Diesel Drought

With the Middle East crisis at the forefront of everyone’s minds, a second, more slowly building supply shock has flown somewhat under the radar. However, when on the 8th of July Russia banned diesel exports for the rest of the month, a significant share of the world’s seaborne diesel supply was suddenly removed, tightening a market already stretched thin. Some supply will still flow to the market, as supplies under pre-existing government agreements will be exempt from the restrictions. The result has been record high diesel refining margins in the US and Europe, whilst in the East, refining margins rose but are yet to return to the highs seen in March.


Ukrainian “long-range sanctions” have achieved remarkable success in recent months. Drone strikes have reportedly disabled over 40% of Russia’s refining capacity, with all eleven of its largest refineries hit at least once. In a striking reversal for a major exporter, Moscow will now import fuel to supply its own market, having reportedly secured cargoes from neighbouring countries as well as from further afield. The export ban is likely to accelerate a decline already visible in trade flows. In June, CPP exports stood at around 750 kbd against an average of 1250 kbd for the whole of 2025. Most of this decline was in diesel exports, which ran at around 800kbd in 2025, and only 400 kbd in June. Trade data show a gradual decline in CPP exports to the main destinations, namely Turkey, Brazil, and northern Africa.


These lost barrels cannot easily be replaced. Renewed escalation in the Middle East and fresh attacks around the Strait of Hormuz have pushed back any recovery in Middle East Gulf CPP exports. Further, recent Iranian threats to “other export corridors” and renewed Houthi involvement in the conflict have increased the risk of potential disruption to Bab-El-Mandeb transits as well as refining and export operations in Yanbu, a key alternative source of diesel and jet fuel. Restrictions to China’s product export adds to the uncertainty. Reports of additional quota volumes coming to market for the month of July were followed by a rollback, leaving the market hoping for reprieve in August. The US, which was the main source of additional CPP volume in Q2, looks less capable of filling the gap this time around. Refinery utilisation has run at seasonal highs, but lower inventories, firmer domestic demand and refinery maintenance season later this year all point to reduced availability for export in the near term. The possibility of product export restrictions if domestic prices become too elevated may also need consideration. Relief may require further SPR releases from countries in Europe, as well as Japan and Korea, to put more refined products, especially diesel, back into domestic markets. That said, any releases are likely to be smaller and more targeted this time, given concerns over depleted inventories.

For now, the ban is only in place for a month. Domestic diesel demand for harvesting rises seasonally in late summer and early autumn, which increases the risk of the ban being extended beyond July. If it lasts longer, the most exposed buyers, i.e. Turkey, Brazil, and countries in North Africa, may struggle to source replacement barrels. A further consideration for the clean tanker market is that vessels currently involved in Russian CPP trade may attempt to return to the mainstream market. On the positive side, product pricing volatility could widen arbs and leave room for freight rates to rise, as was seen in Q2. Additional uncertainty comes from reduced crude flows through Hormuz due to the recent escalation, and whether especially Asian refiners are able to secure enough feedstock for August and beyond. Overall, global seaborne CPP flows are expected to remain under pressure with two of the top three diesel exporters facing export restrictions, and government’s ability to make up the shortfall with SPR barrels diminished compared to the beginning of the War.

Russian Diesel Exports (kbd)

Crude Oil

East

Throughout the week, sentiment in the AG VLCC market remained firmly driven by escalating geopolitical tensions in the Middle East, with the breakdown of the previously agreed Memorandum of Understanding leaving participants feeling as though the market had returned to the early stages of the conflict. Despite increasingly hostile rhetoric and further escalation, the broader market response has been relatively measured, reflecting a growing acceptance of geopolitical disruption as part of the operating environment. Uncertainty surrounding vessel transits through the Strait of Hormuz has increased, however, with many owners now opting not to transit, although a limited number of vessels continue to do so, allowing cargo flows and STS operations via Fujairah to remain active. TD34 held steady for much of the week in the WS165-170 range. Should tensions continue to escalate and transit activity become further restricted, AG trade could slow significantly, increasing tonnage availability for alternative loading areas such as Fujairah and Yanbu and ultimately leading to softer levels.

The Suezmax market in the Middle East remains steady to firm. With fresh attacks from both the US and Iran, tensions remain high and there is very little being fixed via the Strait amid fears of further escalation. Expect to see more risk-averse owners committing to ballast West over the next week and over the weekend.

The Asia Aframax market ends the week quietly, with enquiry emerging only at a drip-fed pace. Despite limited activity, indices moved higher on firmer sentiment stemming from developments in the Gulf and stronger earnings in Western markets, with owners looking to push rates in a similar direction. Charterers are expected to face greater resistance on end-decade stems as the market awaits a fresh test to establish where workable levels currently sit. Rumours of a prompt replacement TD14 fixture concluding above WS200 added some spark to sentiment, although the deal remains unverified. With few fresh fixtures providing a clear benchmark, participants will likely continue to test the market, while owners appear content to wait patiently for the next wave of requirements. We close the week steady, with Indo/Up assessed at 80kt × WS165.

