Beating Expectations

Back in January 2023, the US Energy Information Administration (EIA) envisaged US crude production growing by 550kbd over the course of the year. The reality however has beaten all expectations, with the country’s output increasing by 1.01 mbd according to the latest assessments. There also was strong growth in Natural Gas Liquids (NGL) production, which gained by 490kbd YoY. The surge in output has been primarily underpinned by smaller companies financed by private capital, driven by higher oil prices since the Russian invasion of Ukraine; whilst bigger, public companies displayed an element of discipline, perhaps not willing to repeat the mistakes of the past, when they ramped up production during a high oil price environment which ultimately contributed to lower prices.

Last year’s increase in crude production naturally led to stronger crude exports, with shipments up by circa 650kbd, according to Kpler. The lion’s share of augmented production unsurprisingly headed to Europe, with an extra 400kbd shipped transatlantic. Yet, US Gulf-Asia crude trade also saw incremental growth, rising by almost 200kbd over the same period, benefiting largely VLCCs. Ironically, VLCCs also were the main beneficiaries of increases in trade to Europe, with their share of that market increasing from 22% in 2022 to 35.5% in 2023.

Going forward, however, the prospects for US crude production are more challenging. Production is still expected to grow on the back of increased well productivity, but absolute growth rates are likely to slow.  The US EIA expects crude output to rise by 300kbd this year and by another 200kbd in 2025, well below the growth rates seen in 2023. The administration also anticipates a dramatic slowdown in NGL production growth, to below 100kbd per year both in 2024 and in 2025. In contrast, the International Energy Agency (IEA) sees stronger growth next year; however, they also anticipate a slowdown in growth rates. Their latest estimates suggest US crude production will increase circa 440kbd next year, whilst NGLs will grow by 290kbd, bringing the total US supply gain in 2024 to 730kbd, half its growth rate last year. Much smaller gains are anticipated in light tight oil production, as the effects of lower activity levels and reduced inventory of drilled but uncompleted (DUC) wells are felt by the industry. According to Baker Hughes Rig Count data, drilling activity in Q4 2023 was around 20% below its level in Q3 2022. The IEA also highlights challenges and uncertainty in the shale sector by pointing out the results of the latest quarterly Dallas Fed Energy Survey, which indicated that business activity and sentiment remained low. Additionally, larger producers stated that their targets in 2024 were to acquire assets and reduce debt, whilst smaller producers said their priority is to maintain or grow their output. If these projections prove to be correct, then inevitably the growth in crude tanker trade out of the US Gulf ought to slow down, although any decline in the US crude refining runs will benefit export activity. Also, with the US gains last year being much stronger than originally envisaged, what are the chances of production being revised up again? Only time will tell…

Outlook for US oil supply (mbd)

Crude Oil

Middle East

Freight rates are under downward pressure as a quiet start to February has left an oversupply of tonnage scrambling for early February cargoes. Furthermore, with Atlantic rates also weakening, Owners’ options are more limited. In today’s market we are calling 270 AG/China ws 65 and 280 AG/USG ws 44.5.

Somewhat of a no-go region in the Red Sea continues to put further pressure on enquiry. This has resulted in inflated levels on a tight early position this week, resulting in 140,000mt x ws 120 going on subjects for a TD23 run. While the situation continues to be ongoing in the region, there is still volatility expected; however, larger tonnage remains a potential release for those who can take it.

After tensions in the Red Sea reached new heights this week, the pool of ships looking to avoid the Red Sea rose, which in turn saw rates tumble south on AG/East. Sentiment remains soft and we do not expect any swing over the next week, as diverse options remain available to Charterers. AG/East ends the week at 80,000mt x ws 190, but with prompt ships and more on the horizon from the Indo region paired with the softening of surrounding sizes and markets, we expect to see rates come off further.

West Africa

It’s been slim-picking for VLCC Owners in WAF this week as rates have fallen accordingly. Charterers have been in the driving seat here, with the downturn in both AG and USG hitting Owners sentiment; so today we are expecting WAF/China to fix at ws 66 level.

