Carbon Pricing

Undoubtedly, the most significant development at MEPC 83 was the establishment of the IMO Net Zero Framework, which introduced a GHG Fuel Intensity (GFI) standard and economic measures, such as a two-tier carbon trading system requiring higher emitters to offset their CO₂ emissions while rewarding ships that operate with low or zero emissions.

The progress on the Net Zero Framework sparked significant controversy. The US delegation withdrew from the negotiations, warning that it may impose retaliatory measures if international rules impose fees on American vessels based on their GHG emissions or fuel types. Nonetheless, an agreement was eventually reached, though not through the usual process. With several member states rejecting the proposal, a formal vote was called, which is highly unusual. The proposal was ultimately approved with 63 nations in favor, including the EU, the UK, China, and India; 16 member states opposed, including several Middle Eastern countries, Russia, and Venezuela; and 24 abstentions.

In detail, a tiered levy structure will apply: one rate for emissions exceeding a ‘direct compliance target’, and a higher rate for those surpassing a ‘base target’. These targets are defined in terms of carbon intensity, measured as grams of CO₂ emitted per megajoule of energy consumed (gCO₂/MJ) and calculated on a well-to-wake approach. Emissions up to 77.44 gCO₂/MJ (the direct compliance target) will be exempt. Emissions above 77.44 and up to 89.57 gCO₂/MJ (the base target) will incur a levy of $100 per metric tonne of CO₂ equivalent (mtCO₂e). Emissions above 89.57 gCO₂/MJ will be charged at $380/mtCO₂e. Ships that exceed these thresholds will have several options to offset their excess emissions. They may use surplus units from other vessels, draw on previously banked units, or purchase Remedial Units (RUs) through contributions to the IMO Net-Zero Fund.

Both the direct compliance target and base target will be progressively tightened each year starting from 2028. The levies of $100/mtCO₂e and $380/mtCO₂e will remain in place through 2030, after which they will be subject to review. Ships that emit below the base target will earn surplus units (with prices determined by market forces), which can be banked for up to two years or traded. Revenues collected from penalties will be allocated to support vessels that use zero or near-zero carbon fuels.

Whilst the key principles have been established, there is still a lot more work that needs to be done. Default carbon intensity values for various fuel grades have not yet been established, and fuel verification schemes must still be developed. The IMO Net-Zero Fund, which will collect payments for non-compliance, has yet to be established. The use of shore power, wind and solar energy, or propulsion systems equipped with carbon capture will contribute to emission reductions, although the mechanisms for accounting these technologies have not been finalized. Similarly, it remains unclear what additional financial rewards the use of zero or near-zero carbon fuels will have.

While the levies of $100/mtCO₂e and $380/mtCO₂e are set through 2030, it is unclear what will happen beyond that date. Preliminary calculations show that in 2028 compliance costs for eco vessels operating on conventional VLSFO could range from $50,000 to $175,000 per round voyage, depending on tanker size and routing. These costs are set to increase sixfold by 2035, if levies remain unchanged and will be higher if the set penalties rise.

The Net Zero Framework is scheduled to be formally adopted during the MEPC meeting in October 2025 and then enter into force on March 1, 2027. Yet, it is possible that another formal vote will be called. For adoption, it must be approved by two-thirds of the parties to MARPOL Annex VI, representing at least 50 percent of the gross tonnage of the global merchant fleet. Considering challenges faced during MEPC 83, it may not be a done deal.

Oil Demand Growth Forecasts (mbd)

Crude Oil

East

VLCC rates declined this week as a slow 2nd decade led to a large carryover of tonnage into 3rd decade. The market had already been under pressure after a quiet start to the week with recent holidays, but the lack of activity has given charterers the upper hand and now we have broken the WS60 barrier on eastbound runs. We may see further downward correction next week as sentiment has weakened in most sectors. Today we are calling AG/China WS58 and AG/USG WS29.5.

Suezmaxes in this region as of late has been suffering from a general lack of volume of enquiry, and this week has not been any different. However, what has come to market has just about maintain last done levels with 140 x WS52.5 via C/C is what we expect a Basrah/Med run to pay, transit via Suez we expect to pay around the WS90 level. Rates to go East have remained stable as well around the 130 x WS110 region.

For Aframaxes in Asia, chartering activity picked up towards the end of the week but was not significant enough to trim the Singapore tonnage list, despite observing some ballasters towards the AG. The front end of the list does not look as bad as when the week started but the loading window has moved into third decade May, which means more idle days for owners amid lower demand. Sentiment currently sideways but could soften ahead of the Singapore long weekend. We assess Indo/Oz 80 x WS115.

West Africa

For VLCCs the pace sped up this week in WAF as charterers moved to cover early June stems along with some still needing ships for end May. Initially this helped maintain rates especially for tighter positions, but we began to see a decline as the week wore on and the dip in freight levels in adjacent sectors has hit sentiment and now owners are fearing further decline.  We are calling WAF/East in the region of WS61 today.

Suezmaxes here were presented with a lengthy tonnage list on opening this week, which left the door open for early trader to test fixing levels. This resulted in a shaving off some 10-15 point on last done for TD20, resulting in WS87.5 on subjects at the time of writing. Looking ahead as with early tonnage still in play we expect little change in the weak sentiment here next week.

Mediterranean

For Suezmaxes in the Med, drip fed enquiry seen from the Mediterranean this week and tonnage building led to a negative impact on rates here too. Where CPC was tested down to 135 x WS110 for Med and WS105 for UKC being repeated at least twice. Here too we are going to need an upturn in enquiry levels to give any stimulus from this region to thin the early position. However, we expect end month dates to be in play in the coming days which should result in enough to hold sentiment steady for now.