West Africa

The WAF VLCC market experienced another relatively quiet week, with fresh enquiry remaining limited and insufficient to generate any sustained upward momentum. While sentiment was initially supported by a gradually tightening prompt tonnage list and expectations that ongoing disruption in the Middle East could encourage more owners to seek West African employment rather than ballast East, this has yet to materialise in any meaningful way. Instead, softer returns in surrounding regions, most notably Brazil, have weighed on sentiment and applied downward pressure to WAF freight levels. Participants continued to await a fresh test to establish current levels, but with activity remaining sparse, rates eased modestly as the week progressed. Looking ahead, owners will be hoping for a stronger flow of cargoes to provide clearer direction, although geopolitical developments and the performance of neighbouring Atlantic markets are likely to remain the key drivers of sentiment in the near term.

Despite TD6 holding up remarkably well this week, the WAF Suezmax market has had softer undertones for natural dates, with TD20 sitting somewhere around the WS230 mark at the time of writing. However, some firm rates have been paid off prompt dates, and there is still potential for late runners and more activity on the very early side. As we move into the fixing window we expect to see more ballasters from the East come into play, but for the current window and dates to be worked early next week there aren’t a great deal of ballasters left unfixed, so we are expecting some resistance.

Mediterranean

TD6 has remained steady at around WS270 this week, and it is hard to see too much change just yet. With a fresh attack at the CPC terminal, owners won’t be looking to take on the risk for discounted rates, though it seems unlikely to change which owners are willing to call there too much, so there is no expectation that rates will push up sharply on reduced fixable tonnage. In the Med, $9m has gone on subs for Med/East this week; the situation remains a little precarious via Suez, and with the potential for renewed Houthi attacks in the Red Sea, even this seems on the lower end of what was expected to be done. There is likely to be resistance from owners for a similar voyage next week.

The Med Aframax market was in a precarious position at the end of last week, with some outstanding cargoes proving difficult to cover, but the addition of further cargo interest on early dates at the start of this week lit the touchpaper. A short voyage concluded at WS300 led to other charterers scrambling to take ships, and WS330 was then achieved for a vanilla Libya/Med voyage — though this was not the end of the affair. With more bad news emanating from the AG, charterers all round looked to take cover further and further forward. The list was stripped bare, and with Med ports continuing to be unreliable the bit was firmly in owners’ teeth. By the close WS430 was concluded for another very short voyage, and we are not far away from the WS400 mark being breached for good flat rates too. Looking ahead, we see the States and North Sea Aframax markets offering further support, and the music will not stop yet.

US Gulf/Latin America

The Brazil/USG VLCC market saw a reasonable level of activity throughout the week, although enquiry was not sufficient to prevent freight from softening. Early in the week, Petrobras concluded a Brazil East cargo at WS153, around eight points below previous levels, setting the tone and triggering further downward pressure as the week progressed. While the weaker freight environment may help stimulate additional enquiry from Brazil, cargo volumes remained insufficient to reverse the softer trend. In the US Gulf, a firmer Aframax market offered some encouragement, while a number of VLCC cargoes were understood to be working under the radar despite limited visible enquiry, providing some underlying support to sentiment. This activity was not enough to materially shift the market’s direction for now, however.

North Sea

With the global Aframax markets on the up, the North Sea reacted in its slightly slower tune but reacted nonetheless. A lot of shopping was done and units snapped up well ahead, while plenty also opted to ballast with returns looking more lucrative on certain runs. Rates are now fixing in the low WS200s, but with a slightly quieter day we expect things to level out into the start of next week.

Crude Tanker Spot Rates (WS)

Clean Products

East

With the political situation taking a backward step in the AG this week, the momentum from the week previous was lost. As tonnage lists built, rates for stems lifting outside the SoH saw some chunky negative correction, with TC5 down to 55 × WS150 outside AG. The LR2s have been very quiet this week, and as such we expect charterers will be looking to really squeeze rates should they have a firm stem next week.

Back to square one in the AG, where renewed attacks have once again seen the SoH close and enquiry all but dry up. Very little to report in terms of activity from the AG, though WCI has ticked over, albeit at a slower pace than in recent weeks. TC17 ex-Sikka has sat at WS240 for the majority of the week, though we close with the same level on subs for Duqm — arguably Sikka should now come off 10 points. Westbound numbers have been refreshed, with $2.375m on subs basis UKC and Argentina, while East ex New Mangalore is on subs retested down to WS207.5. One saving grace for the region is the commitment from some owners to ballast East, though there is still very little for those left to get their teeth into going into next week.

