Small impact on VLCCs from OPEC+ production cuts phase-out delay

  • Dirty – East of Suez: Small impact on VLCCs from OPEC+ production cuts phase-out delay; loss of about 8 extra voyages

  • Clean – East of Suez: High intra-NE Asia MR demand underscores the region’s CPP oversupply and refining margin pressures

  • Dirty – West of Suez: Aframax crude employment is losing out across both mainstream and Russian trade

  • Clean – West of Suez: LPG/Ethane tonne-miles via the Panama Canal rebound

By Mary Melton

Dirty – East of Suez: Small impact on VLCCs from OPEC+ production cuts phase-out delay; loss of about 8 extra voyages

With the decision to delay the unwinding of OPEC+ production cuts to December instead of October, we looked at the impact this delay will have on VLCC utilisation

Currently, VLCC utilisation from OPEC+ origins is below the 12-month average at a time when VLCC utilisation is lacklustre globally

  • However, the delay in unwinding the cuts will translate to the following lost crude exports: 180kbd in Oct, 360kbd in Nov and 180kbd in Dec

Factoring in the proportion of OPEC+ exports carried on VLCCs, this only translates to around 8 lost VLCC voyages due to the phase-out delay

  • As the average daily utilisation of VLCCs from OPEC+ is about 308 vessels, 8 missed voyages over a 3-month period is insignificant

Even if production cuts were being phased-in from October as originally planned, the expected seasonal pickup in Q4 demand instead of extra OPEC+ production would have provided the majority of VLCC employment by a wide margin

Clean – East of Suez: High intra-NE Asia MR demand underscores the region’s CPP oversupply and refining margin pressures

Lacklustre MR demand for voyages leaving Northeast Asia coupled with supply-side pressure is pushing the region's MR freight rates to18- month lows

However, utilisation for voyages within NE Asia is robust, but a lack of demand for longer-haul voyages to Oceania is keeping vessel supply in the region elevated

  • Tonne-day demand for voyages within NE Asia over the last two months has been high, especially for diesel cargoes

  • This underscores the problem: there is a lot of product in the region and inadequate demand, which is pressuring refinery margins and keeping stocks fairly high

Though seaborne exports may increase in the short-term to compensate for weaker domestic consumption in NE Asia, if demand remains muted there will continue to be pressure on the region’s MR demand

Chinese CPP export quotas could offer a short-term boost to MRs, but this will likely pressure the region’s refinery margins further

Dirty – West of Suez: Aframax crude employment is losing out across both mainstream and Russian trade

A potential dip in transatlantic flows on the back of the European maintenance season could exert pressure on Aframax rates

  • Aframax global laden utilisation for the crude trade dropped below 50% for the first time this year

Zooming in on employment, Aframaxes are not only losing steam in the mainstream trade, where voyages lie below seasonal ranges, but also in the Russian trade due to increased sanctioning activity

  • On the Russian trade, Suezmaxes have gained ground

This is especially concerning considering the boost from the TMX expansion has already come into full effect

  • The impending ramp-up of Dos Bocas refinery could even further soften intra-Gulf of Mexico utilisation, with the US likely turning to Canada for pipeline flows to replenish the lost barrels from Mexico, leaving seaborne demand at a net loss

  • However, a further drop in crude prices could bring Urals below the price cap, attracting more Western operators to the Russian trade and alleviating mainstream trade supply

Clean – West of Suez: LPG/Ethane tonne-miles via the Panama Canal rebound

LPG/Ethane tonne-miles passing through the Panama Canal have rebounded to pre-drought levels

  • However, in August global LPG/Ethane tonne-miles have receded, likely from lack of demand

  • Arrivals of LPG into top ports have been stagnating for the past few months

  • Chinese imports of Ethane have also trended lower over the past two months, further pressuring tonne-miles

LPG freight rates have also fallen due to weaker demand

  • Also contributing to slowing tonne-miles were lower Chinese PDH margins and run rates (Argus), plus the narrowing LPGnaphtha spread, which makes naphtha a more attractive cracker feedstock

  • As the drought situation in the Panama Canal has improved, we are likely to see tonne-miles via the Panama Canal returning to normalcy and likely increase as winter LPG demand from NE Asia is on the horizon

Data Source: Vortexa