Flow Recovers

Flow Recovers

The Middle East tanker market in June was shaped by a cautious recovery as a temporary US-Iran ceasefire helped boost regional transit activity. Both crude and clean product exports saw a significant jump in volumes, offering a welcome lift to regional loadings. However, the increase in activity was quickly met by a growing influx of available vessels, which began outpacing demand and putting downward pressure on record-high spot rates.

Strait of Hormuz transits picked up immediately following the ceasefire. This recovery stalled briefly on 28 June due to ceasefire breaches before rebounding sharply the following day. Despite the improvement, the conflict’s hangover remains significant: at least 80 dirty and clean vessels are still in the Arabian Gulf (AG) since the outbreak of hostilities, while some of these vessels are trading actively across the region. On the operational side, transparency has notably improved, with more vessels now transiting with transponders activated – consistent with the behaviour of most shuttle tankers operating between the AG and the Gulf of Oman.

Total unsanctioned and traceable crude and condensate loadings from the Middle East surged to approximately 12,400 kbd in June, up sharply from 7,900 kbd in May, with the incremental volume primarily benefiting the VLCC segment. Within the region, crude loadings from inside the AG rose to 4,300 kbd, more than doubling the 1,700 kbd average recorded over April and May. Loadings in the Gulf of Oman similarly jumped to 3,900 kbd from 2,400 kbd in May, with ship-to-ship operations continuing to serve as a vital workaround. Red Sea exports via Yanbu remained steady at around 4,200 kbd throughout the month.

Mirroring the crude recovery, total unsanctioned and traceable refined clean product exports from the Middle East rose, though to a lesser extent, reaching over 2,500 kbd in June from 1,900 kbd in May. Loadings from inside the AG rose to around 660 kbd from May’s 350 kbd, while the loadings in the Gulf of Oman led by the STS workaround, also increased to around 900 kbd from 630 kbd in May. While the incremental cargo volume provided some support to larger clean vessels, it was ultimately too modest to absorb the regional tonnage overhang.

Anticipating a demand rebound, some shipowners repositioned vessels into the Gulf of Oman, while growing willingness to transit past Hormuz lengthened the regional tonnage list. Activity in both areas, however, proved insufficient to absorb the mounting vessel supply, exerting severe downward pressure on spot earnings. TD34 earnings slipped heavily from their peak of $275,000/day to roughly $140,000/day by end of June. The risk premium associated with Hormuz transits cushioned the decline for TD3C spot rates, keeping earnings elevated above pre-war levels at around $300,000/day. Product tankers followed a similar trajectory, with TC1 and TC5 undergoing steep corrections to approximately $100,000/day and $70,000/day respectively, both still above their pre-war baselines.

Looking ahead, the market direction rests primarily on the stability of the ceasefire. Further normalisation of Hormuz transit patterns can be expected if the ceasefire holds, prompting broader owner participation in the region. STS workarounds in the Gulf of Oman are nonetheless likely to persist for some time, as major regional suppliers maintain these alternatives as a hedge against lingering security uncertainties.

Near-term, the primary headwind remains on the supply-side. We have already seen VLCC tonnage in the East build up significantly, returning almost to pre-war levels. Other vessel segments are also beginning to shift back to the region, though not yet to a significant degree. This steady influx of vessels, outpacing the slow return of regional cargo volumes, has created a clear supply-demand mismatch. Until the tonnage overhang is cleared by a sustained export recovery, spot rates will face continued downward pressure, though lingering risk premiums should keep market floors from collapsing.

In the dirty segment, the pace of recovery will hinge on how many additional crude stems are offered and successfully lifted. The UAE presents the clearest upside – unconstrained by OPEC quotas following its withdrawal in May, it has room to ramp exports meaningfully as transit confidence improves. That said, as regional refinery activity gradually ramps back up, an increasing portion of domestic crude is expected to be diverted into local refining systems rather than the export market. At the same time, rising domestic power generation demand across the Gulf states as summer peaks will further compete for available crude volumes, capping the pace at which export stems can build. A gradual rather than sharp rate recovery therefore remains the more likely path until export volumes show a sustained and broad-based improvement.

In the clean space, downward pressure on the LR segments may find a floor in the tightness of global clean supply, itself a consequence of the significant dirty-up activity seen over recent months. Switching these units back to clean trade will require an attractive earnings premium – one that is unlikely to emerge without a meaningful recovery in clean cargo volumes, which ultimately depends on the pace of regional refinery restarts and operating conditions normalising.

Mainstream VLCC positioning (no.)

Crude Oil

East

The AG/Red Sea VLCC market remained under pressure throughout the week. Although geopolitical tensions between the US and Iran eased, freight continued to soften as healthy tonnage availability left charterers firmly in control. Activity picked up during the week, with several cargoes attracting a large number of offers and successive fixtures being concluded below previous last-done levels. A number of vessels were reported on subs, helping to gradually reduce the prompt list, but this was not enough to offset the overall bearish sentiment. Lower freight levels may now encourage additional enquiry, which could help the market establish a floor in the coming week.

