Aftershock

With so much short-term uncertainty surrounding the Middle East War, most are focused on the near-term implications. However, the conflict will have lasting impacts, forcing many countries to reevaluate their attitudes towards energy security in terms of free trade and sourcing of essential commodities, alongside domestic energy production and the fuel mix which powers their economies. Yet in a less extreme sense, we have been here before with the Russia-Ukraine War. Here, the loss of energy supplies was primarily a European problem, with the conflict ultimately doing little to reduce Europe’s import burden and ironically making the region even more dependent on Middle East energy. So, with Europe facing its second major energy crisis in the space of 4 years, and Asia reeling from the loss of its most critical suppliers, surely economies around the world will be forced to make major changes to energy policy to avoid ever being crippled in the same way again?

Nations around the world have several options. Firstly, the current crisis could accelerate a shift away from imported hydrocarbons. Given that higher oil and gas prices can ultimately improve the competitiveness of renewables, energy sources such as solar and wind, which have taken a beating over the past 12 months but are quick to deploy, could see a surge in demand. Electric vehicles are already seeing an increase in demand, with reports of sales bouncing back in the US and Europe following a slow down last year.

However, in an energy crisis, how green, clean or ethical a fuel might be is less of a concern. Countries across Asia, including India, South Korea, Vietnam, Indonesia and Thailand have all taken steps to increase coal fired power generation, despite environmental regulations. Likewise, countries are re-evaluating attitudes towards sanctioned commodities, taking a “needs must” approach, as evidenced by the recent EU decision to delay the full ban on Russian oil. Gas to oil switching is also unlikely. In previous gas price spikes, fuel oil might be used to substitute LNG, though the scope for that today is constrained by oil supply. Countries with idle nuclear capacity such as Korea and Japan are also taking steps to accelerate restarts despite some lingering controversy around the technology. Longer-term, the current crisis will boost the attractiveness of nuclear.

But what about oil and gas? It would be premature to suggest the current crisis could be the beginning of the end for a sector which has shown remarkable resilience in shrugging off any challenge to its dominance in the energy mix. Further, the crisis should refocus politicians on security of supply and resilience. Major economies which have allowed refining capacity to close, such as the UK, might need to ensure no further closures occur to safeguard domestic refining capabilities.

Domestic oil production policies are also likely to be revisited, with an increasingly hostile world showing that both established and relatively new supply chains cannot be unconditionally relied upon. This further highlights the importance of strategic reserves, which many vulnerable countries will need to consider expanding in the coming years to cushion future supply shocks.

So, what might this mean for tankers? Well, that depends on how long the crisis lasts and how deep the economic scars are. In the shorter to medium-term, if this all “blows over”, countries are surely going to be focused on rebuilding strategic reserves. In the case of the US this might divert exports into storage, whereas for Asia and Europe it is likely to boost import demand. Beyond government inventories, commercial storage and refinery stocks will also need to be rebuilt, whilst strong pent-up demand from consumers is also likely to boost demand, provided the crisis doesn’t persist so long that the economic damage is dire. Longer-term, the structural shifts in energy security could alter trade flows and demand levels, though it is too soon to tell how significant those changes may prove to be.

Middle East Oil and Product exports (kbd)

Crude Oil

East

The AG and Red Sea VLCC market started the week on a firm footing, with geopolitical tensions continuing to support sentiment and some activity emerging out of Yanbu as owners looked to cover April stems. As the week progressed, however, freight levels softened following competitive HOB activity, with increased offers highlighting growing uncertainty in the region. Enquiry remained limited overall, although isolated cargoes and quotes such as PTT provided some signs of life. Market sentiment was further influenced by discussions around COSCO potentially resuming container movements, offering some optimism, though uncertainty around transiting the Strait of Hormuz continued to weigh on owners’ appetite. Toward the end of the week, activity remained subdued, with freight easing further, the tonnage list building and availability staying comfortable as owners awaited a clearer pickup in enquiry.

