Deal or no Deal?

Since April the US and Iran have been engaging in “direct” negotiations over curbs to Iran’s nuclear programme in exchange for sanctions relief. So far 4 rounds of talks have been held, with a 5th round scheduled for today. Talks between Iran and the European Union also took place last week in Turkey. So, with both sides still talking, can a deal be done?

Firstly, it remains uncertain whether a deal can be struck or not. Following the first three rounds of talks, positive comments from both sides certainly led the market to believe the return of Iranian barrels could be imminent. However, following the most recent round, both sides expressed concern that differences over the permitted levels of uranium enrichment represented a red line neither side was willing to cross. Still, if a compromise can be found around this point, a path towards sanctions relief is possible. However, it is worth noting that even if a deal is reached, it might take time for sanctions to be lifted if historical precedent is followed. Back in July 2015, following the signing of the Joint Comprehensive Plan of Action, it took 6 months for sanctions to be lifted.

So, what might the market impact be if sanctions are removed? The immediate effect will be an increase in buyers from a wide range of countries. India, Korea, Japan, Turkey, Italy, France and Spain were among the top buyers outside of China when sanctions were last removed. All these countries are likely to explore resuming imports from Iran, particularly those in Europe who have lost access to Russian and more recently Venezuelan cargoes. India’s case is more complicated as the country may prefer to continue buying discounted Russian cargoes, whilst some Iranian volumes going to Chinese independent “teapot” refiners could instead be consumed by major state-owned refiners, leaving the teapots to either cut runs or increase their intake of Russian, Venezuelan crude, or fuel oil.

Aside from some more “modern” NITC VLCCs, new buyers of Iranian crude are highly unlikely to use dark fleet vessels due to age and quality concerns, even if sanctions are lifted against them. As such, there will be a shift in tanker demand from the dark fleet to the mainstream market. Given that Western buyers are likely to employ Suezmaxes, these vessels should share a significant portion of the benefit, alongside VLCCs. During the previous period of sanctions relief (2016-2018) Suezmaxes carried around 35% of Iranian exports, compared to just 7% last year. Older dark fleet vessels will see further pressure on their earnings potential and could be forced to scrap, if sanctions allow.

More Iranian oil on the water would likely put downwards pressure on oil prices, putting further pressure on shale producers in the US, and complicating OPEC+ production policy. It would also have implications for Russian producers, who could be forced to discount further to maintain market share into India and China.

On the other hand, what if sanctions aren’t lifted? The US would likely step up the pressure on Iran further, targeting more Chinese refineries and banks, as well as middlemen and service providers in other jurisdictions. More vessels could be sanctioned, and some companies may be forced to reduce their Iranian crude intake, again shifting some demand to mainstream tankers. Military action has also been mentioned as recently as this week. Iran could also respond, either through increased harassment of shipping or a full-scale blocking of the Straits of Hormuz.

Overall, many hurdles remain to get a deal done. Lifting sanctions in our view is a net positive for crude tankers, yet even if sanctions remain, and are more robustly enforced, it could be a positive factor with fewer buyers for Iranian oil, shifting demand back to the mainstream oil and tanker markets.

Iranian Crude Exports (kbd)

Crude Oil

East

VLCC activity slowed right down in the latter part of this week as charterers held back from showing fresh enquiry after they completed the remainder of their first decade program. This led to a softening in rates and with a generous amount of tonnage available owners are likely to come under further downward pressure next week, especially with a public holiday in both UK and US on Monday. It could prove to be a challenging week and today we are calling AG/China WS60 and AG/USG 31.

Enquiry for Suezmaxes in this region has been drip fed into the market over this week. In turn this has allowed tonnage to build up a little, with the only real volume of enquiry coming from India, allowing rates to correct down. Select tonnage being targeted for western runs has managed to achieve levels round 140 x WS45 via C/C, transit via Suez we expect to pay around the WS90 level.

In Asian on Aframaxes, demand has not been able to keep up with supply allowing charterers to capitalize on weak sentiment. A northbound run fell to new lows of WS110 on an oil relet, just when it appeared that the market had bottomed. There was some bounce in rates mid-week through replacement jobs and private deals that clipped ships away, but that momentum was short-lived due to the regions lacklustre demand. The silver lining in all this week would be that the tonnage list is pretty balanced.