The West Africa Suezmaxes this week have once again suffered from a relatively quiet week in the way of fresh enquiry. With little stimulant offered from surrounding regions, we close this week out with a weaker sentiment. Looking ahead towards next week, expect Charterers to be putting pressure on last done levels, with a fresh test on the cards in early trading. For a standard TD20 run, rates could come under pressure at 130,000mt x ws 140. Premiums to head East stand at approximately ws 10 points.

Mediterranean

The Mediterranean has remained fairly steady this week, with early trading thinning out the front end of the CPC position list; however, in general maintaining last done levels around the 135,000mt x ws 145 mark. Yet, Aframaxes look to have topped out the Suezmaxes as far as fixing levels go.

The week for Aframaxes was a fruitful one at the start for Charterers. A spate of bad weather and forward fixing put Owners on the front foot and rate gains were seen. Ceyhan voyages moved up to ws 205, then ws 227.5-220 levels and CPC voyages hit ws 240 as everyone came out to play. Only a slightly disappointing Libyan program dampened the outlook but otherwise, Owners were pleased with their work. However, with a few Charterers being fortunate with avoided replacements and with the States market eventually suffering the inevitable ballaster correction, sentiment took a turn by the close. This, coupled with a silent day’s trading allowed discounts to be quickly achieved. Ceyhan cargoes first slipped to ws 215 and then easier Libyan and Algerian loaders were concluded at ws 210 and ws 205. The vibe is one of further softness here, but it depends on how the next week’s trading begins.

US Gulf/Latin America

A disappointing week here as rates began to plummet despite a good level of activity but Owners were buoyed by a plethora of tonnage ballasting from the East and this more challenging trading environment is likely to roll into next week, especially as we approach the refinery maintenance period. We expect a USG / China run will fix in the region of just $9.5m on today’s market,  while Brazil/China is paying around the 64 level.

North Sea

Fuel enquiry has covered a fair amount of this week’s dialogue in the North, with a mixed bag of queries. The local market is holding in the low-mid ws 180s and seems relatively stable for now. US units arriving in Northern Europe could swing things a bit but with weather causing delays across multiple ports, a balance and sideways market movement seems to be more likely in the near term.

Crude Tanker Spot Rates (WS)

Clean Products

East

A frantic week for the LRs. Both sizes seeing a lot of product entering the market, adding to the fact that the situation in the Red Sea continues to cause huge uncertainty. It led to lists tightening right up and last done levels being smashed as Charterers struggled to find coverage as more and more stems entered the market. TC1 has seen big jumps on each last done, currently at 75 x ws 235 on subs. TC5 on subs at 55 x ws 265 and Owners pushing for higher on next. UKC has been interesting to cover and in most cases being traded basis GOGH only. LR2s heading West (for now) at $6.6m (COGH) and LR1s at $5.5m (COGH) levels.  As we head into the weekend, there remain several outstanding stems, with further enquiry coming on both sizes. There seems to be no let-up and expect that next week will continue in the same vein.

The MRs continue to be very busy in the AG in a week where all routes have seen rates and sentiment climb. Whilst there has been some attempt to fix off-market, rate increases haven’t been buried for long, pushing up next done with each cargo shown. With a flurry of ws 280s on TC 17 to start the week, we close with ws 310 on subs and ws 280 soon to look good for TC12. February dates are being covered, as the number of ships with good itineraries for the next 14 days continues to tighten and, with replacement tonnage not coming from either the East or West, the expectation is for current sentiment to hold.

North Asia cargo volume slowed down off end Jan and early Feb but prompt cargos and replacement helped push up the rates. Delays caused by bad weather were common in China, Korea and Japan. Singapore market continued to firm up amid healthy regional demand, uncertain discharge schedule and pulling from the strong AG.  

Mediterranean

Overall, it’s been a positive week for the Handies here in the Mediterranean, with X-Med levels able to tick up a touch. 30 x ws 195 was the call for X-Med on Monday morning, where it remained steady until a large influx of cargoes hit the market midweek. With the list growing tighter on the front end, X-Med rates have now pushed up to the 30 x ws 205-210 levels, with Bsea/Med to positively correct at a +40 premium next done. At the time of writing, a couple of end-month cargoes are outstanding and more likely to be quoted come Monday, there is potential for further gains next week, especially with poor weather hitting the Med over the weekend.