The Suezmax East market remains notably quiet as the continued closure of the Strait of Hormuz keeps activity under the radar. While rumours circulate that some vessels may begin transiting under specific conditions, most owners remain cautious, making AG/East or West rates difficult to test. Trade from Yanbu continues to be absorbed by VLCCs as cargo requirements move away from the prompt window, offering better scale for charterers.

Pretty uneventful in the east but indices reflected otherwise with the td14 climbing 20 pts on the back of a sensitive list given the amount of ballasters. Owners are making a push for rates inline with adjacent markets and suitable candidates should be able to test new ceilings on outstanding requirements. Sentiment is firming as we assess Indo/up 80kt x w220.

West Africa

The WAF VLCC market remained relatively quiet throughout the week, with limited fresh activity reported on the surface. Freight rates held broadly firm, supported by cargoes seeking coverage, although the tonnage list remained healthy and in need of attracting additional participation from the East. Isolated cargoes worked slowly at times, with softer sentiment in the AG and US potentially encouraging more offers if enquiry improves. Mixed signals from recent fixtures, including rumours of WS140 for East runs, created some uncertainty around true market levels, highlighting the need for a fresh test. Toward the end of the week, owners’ sentiment softened slightly following the latest fixtures, although underlying rates remained supported as the market awaits further detail on outstanding cargoes to better assess direction.

WAF Suezmax market remains firm, riding the momentum of a strong USG market. The scarcity of tonnage able to make early loading dates has allowed owners to keep pushing on rates, though a flurry of inbound VLCCs is likely to start impacting the market in the latter half of next week. TD20 remains broadly untested this week, though sentiment suggests a valuation of around 130 × WS390 today. The market is still heavily reliant on ballasters from the East, which is separating it from the forward market in the West.

Mediterranean

On Suezmaxes, the CPC market is showing significant strength, with owners firmly in the driving seat and aggressively eyeing the WS500 mark as we move into next week. With very few ships unable to call CPC, those reliant on regular Med cargoes are also facing real difficulty fixing. The Med/East run remains firm, though increasingly date-dependent. With replenishment levels for Suezmaxes looking thin West of Suez, we anticipate ballasters from the East transiting via Suez to plug the gaps on these runs. Those willing to transit continue to lock in premium returns, and with the East scrambling for prompt oil and fuel oil, this market is likely to remain active next week. Libya/Ningbo we estimate today at around $18m via Suez, with a similar rate achievable via Cape for those willing to work on that basis.

The Med Aframax market stayed heated this week, with strong owner leverage as US enquiry continued to pull tonnage and give owners plenty of confidence. From a base of WS450, cross-Med rates pushed to extreme levels early on as cargoes requiring unappealing discharge options paid a premium, pulling even vanilla runs higher in tandem. By mid-week the sharp upward move appeared to pause in the mid-WS600s, though sentiment has remained firm and underlying fundamentals are still supportive, even as long-haul eastbound business appeared to be reaching the point where freight levels are beginning to hinder trade economics. At the close the Med showed it still had strength, though gains have clearly slowed, and with today considerably quieter the market looks set to move sideways into the weekend rather than extend further. Into next week the broader backdrop remains supportive, with the WTI-Brent spread currently sitting wide as Middle East disruption keeps oil risk elevated and wider tanker dislocation continues to underpin owner confidence.

US Gulf/Latin America

The States VLCC market started the week quietly, with little visible activity and expectations for a pickup in enquiry as charterers looked to secure coverage. Freight initially remained firm, supported by the potential to attract ballasters from the East. As the week progressed, however, increased tonnage availability and a growing number of ballasters began to weigh on rates, leading to some softening in freight levels. Early Petrobras quotes brought intermittent activity to the Atlantic, with competitive tonnage likely contributing to easing levels. Despite this, smaller sizes continued to lend some support, and recent fixtures suggested a relatively steady underlying market. A fresh TD22 test will be key to confirming the near-term direction.