West Africa

It was an underwhelming week for VLCC owners in WAF as we only witnessed a handful of fixtures which were close to last done levels. Going forward, rates could come under pressure as a downturn in adjacent markets may soften the sentiment here. However, on the plus side, the tonnage list is not overly populated as many ballasters bypassed WAF in search of cargoes further west. Any pickup in activity for the second half of June could halt charterers attempts to pull rates down below todays rates. We are calling WAF/East in the region of WS61 today.

On Suezmaxes, come mid-week we all were wondering where the enquiry had gone from West Africa, but with the amount of marketed enquiry being seen that was easy to say. However, a decent amount of off market enquiry has managed to trim tonnage to reduced levels. As we close the week TD20 is trading below WS80 pushing towards the mid 70’s for now but we await a fresh test in early trading next week.

Mediterranean

The Suezmax Mediterranean position list on opening Monday was looking very healthy. This resulted in negative correction in fixing levels from CPC and XMed stems, with CPC now trading towards mid-June around the WS100 level. With the long weekend in London it is hard to see much upside in fixing levels in early trading next week. 

Levels in the Med reacted positively and progressively this week, where an uptick in activity stretching over the end/early windows handed owners the initiative to command more in negotiations as the lists shortened.  Gaining a rapid 12.5 points for a benchmark Ceyhan to the low WS130s we note a couple of market traits; premium again applied for shorter flats, and with CPC needing larger aframaxes the differential has widened to about 20 points with 145 and 150 done there. Looking ahead, however, it’s hard to see this as anything other than a small cycle, with the US in lacklustre form giving little support and the North struggling at basement levels also.

US Gulf/Latin America

A dearth of enquiry in USG export has resulted in a downturn in VLCC rates on both long East and UKC routes. The increasing numbers of eastern ballasters coming into the region is likely to nullify owners’ ability to turn the tide in their favour. The second half of June should see more activity and it may take a while for the market to recover, but we are close to the bottom of this downward shift. Brazil export enquiry was also quieter than previous weeks and freight rates started to dip downwards towards the end of the week. Today we are calling USG/China $7.85m & Brazil/China WS59.

North Sea

In the North Sea the lows achieved by shuttle tankers affected sentiment with natural tonnage having to follow suit in many cases. However, as the week progressed and many more cargoes than expected hit the surface owners were able to once more recalibrate levels to historical norms. WS122.5 and 125 became the target levels and whilst these numbers do not seem to inspire much excitement, for those hitting their dates the returns look acceptable for now while the States market and Mediterranean market refuse to climb to noticeable levels.

Crude Tanker Spot Rates (WS)

Clean Products

East

Lists remain tight of the front end for both LR2s and LR1s, healthy supply of open and off market cargoes has seen rates hold at last done levels and on some routes nudge a little higher. TC1 for now in the 75 x WS150-155 range and UKC on subs at $4.15m. TC5 on subs at 55 x WS170, however, for a non ums and sub 15yrs expect owners to be asking 55 x W175. UKC remains a little untested, but we assess $3.2m via cape. With Eid al-Adha on the horizon owners will be hoping that next week could bring added volume as charterers look to clear the books.

UK Continent

A roller coaster of a week for MRs as 37 x WS130 UKC/TA failing on a ULSD arb play was all the opening talk and rates on this route plummeted to 37 x WS115 in the early part of the week. The drop in rates and the tight end early window created a mid-week, as we close out the week 37 x WS155 has been achieved Baltic and Brofjorden TA and owners remain confident, lots of tonnage has been cleared out. Again, we have another short week upon us though and June dates have not really been touched yet so it could be an interesting start to next week especially as the USG is improving which is drawing in ECC and USAC ballast boats. As it stands the UKC is back to picking through the laden tonnage which always has it issues, ballast boats are few and far between. 

From Monday to Wednesday there was constant demand in the Handy sector mainly for XUKC but also a few UKC/MED quoted which resulted in the front end of the tonnage list tightening. Some charterers had to lean on MRs to try and cover their short-haul exposure after Handies firmed to 30×180 for XUKC. A slower end to the week has been seen and with the weekend on the horizon and partnered with a UK bank holiday on Monday, ships can firm quickly and repopulate the list. Steady for now into the weekend.