UK Continent

A good volume of fixing seen this week, but there has easily been enough tonnage to mop up the cargoes, so we have seen a slight softening in rates. This has been exacerbated by the return of the boats that have been trading Russian price cap barrels; with no Russian export volume at all, these units are now well and truly back in the market and are offering discounts to get moving. We are closely monitoring the hurricane radar, as we believe this will be the next major bullish factor for the Atlantic basin.

Owners remained bullish all week, with the Handy market trading up to 30 × WS200. Positions are drip-fed into the market solely from laden tonnage, so this is very much an itinerary-driven market. MRs are there to cap the market, but for the moment Handy-only stems will likely see indices in the WS207.5 region.

Med

MRs this week have seen minor downward corrections, with 37 × WS130 last done for Med-TA. The main factor at play here is the two-tier dynamic, with ex-Russian units now competing on vanilla stems and in turn creating a longer list. This means we are rangebound on rates depending on tonnage suitability and history, and there is potential that a well-approved ship could yield more than last done at 37 × WS130 Med-TA. Both parties will be watching what effect conflict in the AG has on tonnage displacement in an already oversupplied Atlantic basin.

In all it has been a steady week for Med Handies, with rates trading sideways at the WS170 mark. There has been a dynamic of under-the-radar dealings throughout, which has minimised speculation on whether rates were to move. Moreover, the dance between oversupply of tonnage and staggered enquiry has been stable, maintaining the element of calmness. One key factor to watch is bunker rates — with renewed hostilities in the AG, history tells us they will only head one way, and owners will thus have to factor this into freight going forward.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Levels started firm in the North after an active week before, with the market at WS240 as naturally placed tonnage was thin on the ground. This trend continued as, midweek, we started to see some forward fixing while owners stayed bullish, rates firming around WS250. At the end of the week availability remained tight and we expect levels to continue to firm on a fresh test, owners firm from last done at WS255-260. We expect next week to be enquiry-driven.

In the Med, last week’s clear-out of modern units trimmed up the list, with rates firm at WS235. Midway through the week the market was tender-driven, like the North seeing forward fixing while ship positions were East Med skewed, and rates firmed at WS255. As the week comes to a close, cargoes yet to be covered sit against a tight list backdrop, with levels finishing at WS265 firm. Looking to next week, we expect some unit replenishment, but owners will be hopeful of another good week.

MR

MR supply started tight in the North, with fresh test levels needed and owners shooting for WS180. This remained the case mid-week, with owners expected to push levels when called upon at WS195. The week finished with few options and availability looking to the end of the month. We expect next week to carry on the persistent increase, with levels up from WS200.

The Med began the week expecting to be tested upward on limited tonnage. Through the week MRs followed the Handies, with tonnage patchy and rates there to be tested upward from WS190. The week ended similarly to the UKC, with rates firm from WS200 against scarce availability and a test there to be had upward from last done. Next week we expect to see some replenishment as next-decade positions firm up.

Panamax

Panamaxes started the week with rates around WS160-170, availability coming predominantly from ex DD. Mid-week saw increased attention as the Aframax sector strengthened, leading owners to firm their rate expectations to WS170-180. Ending this week and looking to next, enquiry for Panamaxes is expected to persist as the Aframaxes firm, with owners looking to push rates upward from WS190-200.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeJul 17thJuly 10thLast Month*FFA Q3
TD3C VLCC AG-China WS79373294451335
TD3C VLCC AG-China TCE $/day86,250389,500303,250483,500338,000
TD20 Suezmax WAF-UKC WS-11232243170214
TD20 Suezmax WAF-UKC TCE $/day-10,750115,250126,00078,50097,250
TD25 Aframax USG-UKC WS84254171164260
TD25 Aframax USG-UKC TCE $/day28,25064,25036,00033,00060,500
TC1 LR2 AG-Japan WS71433362493 
TC1 LR2 AG-Japan TCE $/day20,750120,50099,750142,750
TC18 MR USG-Brazil WS-49274322209243
TC18 MR USG-Brazil TCE $/day-10,75032,50043,25020,75024,500
TC5 LR1 AG-Japan WS89444356512320
TC5 LR1 AG-Japan TCE $/day19,25088,00068,750106,50054,750
TC7 MR Singapore-EC Aus WS-16283299270222
TC7 MR Singapore-EC Aus TCE $/day-4,50030,25034,75029,25018,500

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

Bunker Prices ($/tonne)

wk on wk changeJul 17thJuly 10thLast Month*
Rotterdam VLSFO  +117682565571
Fujairah VLSFO  +27807781,229
Singapore VLSFO  +123765642650
Rotterdam LSMGO  +2271136909870

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