North Sea

Another week of interesting movement in the North Sea Aframax market, with neighbouring markets continuing to outperform and draw tonnage from the region. Levels are holding at WS400, though most seem to think there is a little more in this. Local players are still keeping rates clipped more than they could be, and when running the returns, the ballast to the US market still looks very lucrative for those who can find something working off their dates. Supply is still pretty good for now with a balanced list, though finding the right ship for the right run remains tricky. We see some further upside for this market heading into next week.

Middle East oil and product exports (kbd)

Clean Products

East

As hostilities continue, AG trade remains at a standstill with only WC India and Red Sea oil moving. Sikka exports are freighting at the lowest level, as the only option for most tonnage, with the majority of exports staying local and EAFR the main trade. 60,000mt Sikka/EAFR is at WS155-160, and WS150 on LR2s, though with bunker costs continuing to rise we expect this to approach WS200 for the more recently bunkered ships. Red Sea rates are firm, as much a reflection of West market strength as of continuing BEM issues. LR1s are seeing $1.2-1.3m for cross-Red Sea runs, with Yanbu/UKC at $2.8-2.9m on LR1s and $4.0-4.2m on LR2s. Until the region is safe enough for Hormuz transits, rates will continue to reflect broader market demands rather than local business fundamentals.

A firmer tone this week in the AG MR market, as increased cargo enquiry met a tightening tonnage list driven by continued ballasting West. Much of the remaining fleet is now positioned for premium stems out of Fujairah, Sohar, Duqm and BEM, with fewer owners willing to remain in the region unless higher-paying business is on offer. As a result, availability for standard runs has thinned, reinforcing the stronger market sentiment.

UK Continent

The north has been in an export frenzy since the war started, with plenty of available export volume to ease pressure on global shorts. Far East, SAFR, EAFR, WAF and USWC deals have all been concluded, leaving the tonnage list looking very depleted. Laden inbound tonnage remains the only meaningful addition, while ballast units remain a prized position. Market rates currently sit at around 37 × WS300 TA, WS450 for short-haul, $4.5m lumpsum to SAFR, 37 × WS445 to WAF and $7.05m lumpsum to Japan. The question is what happens next, with two short weeks ahead due to Easter and the crisis showing no sign of easing, the key variable is how much more product Europe can afford to export before domestic supplies come under pressure. This will likely define rates over the next fortnight.

It has been another strong week for Handy owners in the North, as continued flow for both XUKC and UKC/Med has put further pressure on a tonnage list which simply lacks depth. Levels close the week at 30 × WS475 XUKC and 30 × WS465 UKC/Med. MRs have finally begun entertaining short-haul runs this week, with 37 × WS420 the first to be concluded before 37 × WS450 was paid for a naphtha requirement on Thursday. Handies for now remain the cheaper alternative, though sourcing a well-approved unit is causing some disruption. The weekend break has come at a good time for charterers, who will be hopeful of some replenishment come Monday. Owners firmly in the driving seat.

Med 

Despite limited fixing activity, owners will be content with how rates have developed throughout the week. The main driver has been a firming of surrounding markets pulling Med-TA rates higher, with a fair amount of ballast tonnage drawn to other load regions, principally the USG, leaving charterers without a great deal of choice. We sit at 37 × WS295 Med-TA, and this dynamic looks set to continue into next week. Eyes on what the combination of limited tonnage and limited demand will do to this market, though should 37kt clips materialise, rates could correct upwards as owners assess options on a case-by-case basis.

