23)
Most of these cargoes are going directly to Europe, increasing Suezmax tonne-miles in the Atlantic Basin
Since the seasonal ban on VLCC loads went into effect in September, tonne-mile demand from Guyana has accounted for on average 17% of all Suezmax tonne-mile demand from the Americas East Coast
However, Suezmax freight rates from Guyana to Europe are currently under pressure (Argus Media) due to a challenging landscape for European crude demand
Clean – West of Suez: NW Europe MR2s losing out on Atlantic routes seek intra-Europe employment in a challenging market
Low demand for European gasoline in PADD 1 and WAf, the trademark MR2 routes from NW Europe, has contributed to months of low tonnemile demand in the region
This has pushed MR2s to compete on traditional handysize/MR1 routes from NW Europe to destinations in Europe
➔ The share of MR2s competing on these routes has increased from 26% in July to about 54% so far in November
➔ The rise in shorter-haul trade has pushed total NW Europe MR2 mileage down to record lows
TC2 (NW Europe-to-PADD 1) utilisation increased over the last two weeks due to higher gasoline demand leading up to Thanksgiving
➔ However, increasing gasoline stocks in PADD 1 (EIA) plus the holiday occurring on Thursday means the momentum from the Thanksgiving buildup is likely short-lived
Reported economic run cuts and long Q4 turnarounds NW European refineries highlight the challenging CPP demand environment
➔ This MR2 strategy of seeking intra-European employment is unlikely to provide substantial returns
Data Source: Vortexa