Dirty – East of Suez: Rising Aframax DPP voyages to Asia amidst higher fuel oil loadings from Russia and the Middle East
Clean – East of Suez: Clean supertankers slashed LR rates in half, but clean/dirty tanker freight spread widens once again
Dirty – West of Suez: Aframaxes lose out to Suezmaxes on the transatlantic route, but plummeting freight rate spread could spark a reversal
Clean – West of Suez: MRs trading in Russia trade flexibly and opportunistically, moving between Russia and other markets
By Mary Melton
Dirty – East of Suez: Rising Aframax DPP voyages to Asia amidst higher fuel oil loadings from Russia and the Middle East
Aframax tankers may have found some solace in rising employment in the DPP trade to Asia amidst weakness in the wider market
➔ The number of active DPP Aframax voyages to Asia has been climbing steadily since early August, reaching the highest since April last week
➔ Higher fuel oil loadings from Russia and the Middle East, amidst rising supplies in these regions, have driven this increase
➔ Aframax tonne-mile demand on these routes has correspondingly surged
As Aframax employment in the DPP trade to Asia only accounts for a mere 5% of total Aframax demand globally, this development has offered limited support for overall Aframax freight rates
Russian fuel oil exports could see further upside in Q4 as refineries ramp up post-maintenance
However, Middle East refineries are expected to enter planned maintenance next quarter, which could dampen fuel oil supplies from the region
Clean – East of Suez: Clean supertankers slashed LR rates in half, but clean/dirty tanker freight spread widens once again
43 supertankers (13 VLCCs and 30 Suezmaxes) switched to carrying clean products in 2024 on the back of a spike in LR East-to-West of Suez freight rates due to the Red Sea attacks
➔ Operators switched to crude tankers due to cheaper freight rates being more profitable, even when considering cleaning costs of dirty cargo holds
➔ Around 2 mn tonnes of CPP per month (predominantly middle distillates) are carried on these tankers, which results in around 22 LR2s, equal to 13% of global LR2 monthly utilisation
➔ As a result, LR freight rates have dropped to half their value since their last spike in April 2024
However, support of LRs for the naphtha flows East and limited availability for LRs in the MEG has once again widened the spread between clean and dirty tankers, suggesting the cleaning-up trend may continue
Dirty – West of Suez: Aframaxes lose out to Suezmaxes on the transatlantic route, but plummeting freight rate spread could spark a reversal
Competition between vessel classes on the transatlantic route Gulf of Mexico-to-NW Europe is currently fierce
➔ Although a trademark Aframax route, Suezmaxes continue to erode Aframax market share and VLCCs are turning to the shorter route as employment to Asia remains subdued
Suezmax voyage counts on the route have remained high during most of 2024, eating into Aframax market share on the route, especially since June Very high supply-side pressure is keeping Aframax freight rates low, and TD25 is currently hovering at a 12-month low
➔ This has caused the Aframax and Suezmax TA freight rate spread to narrow to a low not seen since January 2022 (Argus)
➔ This could spark higher enquiries, and a slight recovery in Aframax employment on the route, as the low rates will likely prove attractive to charterers
However, demand will likely face headwinds as European refinery maintenance season is underway
Clean – West of Suez: MRs trading in Russia trade flexibly and opportunistically, moving between Russia and other markets
Russian diesel has largely remained under the 100 $/b price cap except for three months beginning in early Aug-23 (Argus)
Because of this, the MR fleet lifting Russian diesel has dipped in and out of the Russian diesel trade based on earnings and demand-side factors, especially after this year’s attacks on Russian refinery infrastructure and seasonal maintenance reduced export volumes
For all MRs active in the Russian diesel trade, only 26% are ‘established’ in the trade and lift Russian cargoes over 67% of the time
The majority engage with Russian trade ‘flexibly’, and carry Russian cargoes between 33% and 67% of the time
These flexible trade patterns are unchanged y-o-y (see chart), underscoring the relatively low threat of sanctions enforcement for clean tankers and the lack of multiple-tiers in the global clean fleet
This flexibility and interaction with the mainstream market is not experienced by the fleet trading Russian crude, which mostly only lift Russian and other sanctioned crude cargoes, due to Russian crude pricing above the cap and subsequent sanctions enforcement
Data Source: Vortexa