Med Aframaxes suffered this week as the pre-bank holiday rush failed to materialise. By the London reopening on Tuesday all that could be seen was a tonnage list building by the day. Ceyhan cargoes began the week at WS170 levels but with WS167.5 soon done the die was cast. Some Libya loaders were concluded at WS162.5 and at the close the added days of inactivity caused a further drop in Ceyhan to WS140. As we look forward it’s true to say the list is more balanced and there will be end month activity to come, but unless the states and North Sea markets rebound it will take a lot for the Mediterranean to reach anywhere near the recent highs.

US Gulf/Latin America

VLCC owners in USG had a poor week as the market was hit by a spate of cargoes being withdrawn and declining rate levels on smaller sizes in the region. An increase of eastern ballasters on the way is not helping but owners are confident we are close to the bottom of this cycle and expect more activity next week. Brazil exports had a busy week but like other areas rates declined as charterers put the squeeze on and were successful in their attempts to break the WS60 barrier. Today we are calling USG/China $8.50m & Brazil/China WS59.

North Sea

A few handpicked vessels, a fair bit of scheduling with little to shake up the mill pond. Is the summer market here or is this just a blip? Well, the way we are seeing things now is that there will have to be a real paradigm shift to drag the market out of its current rut. With the way that things stand and reading current sentiment we are a fair way from leaving WS125 level; there is more chance that further depression follows and we are yet to reach an equilibrium. At least with summer levels it brings summer weather… enjoy your weekend.

Crude Tanker Spot Rates (WS)

Clean Products

East

LR2s have been busy this week with plenty hold and off market deals, the details which emerge have TC1 circle around 75 x WS110-115 level. A drop was seen on West runs at $3.2m, however, as more ships we covered off market limit options are left for charterers and expect to see a correction to the $3.5m mark.

Like last week, not a huge amount of active seen for the LR1s. TC5 has dropped to 55 x WS130 however, and west runs sit at the $2.6m-2.7m levels. The list remains tight for open spec suitability and owners are certainly feeling bullish for next window naphtha coverage.

UK Continent

A mixed bag of successes was seen this week for the UKC MRs for both the owners and charterers in this truncated week. Just as rates crept down towards the 37 x WS120-125 level we saw further testing and some resilient owners managed to eke out a few more points back to the 37 x WS130 mark. Come Friday though we feel WS127.5 is more appropriate for this TC2 market, and with a real lack of other routes being quoted, especially WAF moves, for now we expect this market to stay tricky.

Not the most exciting week for Handies in the North as we have seen both XUKC and UKC/MED stems drip-fed into the market. TC23 has traded around the 30 x WS135 mark but with supply still heavily outweighing demand, expect these last done levels to be tested on next done. MR long haul freight has now stabilised which thankfully for Handies will stop those bigger units from competing on short haul 30kt clips. More of the same expected here for the short term.  

Med 

Although moderately tight on the MRs, sentiment has taken a beating as it’s just too slow to do anything other than trade sideways. Most ships from WAF are heading north as the UKC has offered better cargo flow, next week it may swing a little as we expect some volume to increase out of the west Med with the Spanish refiners back in action. Otherwise for the most part rates have largely tracked in parity with the north.

As a rather flat week for Handies in the Med ends, rates have lingered at the 30 x WS130 level, drawing owners and charterers into a period of acceptance. Enquiry has been few and far between and coupled with a rather prompt tonnage list throughout the week, pressure has built up. With the seasonal summer slowdown in full motion, all parties will be keen to find out what the new bottom is for TC6.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The week started with owners on the front foot, sentiment firming and owners pushing for WS245 due to a tight list. By mid-week this level was achieved with owners able to push slightly further with WS247.5 on subs. Next week charterers will be prepared for owners to maintain their bullish stance.

Similar to the north, owners managed to gain traction in the Med market despite activity somewhat remaining staggered. The position list was chipped away at as owners will have an air of confidence heading into next week in achieving further increment.

MR

Quiet across both sectors in the Med and continent with WS165 done in both regions. Charterers did have a good amount of naturally placed tonnage in the north but nevertheless owners remained competing for Handy business. Med positions looked a little tighter throughout the week and should full sized stem enquiry appear, it will not take much to see owners quickly able to push rates.

Panamax

Panamax finally witnessed a bit more action mainly from the continent as workable units remained thin on the ground which saw sentiment firm. The longer the week went on the recent buzz soon started to phase as the list now looks to replenish.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeMay 8thMay 1stLast Month*FFA Q2
TD3C VLCC AG-China WS-760675561
TD3C VLCC AG-China TCE $/day-10,00043,00053,00037,75040,500
TD20 Suezmax WAF-UKC WS-208910910994
TD20 Suezmax WAF-UKC TCE $/day-13,75035,25049,00049,00035,500
TD25 Aframax USG-UKC WS-21149170195157
TD25 Aframax USG-UKC TCE $/day-8,50036,75045,25054,25035,500
TC1 LR2 AG-Japan WS-14111124121 
TC1 LR2 AG-Japan TCE $/day-5,25022,75028,00027,000
TC18 MR USG-Brazil WS-6161167166172
TC18 MR USG-Brazil TCE $/day-1,50019,25020,75020,00019,500
TC5 LR1 AG-Japan WS-1133134133135
TC5 LR1 AG-Japan TCE $/day-75020,25021,00020,50018,750
TC7 MR Singapore-EC Aus WS2161160172173
TC7 MR Singapore-EC Aus TCE $/day016,25016,25018,50017,500

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

Bunker Prices ($/tonne)

wk on wk changeMay 8thMay 1stLast Month*
Rotterdam VLSFO  +17438421440
Fujairah VLSFO  +23496473481
Singapore VLSFO  +17499482489
Rotterdam LSMGO  +9581572601

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