Med 

The tonnage list for MRs in the Med was tight early in the week but with the UKC taking until mid-week to get going, rates drifted sideways in the Med with 37 x WS120 being the average. By mid-week the North had picked up and a sines stem then shifted the rates up and the Med came into line with other load regions. The Handy market was where this mini rally all started so we feel this could also be where a decline starts. That said the USG rates have pushed up so once again the Med is looking likely to be starved of ballast units.  

A varied week for Handies in the Med. At the start of the week rates sat at the 30 x WS150 level and owners were optimistic that rates would firm further off the back of the positive movement last week. Rates jumped to a high of 30 x WS225 which perhaps was too much too quickly and after a slower Thursday we start to see things soften with last done at 30 x WS187.5 now.  With the long weekend approaching expect charterers to look for further correction.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A relatively quiet week overall for Handies in the North but despite this, levels continue their steady march upward. The list has stayed tight with a mixture of relet utilisation and steady cargo flow picking off tonnage. This left owners in a position to gain 2.5 points from 30 x WS255 which repeated 3 times this week before the week closed out with 30 x WS257.5 reported. Looking to the week ahead we expect more of the same, especially given the shorter week in the UK.

The Med has followed a similar pattern to the North, however, the effect of next week’s bank holiday felt more pronounced in drawing more cargoes into the market early on. An active start to the week’s proceedings saw 30 x WS255 repeat whilst clipping away prompt/early tonnage. However, activity slowed down for the rest of the week still, enquiry flowed at a consistent pace firming up rates to 30 x WS157.5. 30 x WS262.5 was done for a premium port that usually commands an additional 5 points which helped further cement the steady feel. Looking ahead to next week, WMed positions look somewhat undersupplied whilst EMed could be oversupplied with several vessels uncertain at Alexandria. This could lead to a two-tier market as we begin the shorter week.

MR

The week started positively for owners in the North as levels firmed up to 45 x WS180 following the existing pattern of rates firming on each test (for the most part). Unfortunately, enquiry then struggled to emerge as the week progressed. On a positive note for owners, tonnage stays tight with few units on the way until mid-first decade AGW and few options WMed to choose from. We expect levels to continue to tick upwards early into next week here.

It was the week owners would have hoped for in the Med as part and Handy cargoes were once again the main source of employment. As a result, tonnage has been thinned just like the Handies but tonnage skews EMed. We expect levels to hold around the 45 x WS175 mark for now.

Panamax

A quiet week for Panamaxes in Europe as enquiry struggles to surface. The start of the summer period looks to have arrived in the USG, likely meaning a drawn-out downward trend in rates for TD21. As a result, we may see owners positioned on this side of the pond look to local MR cargoes as a source of employment potentially bringing relief to the lack of tonnage in the MR cont market. Rate ideas for UKCM-TA stay flat around the 55 x WS115-120 mark for now.

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 22ndMay 15thLast Month*FFA Q2
TD3C VLCC AG-China WS-361646761
TD3C VLCC AG-China TCE $/day-4,00043,50047,50053,00037,750
TD20 Suezmax WAF-UKC WS-8798610992
TD20 Suezmax WAF-UKC TCE $/day-5,00027,25032,25049,00033,500
TD25 Aframax USG-UKC WS-24125148170154
TD25 Aframax USG-UKC TCE $/day-9,00026,25035,25045,25033,000
TC1 LR2 AG-Japan WS12154142124 
TC1 LR2 AG-Japan TCE $/day4,25037,00032,75028,000
TC18 MR USG-Brazil WS15152137167162
TC18 MR USG-Brazil TCE $/day3,00017,25014,25020,75017,250
TC5 LR1 AG-Japan WS10171161134144
TC5 LR1 AG-Japan TCE $/day2,75029,50026,75021,00020,000
TC7 MR Singapore-EC Aus WS3203199160178
TC7 MR Singapore-EC Aus TCE $/day50023,00022,50016,25017,750

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

Bunker Prices ($/tonne)

wk on wk changeMay 22ndMay 15thLast Month*
Rotterdam VLSFO  +4470466421
Fujairah VLSFO  -8509517473
Singapore VLSFO  +1528527482
Rotterdam LSMGO  +1620619572

Print the report