Activity increased across the Suezmax AG during the week, while a busy VLCC market saw numerous units taken from both inside and outside the region. Geopolitical uncertainty continues to weigh on sentiment, with participants remaining cautious despite the improved level of fixing.

The Asia Aframax market softened this week, with TCE earnings holding broadly unchanged week-on-week at around $29,000/day. Charterers remained firmly in control, allowing tonnage to build while drip-feeding enquiry and quietly covering requirements. A vanilla Australian-bound run has yet to test the market, though expectations are for levels to conclude below current indications. The lack of sustained enquiry kept downward pressure on sentiment, with indices easing throughout the week. Elsewhere, freight ex-Australia and Vancouver remained comparatively firmer, though owners’ ideas and reported discussions somewhat reflected prevailing sentiment. We close the week sideways, though the near-term bias remains to the downside, assessing Indo/Oz at 80kt × WS150.

West Africa

The WAF VLCC market experienced another quiet week, with limited local enquiry and freight continuing to follow the softer trend seen across the Atlantic. Charterers remained cautious despite lower freight levels, while the lack of fresh cargoes prevented any meaningful recovery in sentiment. As the week progressed, owners increasingly looked towards WAF for employment, keeping downward pressure on rates. A fresh market test will be needed next week to properly assess current levels and determine whether lower freight can stimulate additional enquiry.

Despite a lack of fresh enquiry, WAF Suezmax sentiment remains unchanged. Replacement business and a tight list off the natural window, along with continued support from Guyana, have been enough to keep the position list ticking over, preventing any meaningful softening in owners’ ideas as the market heads into next week.

Mediterranean

The CPC Suezmax week was characterised by a prolonged stand-off, with charterers and owners struggling to find common ground for much of the week. The deadlock eventually broke with WS285 reported, setting a fresh benchmark. With the position list now looking tight for end-month dates, owners will head into next week holding the upper hand.

The start of the week had been rather mediocre for Med Aframaxes, with lists ticking over and levels trading pretty flat in the low-to-mid WS150s; you would have been forgiven for thinking this week would be resigned to just another dull page in the diary. Come the final stages, however, it seems the re-organisation of stems in Libya has been anything but straightforward for the suppliers. The splitting of Suezmax cargoes, requotes of stems sizing down, and all of this within a narrow date range, has decimated the list for the first half of the month. Market highs of WS215 may prove to be an outlier, though this is a market being tested at time of writing, with the bar looking like it will be legitimately moved up in the immediate deals to follow.

US Gulf/Latin America

The States VLCC market remained subdued throughout the week, with South America providing most of the visible activity. Successive Petrobras fixtures confirmed the softer trend, while TD22 continued to weaken, reinforcing the downward correction in freight. Activity out of the USG remained limited, particularly ahead of the Independence Day holiday, leaving participants waiting for a fresh market test to establish current levels. With freight now at significantly lower levels, attention will turn to whether charterers increase cargo volumes and help the market find support next week.

North Sea

A rather disappointing week for UKC Aframaxes, with owners kept looking over their shoulders at the surrounding competition for cargoes. Yet despite activity being drip-fed, the week closes with only a marginal decline on levels. WS140 is a fair reflection of current strength, and with ships exiting the area at the closing stages of the week, early trading come Monday should reflect similarly.

Crude Tanker Spot Rates (WS)

Clean Products

East

A quiet end to the week on the LRs East, with owners’ expectations dampened as stems within the AG traded far closer to those levels seen ex Sohar/WCI, with 55 × WS300 on subs for a TC5 showing this gap is closing. The LR2 list is lengthier off the front end than a week ago, and news that the mid-distillate arb into Europe is opening is good news for tonne miles. TD20 trading at WS245 gives around $110k/day earnings back-to-back, or mid-$70s with ballast from the East, meaning there will be less support from newbuild Suezmaxes as the DPP option becomes preferred. The LR2s will thus come into the fold, though expect rates to soften initially due to fundamentals.

A slow start to the week for MRs in the East, with continued uncertainty in the region following the attacks over the weekend seeing rates come under pressure. TC17 slipped from WS330 levels as a lack of fresh enquiry and a well-supplied tonnage list weighed on sentiment. Lower levels helped stimulate activity through the middle of the week, with TC17 trading at WS290 ex-Sikka and WS300 ex-Duqm, although prompt and ballast tonnage continued to outnumber available cargoes. Red Sea activity remained relatively steady throughout, with firm itineraries supporting sentiment. By the end of the week, replacement business due to weather delays pushed rates lower once again, with EAFR runs fixing at WS275. With LR activity remaining quiet and owners expecting fresh enquiry to emerge at these levels, attention now turns to cargo volumes next week.

UK Continent

An active week for MRs with a little pre-4th July rush has seen rates push up marginally across the board. It remains to be seen if this is sustainable as the tonnage displacement still favours the Atlantic basin heavily. The UKC is not drawing any ballast units, though, due to poor returns, so it is a laden-ship-only market whilst the USG remains the place to be.

