Middle East Mayhem

The first week of the US-Israel military campaign against Iran has drawn to a close, but what happens in the weeks to come remains extremely uncertain. The war has triggered a global energy shipping crisis of epic proportions, with cascading effects across oil markets, tanker freight, and petrochemical supply chains.

The most critical issue is the inability for ships to safely transit the Straits of Hormuz, and until this issue is resolved, commodity trade in and out of the Middle East Gulf remains paralysed. Trump has announced a plan for the US to provide affordable insurance and escorts through the region, though this may take weeks to materialise and is not guaranteed to succeed. The conflict is also unlikely to blow over any time soon; US Central Command has since requested resources to sustain operations for at least 100 days, signalling this is far from a short-term engagement. The crisis continues to spill over across the region with Azerbaijan subject to a drone attack.

Oil producers in the region are in a bind. Iraq has been forced to shut in 1.5mbd of production, with other regional producers facing a similar fate as storage tanks fill up. Refiners in the region are also cutting production, both due to drone and missile strikes, but also a lack of offtake. Ras Tanura (550kbd) suspended operations following several attacks, as did the Sitra (405kbd) refinery. Plants across Kuwait are trimming output, whilst oil storage facilities in Duqm (Oman), Fujairah and Musaffah (UAE) have also been hit. In Asia, run cuts and export bans also threaten regional CPP trade. China and Thailand have instructed their refiners to cease exports with the former being the third largest regional exporter. One Indian refiner halted gasoline exports in March/April. In Korea, another refiner was looking to buy back scheduled exports, whilst other major economies were considering similar moves. Petrochemical producers across Asia and the Middle East have declared force majeure.

Governments are yet to announce major releases from strategic reserves (SPRs), though the US has authorised India to import Russian oil already on the water, even if delivered by sanctioned ships. If the situation does not soon improve, SPR releases may be inevitable. With supplies of feedstocks and finished products looking extremely tight, commodity prices have surged. Jet fuel prices have surged globally with Singapore spot prices hitting a record on Thursday and are trading over 108% higher on the week. Gasoil prices have surged to levels not since 2022. Crude price increases have been more modest but are still up around 25% on the week to levels not seen in nearly 2 years.

The combined effect has pushed freight rates across many routes to record levels. Earlier in the week, the VLCC spot rate TD3C surged 83% in a single day, yet many of these rates are “theoretical” with few if any fixtures reported. Some benchmarks have started to correct already, with steeper declines possible next week if volumes cannot be restored. Western markets perhaps represent the real levels of freight on offer, yet as more vessels divert to this region, the supply/demand balance could also weigh on freight rates here.

VLCC TCEs ($/day)

Crude Oil

East

The AG VLCC market experienced a quiet week in terms of visible activity, as geopolitical tensions in the Middle East dominated market sentiment. Limited enquiries were reported on the surface, with much of the market appearing to pause amid uncertainty surrounding the situation in the Strait of Hormuz. Freight levels remained at unprecedented levels throughout the week, supported by a significant geopolitical risk premium. Ongoing developments, including threats from Iran and reports of tanker incidents, generated substantial market rumours and reinforced owners’ bullish sentiment. Midweek, President Trump suggestions that vessels could be protected by the US to transit the Strait of Hormuz brought some limited reassurance, although market participants remained cautious while awaiting confirmation on the ground. As a result, activity has remained largely frozen, with charterers reluctant to expose cargoes in such an uncertain environment. Toward the end of the week, activity picked up, notably around Yanbu, whilst freight levels remained at their peak. Overall, the market remained driven by geopolitical developments rather than supply and demand fundamentals.

The Suezmax market in the East has gone ballistic this week, with WS750 being lifted for Yanbu/Malacca. The number of owners willing to load in the Red Sea is giving charterers very little to choose from and the rerouting of cargoes to Yanbu has had everyone scrambling for early ships. The list does look to open up a little next week but this market still remains firm, with a lot of uncertainty in the region.

Aframax earnings in the Indo region rebounded to around $52,000/day, supported by firmer sentiment stemming from developments in the AG. The near-term outlook remains bullish, with recent fixtures pointing to continued strength. That said, some market participants caution that if the situation persists, it could turn bearish for the segment as tonnage begins to build in Indo while regional demand struggles to keep pace. Vancouver demand continues to attract owners’ attention — including some LR2 participation — with each fixture reportedly concluding at progressively higher levels. Regional enquiry has been slower compared with previous weeks, though rates suggest otherwise, as a fresh Thai-bound run touched a new ceiling. We close the week firm, assessing Indo/North at 80kt × WS235.