A positive week for Handy owners in the Med, with rates continuing their upward trajectory from last week. We now sit at 30 × WS625, a jump of around 100 points, with demurrage above the $90k mark. Steady cargo flows across the Med have allowed owners to consolidate their bullish positions, with charterers unable to gain a foothold against an understocked tonnage list. Bunker prices show no signs of relenting and, despite some minimal adjustments, look set to continue upward, feeding further positive rate pressure. Eyes on how the weekend restock shapes up, and given two short weeks ahead, it will be interesting to see how charterers play their hand with minimal April enquiry having surfaced as yet. Firm.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

This week saw a quieter pace in the North compared to those prior. The week did start with some enquiries, however, allowing owners to push rates on from WS370 to WS375, where levels currently reside. Widespread rumours of WS377.5 have circulated but remain unconfirmed. The list shows some options for naturally placed tonnage, creating a steadier feel for now. Looking ahead, this quiet tone is unlikely to persist as we expect forward fixing to pick up ahead of the Easter holidays on Friday and the following Monday. Owners will be pushing for WS380 come Monday/Tuesday.

The Mediterranean has seen a very active week, almost from the off, with enquiries flowing into the market. Levels have risen from WS350 at the start of the week to WS410 at the time of writing. Owners’ sentiment has been a key driver, alongside the increasing cost of bunkers, giving owners the confidence to push harder when given the opportunity. The list is tight, and with cargoes still outstanding just outside the natural window looking for cover, we expect next week to pick up where this one left off. Monday’s list feels like an important one for all parties in determining just how far levels here can run.

MR

MR owners in the Med have seen an active week, with WS297.5 reported at the start and owners remaining bullish throughout. Under-the-radar dealings have seen units clipped away, with owners looking to command higher rates when called upon. A fresh and well-publicised test is still needed, but we expect levels to look toward the 45 × WS330 mark. In the North, there has been little action to report, with a handful of units showing in the next fixing window of end first-decade April. We still expect to see rates firm on next done, with levels in the WS280-290 range.

Panamax

TD21 has seen a very busy week, continuing its momentum from the week prior as the region as a whole runs hot. TD21 printed at WS633.75 on Friday compared to WS447.08 a week ago, a week-on-week gain of 186.67 WS points. As noted, this can be attributed to surrounding markets firming and creating positive trickle-down, as well as Handies and MRs being clipped away and pushing charterers toward Panamaxes to fill the void. A number of tenders from across the region have added further upward pressure. We think this sector has further to run as we look to next week. Over this side of the Atlantic, a fresh test out of Med-USG saw WS250 reported to have failed subjects on an ex-DD vessel over 20 years old, though we would not expect to see these levels repeated just yet. A UKC-USG run likely falls in the WS210-220 range for now, with supply in the region scarce. More options are available in the Med ex DD.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

wk on wk changeMar 26thMar 19thLast Month*FFA Q1
TD3C VLCC AG-China WS-48366414163228
TD3C VLCC AG-China TCE $/day-45,500376,000421,500158,750206,750
TD20 Suezmax WAF-UKC WS156413257164207
TD20 Suezmax WAF-UKC TCE $/day103,000229,750126,75079,25090,500
TD25 Aframax USG-UKC WS327761434285332
TD25 Aframax USG-UKC TCE $/day126,000253,750127,75082,75085,500
TC1 LR2 AG-Japan WS35412377166 
TC1 LR2 AG-Japan TCE $/day18,000111,00093,00038,250
TC18 MR USG-Brazil WS106615509291335
TC18 MR USG-Brazil TCE $/day19,50091,00071,50040,00037,000
TC5 LR1 AG-Japan WS36424388183266
TC5 LR1 AG-Japan TCE $/day14,50081,00066,50030,25038,500
TC7 MR Singapore-EC Aus WS61315254218246
TC7 MR Singapore-EC Aus TCE $/day14,75034,00019,25024,00020,500

(a) based on round voyage economics at ‘market’ speed, eco, non-scrubber basis

Bunker Prices ($/tonne)

wk on wk changeMar 26thMar 19thLast Month*
Rotterdam VLSFO  -86698784481
Fujairah VLSFO  -3489001,248504
Singapore VLSFO  -1818531,034513
Rotterdam LSMGO  -19411661,360720

Print the report