There has been continued short-haul flow for Handies in the North this week as levels close the week at 30 x WS177.5. MRs continue to be the thorn in Handy owners’ side, though, as they compete on the smaller stems in order to keep their steel moving. There is potential for a rate increase if the same level of enquiry is seen next week.

Med

Med-TA MR rates remain flat at the WS125 mark, with owners opting for short-haul runs such as cross-Med given the returns are more attractive. A point of note has been the oversupply of tonnage – exacerbated by the Russian export ban, which means previous premium players are looking to dip their toes into the vanilla market as and when they can. This in turn has put pressure on alternative runs, meaning we have seen differentials narrow, with Med-UKC correcting to WS145 levels. The gasoline arb TA is reportedly open; looking at the cargo list, that would be questionable, so it looks only marginally open, which is not enough to see material action prior to the 4th of July break in the States.

It has been a steady week for Med Handies, with levels correcting downwards five points to 30 x WS165 levels. Inflated bunker prices and port costs mean rates have remained range-bound in the 165-170 region. Nonetheless, a healthy list throughout has meant charterers have felt little pressure. We expect current trends to continue going into next week. That said, a tricky stem with various sensitivities could pay up given owners’ reluctance to ballast amid current overheads.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The North has seen a turnaround this week after starting Monday with a healthier-looking list following the previous week’s clear-out. A couple of vessels were prompt, both having racked up some idle days, but a mix of ballasting to the Med and under-the-radar dealing soon remedied this, trimming up the front end of the list. Another couple of cargoes soon followed, allowing owners to push on to WS227.5 before firming again to WS230. The week ended in quiet fashion, but with naturally placed units on the tighter side and itineraries for ships end first decade not yet firm, an active start could provide owners a chance to push on again. Looking to next week, we expect levels to likely repeat early on, though it won’t take much before this list thins out once again.

The Med didn’t have the positive week its Northern counterpart enjoyed, with a sluggish start and levels softening to WS220 before coming off to WS217.5 and falling further throughout the week to the WS210-212.5 mark by Friday. Despite this softening, we did see good levels of activity, helping to clear tonnage from the list almost to the point where all prompt ships were clipped away. Come Monday, we expect to see vessels prompt having opened up over the weekend, but in lesser numbers than in previous weeks. One point of concern for owners is the overall length of the list, which could add to downward pressure should we get off to a slow start, though it does feel like we are nearing the bottom here.

MR

Little to report for this sector this week, as both markets await well-publicised fresh tests with full-stem enquiry struggling to surface. The North has a couple of units opening around end month which could provide some competition, but we expect levels around the 45 × WS170-175 mark on next done. Down in the Med, as usual, there is greater liquidity for tonnage, with levels there likely around the 45 × WS160-165 mark when next tested, though overall enquiry is elusive.

Panamax

Little change here, with levels on a case-by-case basis for runs into the USG ex Europe. Supply in the North is scarce, whereas a handful of options are now expected around end July in the Med, ex DD and standard. We expect rates in or around the 55 × WS140-150 mark, though with some options for charterers to play with for the first time in a while, we could see more competitive levels on offer. Over in the States, TD21 very gradually firmed, with levels now around the 50 × WS220 mark as early and under-the-radar fixing clipped away ships ahead of the 4th of July weekend.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

	wk on wk change	July 2nd	June 25th	Last Month*	FFA Q2
TD3C VLCC AG-China WS	-157	294	451	403	261
TD3C VLCC AG-China TCE $/day	-180,250	303,250	483,500	421,500	259,000
TD20 Suezmax WAF-UKC WS	73	243	170	148	179
TD20 Suezmax WAF-UKC TCE $/day	47,500	126,000	78,500	60,500	78,750
TD25 Aframax USG-UKC WS	7	171	164	252	181
TD25 Aframax USG-UKC TCE $/day	3,000	36,000	33,000	62,250	34,750
TC1 LR2 AG-Japan WS	-131	362	493	511
TC1 LR2 AG-Japan TCE $/day	-43,000	99,750	142,750	145,250
TC18 MR USG-Brazil WS	114	322	209	321	220
TC18 MR USG-Brazil TCE $/day	22,500	43,250	20,750	39,250	23,000
TC5 LR1 AG-Japan WS	-156	356	512	541	284
TC5 LR1 AG-Japan TCE $/day	-37,750	68,750	106,500	110,500	49,000
TC7 MR Singapore-EC Aus WS	29	299	270	296	210
TC7 MR Singapore-EC Aus TCE $/day	5,500	34,750	29,250	31,250	18,750

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

Bunker Prices ($/tonne)

	wk on wk change	July 2nd	June 25th	Last Month*
Rotterdam VLSFO	-18	565	583	732
Fujairah VLSFO	-165	778	943	907
Singapore VLSFO	-46	642	688	818
Rotterdam LSMGO	+18	909	891	1,184

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