Freight Squeezes Naphtha Arb

The war in the Middle East has upended Asia’s naphtha market. With the Gulf normally supplying over half of Asia’s imports, the March halt at Hormuz forced buyers to pay up for Western barrels. The wide East-West spread had kept Western naphtha flowing East, accounting for around 70% of Asia’s naphtha import volume. Yet Western loadings fell to 0.9 mt in October, their lowest this year and only about 20% of supply. Freight is the reason: moving a cargo from the Med to Japan now costs more than double what the spread pays. Asia has instead turned back East. Eastern loadings recovered to 3.9 mt in October, led by 2.9 mt from the Gulf of Oman via STS transfers, while ports inside Hormuz shipped just 90 kt directly. It is a sharp reversal from March, when Hormuz closed and the West briefly supplied close to 70% of Asia’s naphtha.

The spread itself is not the problem. It averaged about $65/mt in October, swinging between $45/mt and $120/mt, well above the $20-45/mt range that held through most of 2025. In March, it sat comfortably above the cost of moving naphtha from the Med to Japan, and Western barrels flowed. Since then, freight has risen far faster than the spread. LR2 Med/Japan freight has eased by around a quarter from its mid-October peak, but still sits well above the spread on a per-tonne basis. The arbitrage is technically shut, but cargoes are still moving, albeit in smaller volumes and increasingly on smaller ships.

The ships tell the same story. LR2s lifted only 2 of October’s 24 Western cargoes, down from 6 in January, while MR cargoes doubled from 10 to 21. The shift is centred on the Med, which shipped 15 MR cargoes to Asia in October against just one in January, while the US Gulf sent only two. LR2 availability has been limited by heavy dirty-up activity since the war began. More LR2s are also positioned in the East than the West, with most engaged on westbound clean runs from the Middle East and India. Eastern naphtha has increasingly relied on LR1s and MRs. MRs lifted 22 Middle East naphtha cargoes in October, up from 15 in January, while LR2 cargoes fell to 10 from 31.

Shorter-haul Eastern supply has not brought cheaper freight. LR1 and LR2 rates from the AG to Japan have more than doubled since July, and LR1 and MR rates from West Coast India to Japan have more than doubled since August. Tanker attacks, Gulf of Oman congestion and tight LR lists have kept every route into Asia firm, although AG LR rates eased slightly in the final week of October.

Feedstock economics have improved, though cracker margins remain thin. The ethylene-naphtha spread fell back in October to below its 2025 average, as ethylene failed to keep pace with rising naphtha prices. Benzene and PX spreads sit close to breakeven. The propane-naphtha spread averaged around -$160/mt in April, when propane offered crackers a much cheaper feed. It has since narrowed to near zero, with both products trading around $1,040/mt in late October, removing much of the incentive to switch away from naphtha and restoring its competitiveness as a cracker feedstock in Asia. Weak downstream petrochemical margins and ongoing cracker rationalisation remain a cap on how far demand can recover. With the East-West spread well above 2025 levels but still short of freight, LR rates have become the bigger moving part: a $100/t swing in Med/Japan LR2 freight within October far outweighed the change in the spread, whose monthly average rose only around $12/mt. If LR freight continues to soften and moves closer to the spread, more Western naphtha could return on December loadings. Until then, Asia’s naphtha will come mainly from the Gulf of Oman and India, with freight costs driven largely by the LR market.

TC12 & TC15 TCE ($/day)

Crude Oil

East

The AG/Red Sea VLCC market started the week on a softer note, with Fujairah fixtures reported around WS550. However, lower freight levels encouraged a good surge in enquiry out of Fujairah and Yanbu, gradually tightening the tonnage list and suggesting the market may have found its floor. As the week progressed, fixtures were reported above last done, pushing rates higher and strengthening owners’ position. The market ends the week firmly, with limited prompt availability and fresh enquiry continuing to support the upward trend.

Geopolitical tensions remain heightened across the region, continuing to influence owners’ positioning and freight expectations. Fujairah has maintained a steady flow of Suezmax enquiry, although an increasing number of owners are opting to ballast west towards WAF, potentially adding further pressure to Atlantic tonnage lists in the coming weeks.

In Asia, another uneventful week for Aframaxes, as earnings ease into the $200,000/day range, with tonnage looking healthy amid weak regional demand. Notably, Vancouver remained active, although rates there have also corrected lower, mirroring the broader trend across adjacent markets. Owners have been quick to lock in rates at prevailing levels, as expectations remain for demand to be drip-fed into the market. Looking into the new week, charterers should have room to test regional runs lower and establish fresh floors, particularly if demand continues to surface gradually. We close the week soft, assessing Indo/Up at 80kt × WS670.

