Key takeaways from this report:
Dirty – East of Suez: India diversifying its crude purchase to replace Russian barrels
Clean – East of Suez: East/West LR tonne-miles fall to 2023 levels as Europe demand slows, further damage from Red Sea opening
Dirty – West of Suez: Suezmax voyages remain strong on the aftermath of sanctions
Clean – West of Suez: Ample MR availability in the US Gulf drives freight to lowest levels over the past 24-months
Dirty – East of Suez: India diversifying its crude purchase to replace Russian barrels
India is reducing Russian crude purchases in response to the latest OFAC sanctions
Weekly data shows a notable increase in crude import volumes from the Middle East, fueling firmer VLCC rates on Arabian Gulf–India routes. This spike could be driven by spot purchases following a recent announcement, reflecting responsive buying behavior
➔ The demand continues to support short-haul regional voyages, maintaining pressure on vessel availability
Indian refiners have increased crude purchases from the Gulf of Mexico, strengthening long-haul demand for Suezmax and VLCCs
➔ The rising volume of these longer-distance trades is contributing to tonne-mile growth
Market speculation suggests a shift towards higher crude purchases from West Africa. While not yet fully reflected in current data, early signs of a slight uptick in activity have emerged
➔ Although the increase is modest for now, it could lead to higher Suezmax demand, tightening vessel availability in the Atlantic Basin and placing upward pressure on regional freight rates
Clean – East of Suez: East/West LR tonne-miles fall to 2023 levels as Europe demand slows, further damage from Red Sea opening
Loss in Europe-destined middle distillate flows from Wider Arabian Sea have started to pressurise East-to-West LR transits and tonne-mileage
➔ The loss in flows comes from supply constraints in the Red Sea, and India West Coast exports remaining in Pacific Basin as European CPP demand flatlines
East/West LR tonne-miles in Jan-25 have fallen close to 2023 levels, despite rerouting around the CoGH, due to materialised loss in tonnage
Greater loss in global LR tonne-miles would inevitably come with a full reopening of Red Sea transits, but offsetting partial damage requires rejuvenated European demand for middle distillates
➔ In Low Case, assuming sustained low East-West flows, expect a net loss of 266bn tmi (18% of global LR tmi based on annualised 2024 Q2-Q4 figure)
➔ In High Case, if flows recover to 2024 Q2-Q4 volumes, net loss softened to 175bn tmi (12% of global LR tmi)
As LR earnings are under mounting pressure, and with high LR2 deliveries this year, expect LRs to be incentivised to dirty up and enter crude/DPP trade for more profitable employment
Dirty – West of Suez: Suezmax voyages remain strong on the aftermath of sanctions
Suezmax global voyages remain robust on the back of developments in both the Atlantic and the Pacific Basin:
➔ Healthy exports from West Africa, predominantly to Europe, could be further supported by flows towards India as the nation seeks to procure non-Russian grades
➔ This has also triggered a ramp-up of Middle Eastern cargoes to India, onboard Suezmaxes, supporting further the demand of the vessel classes
➔ Strong STS activity offshore Brazil could hint at an increase in Brazilian exports in the near-term
The recent geopolitical developments (US sanctions on Russian-traded tankers and a prospective stop of Red Sea attacks) could result in bringing higher Suezmax utilisation from East of Suez-origins
➔ This will likely be predominantly flows from Middle East Gulf to India and Europe
➔ This could result in softer competition with Aframax tankers in the Atlantic
Clean – West of Suez: Ample MR availability in the US Gulf drives freight to lowest levels over the past 24-months
Relatively high MR availability out of the US Gulf Coast, has kept freight rates under pressure
➔ Especially TC18 (US Gulf to Brazil) and TC14 (US Gulf to Continent) rates have moved downwards since mid Dec-24
➔ These levels are the lowest seen over the past 24-months
➔ Ample ballast MR availability since August last year and remaining well above year-ago levels have kept rates suppressed
Preliminary Feb (days 1-8) data for US Gulf Coast Motor fuel exports indicate flows falling off sharply after reaching record highs in Dec-24
➔ Falling refinery utilisation driven by PADD 3 refinery turnarounds has pulled barrels away from export markets, especially curtailing flows to LatAm and Europe
➔ Sharp declines in European diesel imports from the USGC is another factor contributing to rising MR availability
Freight price rally which started early Dec-24 could not be sustained due to fall in exports; meanwhile as refineries gear up for spring maintenance, a rebound in freight prices could wait until the summer driving season
Data Source: Vortexa