West Africa

The WAF VLCC market started the week on a quiet footing, with little enquiry visible on the surface. Despite the lack of activity, freight sentiment remained firm, largely following the broader global trend on the back of the events in the Middle East. Market participants waited to see whether increased demand could shift more cargoes toward the WAF region. As the week progressed, activity remained limited but the market continued to track firmer conditions elsewhere. Owners’ sentiment stayed strong, although enquiry was slow to materialise and participants watched closely to see if changing dynamics would attract more ballasters from the East. Towards the latter part of the week, a few fixtures were reported, providing some clarity on levels. Freight softened slightly, with the latest cargo reported around WS257.5 for AG/East. Despite this modest easing, owners’ sentiment remained constructive, with the market closing the week awaiting further enquiry to confirm direction.

West Africa has firmed throughout the week and owners are all feeling super bullish. We estimate TD20 is around the 130kt x WS320 mark. We could see things start to soften into early April with paper trading down and a lot more likely to ballast from the East. The premium to head East today is hard to gauge but we think it is somewhere around WS30 points,  with very few owners keen to head East given the situation in the Middle East.

Mediterranean

TD6 remains untested since we have seen rates spike. Today we estimate it to be around 135kt x WS340, though it could easily be higher for more prompt dates and those looking for East options via Suez are likely to be looking at some pretty large numbers. Libya/East has been active this week, with an increased demand from India because of the disruption in the Strait of Hormuz, and plenty chasing some barrels up for grabs in Libya. With the same players for these cargoes having the option to ballast via Suez and load in Yanbu, expect some pretty high offers.

The week started cautiously for Med Aframax market participants as they assessed the escalating Middle East situation. However, owners in neighbouring markets were less shy in asking for more, giving those in the Med the chance to set a higher benchmark. By mid week momentum had clearly built, and once the market moved through WS300 further gains followed as charterers looked to book firm vessels further and further forward. It remains a difficult hunting ground for charterers, with a thin list exacerbated by relets ballasting to cover their programs in the States. The wider backdrop stays supportive as we look forward with bunker prices also rising sharply on fears of disruption around Hormuz, while broader tanker and fuel oil dislocation has added to bullish sentiment and reinforced owners confidence.

US Gulf/Latin America

The VLCC market began the week on a quiet note, with little visible activity reported on the surface. Nevertheless, sentiment remained firm, supported by geopolitical tensions that continued to underpin freight levels and raised the prospect of additional ballasters being drawn from the East should enquiry pick up. Midweek, activity gathered momentum, with a noticeable surge in fixtures. Owners maintained a strong stance as the latest USG/China deal was reported around $28.5m, pushing rates higher across surrounding routes and reinforcing the bullish tone in the region. Toward the end of the week, a steady flow of activity continued, although signs of resistance from charterers began to emerge. One fixture concluded below the previous last done on older tonnage, suggesting that rates may be nearing a ceiling. Overall, the market closed the week with owners still holding a firm position, though slight easing in rates brought TCE levels between WAF and USG closer together, leaving participants watching closely for the next direction in enquiry.

North Sea

A North Sea Aframax market which typically moves at a snail’s pace finally had some gumption, although this is mainly down to sentiment from surrounding market and the US pulling any TA players from the region. Rates pushed up to WS245, with owners finally making a play for better returns as mid-week showed somewhat of a hive of activity. The relet list shortened faster than anything else this week, partly due to players holding their ships back and partly due to committing for lucrative distant options. In reality, there are a few fundamentals that support the current market. With ships turning around relatively quickly, we can expect any additional growth to be in a range of WS5-10 points increments. Those needing XNSea cover still have a choice and we won’t have seen the last of the ballasters. We see levels still going upwards into the start of next week.

Crude Tanker Spot Rates (WS)

Clean Products

East

A fantastically uncertain week for the AG as conflict erupted in the Middle East. As expected with the associated risks, much of the week has been spent with all parties holding back whilst taking advice and guidance from internal and external governing bodies. There has been an owner that has been able to operate within the AG and as such has been able to capitalise on some premium rates, but this is very much an isolated situation. A vast number of fixtures have been cancelled over the course of the week. These ships now sit prompt outside the HRA and are assessing their options. Stems out of WCI will now become highly competitive, with reports of TC5 on subs (ex Sikka) at 55kt x WS150. This shows the eagerness to fix out of the region. Expect this uncertainty to continue into next week as all parties take stock of where they can or cannot load from. However, assess that safe loading ranges (especially WCI) will become a very competitive trading ground.