West Africa

The WAF VLCC market remained relatively quiet throughout the week, with limited fresh enquiry and freight initially continuing to soften. However, tonnage gradually disappeared towards other regions, tightening availability and providing some underlying support to rates. Strength in the East also helped improve sentiment, although little activity was reported on the surface. The market ends the week on a firmer note, with owners maintaining their position and a fresh test needed to properly assess current levels.

A subdued week in the region, with limited fresh Suezmax enquiry allowing charterers to gradually apply downward pressure on rates. Midweek support from Guyana provided some temporary resistance, although activity there has since tapered off, leaving sentiment softer and owners increasingly exposed to further correction.

Mediterranean

A relatively active week across the basin, underpinned by healthy Med/East enquiry. CPC fixtures have shown a wide spread in rates, with ENI’s outstanding requirement still to be covered as charterers adopt a patient approach. Elevated AWRP continues to play a significant role in owners’ pricing expectations, providing underlying support despite softer sentiment.

The week started with the most notable movement coming from headline replacement activity, while rising concerns over winter delays helped keep owners bullish. This supported X-Med levels at around WS880-890. As the week progressed, a wide spread in fixing levels for differing flat rates created distortion in the market and raised questions over where rates should truly be aligned. A vanilla X-Med was concluded in the middle of the week at WS797.5, resetting owner ideas, as they had been offering in the WS900s, and given this was a first counter taken, the writing was on the wall.

A trickle of cargoes through the middle of the week only served to highlight the amount of unfixed tonnage in the region, with plenty of owners willing to offer for any available business, resulting in further erosion to WS725 for the next vanilla voyage done from Libya, followed by WS710 soon after. Heading towards the weekend, some early second-decade cargoes remained in the background and were expected to test levels further, while hopes of increased Libyan activity offered some optimism for next week rather than immediate support. As a result, pressure remained on the market, with X-Med ending the week in the low 700s, as the growing vessel count continued to outweigh demand.

US Gulf/Latin America

The States VLCC market started the week with activity mainly driven by Petrobras, providing fresh benchmarks and helping rates gradually recover from previous lows. Despite limited enquiry out of the USG, tonnage availability continued to tighten as activity in the Middle East attracted vessels away from the Atlantic. Sentiment gradually improved throughout the week, supported by firmer fixtures further south. The market ends the week on the firm side, with owners having strong sentiment.

North Sea

We kicked off which much anticipation for what was to come this week and ended in much the same place. A sideways jig that had owners evaluating local vs ballasting turned into those in position trying to lock cargoes in. Plenty of local players remain and will keep the pressure on local trade. Bad weather in the North Atlantic has reduced the volume of ballasters but with an ease into next week we see this likely to tick up and the States draw upon more European tonnage. For now we see levels sitting around w570 but next week could hold some more pressure

Crude Tanker Spot Rates (WS)

Clean Products

East

With more attacks and the threat of escalation hanging over the Middle East once again, markets are very uncertain. A brief slowdown on LR2s has caused a drop on TC1 in the last week, with 75,000mt naphtha STS Sohar/Japan now at WS450. West runs have now been testing in line, with $12m paid for 90,000mt jet STS Sohar/UKC via BEM. Red Sea exports are trading in a separate market for now, and 90,000mt ULSD Yanbu/UKC is up around $14m. LR1s held rates for longer, having not seen quite the peaks of LR2s, but TC5 is likely to see a sympathetic drop today, with 55,000mt naphtha STS Sohar/Japan trading around WS500, from an earlier WS535 paid at the start of the week. 60,000mt jet STS Sohar/UKC is steady around $8m for now. The next week will be telling, with any increase in hostilities causing further spikes going forward.

A slow start to the week saw rates hold steady before tightening tonnage lists and increased enquiry pushed TC17 up to WS570, with TC12 now due a fresh positive test. Off-market activity and EAFR/SAFR openers ballasting east supported the upward momentum. Looking ahead, the list remains tight, although softening TC7 earnings could encourage more tonnage to ballast back towards Fuj/WCI.

UK Continent

With UMS barrels seemingly working anywhere other than to their usual home on the US Atlantic coast, owners have been focusing on other routes, and with some success this week. WAF has traded up to WS325, Brazil WS320, cross-UKC at close to WS400, and the busy Med run sits at WS380. The round-trip econs of WAF and Med are keeping most owners content, and demurrage sits circa $75-80k, which is very healthy.

With the larger cubic MRs very much focused on the short-haul this week, we have seen some steam taken out of the handy market, and rates have eased back to 500 cross-UKC. We have seen this yo-yo before, but current earnings are still very, very healthy.