Finally, to the Med MR market where for a change, sentiment is being very much driven by its UKC counterpart. Med/TA began the week at 37 x ws 165 but with good enquiry over the first half of the week, rates were able to push to 37 x ws 172.5. This is currently the last done level but since then TC2 has gone through the roof and is now pushing towards the 37 x ws 250 mark without a sign of slowing down. Off the back of this, expect Med/TA to land at least 37 x ws 210 next done, with WAF also to correct positively.

UK Continent 

A very positive week comes to an end for MR Owners in the UKC, with one of the main drivers being the excess of WAF stems with large premiums. We started the week somewhere down in the 37 x ws 120 regions for TA but, as a few Charterers carefully picked their way through the tonnage list come midweek, the writing was on the walls for Owners. We moved up to 37 x ws 145 for TC2, but the real increases were to be seen for WAF as last done of 37 x ws 180 was replaced by ws 190, to then be replaced by ws 230 (admittedly Tema requirement also). With these improvements paired with nearly a dozen outstanding stems come Friday afternoon, the few ships that remain workable have a plethora of options to pick from. Where to call this market next is anyone’s guess, but a few certainly will be looking towards the mid-200s next for TC2.

And this momentum didn’t stop at the MRs as we saw suddenly a multitude of stems quoted on the Handies as Charterers looked to keep freight levels low. It didn’t take long before the majority of the tonnage list was clipped away and within 2 fixtures we jumped from 30 x ws 150 to ws2 00 essentially.  Further gains have been had since then and similar to MRs, we see a number of cargoes outstanding with minimal tonnage options.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A rollercoaster of emotions describes the Continent and the Mediterranean this week. Both sectors started the week firm as the North began with one Owner fixing at ws 327.5 for X-UKC; however, enquiry failed to kick on from here, leaving the region slightly sluggish. Rumours of ws 330 on subs circulated today, which has given this sector some life again.  In the Med, we reached a peak of ws 320 for an ex-Taranto cargo, but similar to what happened in North, enquiry paused midweek, and we saw a quieter end to the week. Med has a steadier feel, which could see levels trade sideways early next week.

MR

Natural tonnage was thin on the ground for this week. Levels traded in the low ws 220s but fresh enquiry overall lacked. One unit opening up on Monday and with the Handy market looking to firm, we should see an increment when the next test arrives.

Mirroring the North natural sized availability lacked. A few more are expected to firm up in the West Med over the weekend, providing the current weather eases. East Med availability is expected to remain tight but, with the overall lack of 45kt enquiry as of late, expect rates to trade sideways.

Panamax

Another lacklustre week for the Panamax market. Short supply and a lack of enquiry have left both Owners and Charterers feeling slightly in the dark about where the next levels will result. Whilst we wait for long and short haul enquiry to surface, the States market continues to keep tonnage on that side of the pond occupied after another successful week as levels rise to ws 320+ for Caribs/USG.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeJan 18thJan 11thLast Month*FFA Q1
TD3C VLCC AG-China WS-366695464
TD3C VLCC AG-China TCE $/day-3,50040,00043,50033,00037,000
TD20 Suezmax WAF-UKC WS+0143143106121
TD20 Suezmax WAF-UKC TCE $/day+50061,00060,50045,00047,500
TD25 Aframax USG-UKC WS-66237303160211
TD25 Aframax USG-UKC TCE $/day-24,25062,25086,50039,75053,000
TC1 LR2 AG-Japan WS+47201154191 
TC1 LR2 AG-Japan TCE $/day+16,25047,50031,25052,500
TC18 MR USG-Brazil WS-1219220286208
TC18 MR USG-Brazil TCE $/day-25024,75025,00044,50022,750
TC5 LR1 AG-Japan WS+66254188199235
TC5 LR1 AG-Japan TCE $/day+17,00046,75029,75038,50041,750
TC7 MR Singapore-EC Aus WS+39289250205237
TC7 MR Singapore-EC Aus TCE $/day+6,50033,75027,25022,50024,500

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

Bunker Price s ($/tonne)

wk on wk changeJan 18thJan 11thLast Month*
Rotterdam VLSFO  -4542546551
Fujairah VLSFO  +5590585616
Singapore VLSFO  +16606590610
Rotterdam LSMGO  +0740740769

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