Med

The main talking point for Med MRs has been continued fixing activity on short-haul runs, as we see XMed basis 37kt pulled upwards into parity with the handy market, with last done sitting at the WS405 mark on a naphtha stem, a theme expected to continue. It does seem that all routes currently have their merits, with WAF an attractive option for willing owners, offering good backhaul returns, with WAF-NWE around the WS325-330 mark ($85pd). Med-TA is not the main dictator of this market still, but is a desired run for most, with TC14 strong, hence why it is thought a straight Med-TA could be discounted. A firm itinerary is gold dust in this current market due to lots of moving variables, and owners grow in confidence if they can hit specific dates, whilst keeping eyes on the forecast bad weather next week, which could complicate matters.

An active week passed for Med handies, with tonnage disparities driving rates. A well-stocked WMed sees WS510 on subs and repeated, whilst WS520 has been paid ex CMed and WS535 for EMed. This has remained a constant theme throughout, and with fixing activity picking up near the end of the week, it is thought owners have reaffirmed their position in the market, leaving charterers with limited options. That said, the weekend comes at a good time for charterers, with eyes on how the list shapes up on Monday, as well as enquiry off the 9-11 window, of which there has been minimal. A slow start next week and a successful restock could see rates settle at the bottom of the spread (WS510-515).

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Tonnage started the week thin on the ground, which helped the Handy market close the gap with its Med counterpart, with rates moving towards WS460. As the week progressed, fixing was seen on forward dates, pushing ideas towards WS470-480. By the end of the week, the UKC remained tight, although limited activity prevented rates from moving significantly higher, leaving levels around WS475-480. Looking ahead to Monday, charterers will be hoping for some replenishment, though rates are expected to remain firm.

An active start to the week saw rates firm from WS475, although enquiry needed to continue flowing if those levels were to fully materialise, with rate ideas climbing towards WS490-500. Throughout the week, WS490 was reported on multiple occasions despite tonnage becoming increasingly tight. The market was a touch quieter towards the back end of the week compared to the strong start, though reports of WS500 being achieved did emerge, pushing expectations towards WS500-505. Heading into the start of next week, some replenishment is expected, and we expect to see levels repeated around these marks.

MR

Enquiry remained elusive, despite a couple of naturally placed options being available and rate ideas around WS380-390. As the week developed, full stems continued to prove elusive, leaving rates there to be tested. With the week now drawing to a close, tonnage remains scarce, although some reinforcements are expected to emerge next week. For the time being, rate expectations remain around WS400-410.

MRs remained in high demand at the start of the week as Aframaxes continued to strengthen, with rate ideas around WS470-480. As the week progressed, the market remained in need of a well-publicised test, which eventually arrived, although at a softer level than the market had expected, with ideas around WS450-460. While a softer Aframax market may halt some of the recent bullish momentum, MR availability remains tight, and owners are still expected to test levels higher when called upon.

Panamax

Few options were opening around the first decade of November, with firming wider markets supporting rate ideas around WS375-385. Fresh enquiry remained elusive throughout the week, while more vessels were set to open at the beginning of the second decade, leaving wider market strength as the main source of support. Going forward, levels still need to be properly tested, though owners are expected to maintain ideas around WS375-385.

The CBS-USG market appeared rebound towards WS700, with escalating Middle East tensions, including reports of an attack on Ras Tanura, providing support to wider market sentiment. As the week progressed, rates continued to firm while surrounding markets began to come off the boil. Levels are now holding around WS715-725, with sentiment yet to follow the softer trend seen elsewhere and owners continuing to maintain a firm stance.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeOct 29thOct 22ndLast Month*FFA Q4
TD3C VLCC AG-China WS541,2631,2081,1451,177
TD3C VLCC AG-China TCE $/day61,2501,408,7501,347,5001,277,0001,298,750
TD20 Suezmax WAF-UKC WS-17714731728688
TD20 Suezmax WAF-UKC TCE $/day-11,500417,750429,250429,250392,500
TD25 Aframax USG-UKC WS56707652729715
TD25 Aframax USG-UKC TCE $/day20,500229,750209,250240,250225,000
TC1 LR2 AG-Japan WS-721,0031,075928 
TC1 LR2 AG-Japan TCE $/day-25,250304,000329,250281,750
TC18 MR USG-Brazil WS129582453467391
TC18 MR USG-Brazil TCE $/day22,75084,75062,00065,75046,500
TC5 LR1 AG-Japan WS-841,0211,105951935
TC5 LR1 AG-Japan TCE $/day-21,750223,000244,750208,500197,500
TC7 MR Singapore-EC Aus WS-11579589536535
TC7 MR Singapore-EC Aus TCE $/day-2,75075,50078,25088,25066,250

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

Bunker Prices ($/tonne)

wk on wk changeOct 29thOct 22ndLast Month*
Rotterdam VLSFO  +21768747666
Fujairah VLSFO  +21988967952
Singapore VLSFO  +59985926824
Rotterdam LSMGO  +014011,4011,361

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