With US and Israeli attacks on Iran dominating the headlines, the AG MR market has all but ground to a halt whilst supply chains wait for a more secure trading environment. As ballast and prompt units arrive closer to Oman, the list for WCI opportunities has lengthened. Despite panic and sentiment boosting levels to ws 425 for TC17 earlier in the week, supply fundamentals have seen that run drop to ws 375 and ws 300 for TC12. Some have committed to the ballast East, but, with Asian export bans kicking in, we expect to see these units look West for coverage soon.

UK Continent

Despite events being many miles away, the whiplash effect on sentiment has been dramatic as the repercussions of this will be palpable on both supply and demand. Rates have surged on all routes as a flood of cargoes have hit the window in a disorderly fashion. Owners have capitalised and remain bullish. TA runs are massively disconnected from other routes as owners are keener than ever to get to the USG, with many threatening to ballast. Rates have surged to 37kt x WS225 for TA runs , WS335 for USWC, WS320 for XUKC, WS350 to WAF. Demurrage is now trading over $60,000/day, which is in perspective still 50% less than the USG demurrage. We expect some continued bullishness, but the big question is how much does Europe want to export going forward.    

A bullish week for Handies as well, with the Med market roaring up, which in turn created energy in the North. Ice factor is starting to diminish but this is counteracted by heavy cargo enquiry and other sectors pulling rates up. No let up is expected for XUKC Handies, although they will be slightly guided by what MRs will do, as these are still the preferred size to the Med.

Med 

With many enquiries and a bullish sentiment blasting from the East, rates have pushed up and owners remain very cautious about fixing too quickly. The list has a few more ships available than the North, largely due to the incoming laden ships fixed from previous weeks. The questions ahead are what sort of volume and rates we’ll see ex Red Sea as this is probably going to be the draw point, especially if LRs cannot take up the slack. That said the Red Sea may not be immune from this as we have once again many factors in play here. General sentiment is strong, but we feel the TA rates will still trade at a massive discount to WAF and XMed as owners do still desire straight TA runs.

Similarly to other sectors, we saw a flood of enquiry appear on our sheets on Monday morning as charterers looked to make the most of available tonnage. Owners seemed to play the slow game though. As the week progressed, owners took the opportunity to press. We almost doubled freight now into the low 400s, and with a handful of stems still outstanding and no alternative sized ships around, we expect further gains ahead.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

This week began in a fairly cautious manner, following events in the Middle East, as owners sat back to see what might be in store, with minor activity reported on Monday. When enquiry did surface, rates firmed from the off against the backdrop of a tight list and owner bullishness, with WS320 paid for an UKC run. Enquiry continued to flow, clearing WMED ballasters and naturally placed ships from the list. By the close of play Friday, owners managed to gain an extra WS10 points with last done levels at 30kt x WS330 XUKC. Looking ahead to next week, we expect to see replenishment on the lighter side with tonnage tight from the off. Owners will be looking to capitalise and drive on rates.

The Mediterranean saw an initially quiet and cautious Monday as owners held back from offering at first. This led to the market firming off the back of sentiment rather than any fundamental changes to supply. WS320 was covered before quickly firming to WS330, where deals began to repeat. By the close of play Friday, XMED rates currently sit at WS335. We expect to see a tight market come Monday, with little change in owners’ bullish sentiment, and expect to see rates continue their upward march.

MR

There is little to report for this sector as full stem 45kt enquiries struggle to surface across both regions, with opportunities for employment coming by way of part cargoes lately. Despite this, we still expect to see rates firm upward on next done, with tonnage relatively tight across both regions. Some owners are calling the market up to WS240 in both sectors, but a fresh and well-publicised test is needed to determine true levels.

Panamax

TD21 experienced a healthy upturn this week, as to be expected following the situation in the Middle East, as charterers look for longer runs to the east. The market has experienced a trickle-down effect from the surrounding sizes, and owners have pushed rates back toward the WS380 mark, with a potential for more as we head into next week. Over this side of the Atlantic, supply remains tight for now with a handful of vessels expected to complete dry dockings toward the end of the month in EMED. Rates need a fresh test, we expect to see levels around the WS190 mark for Europe-TA runs.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeMar 5thFeb 26thLast Month*FFA Q1
TD3C VLCC AG-China WS25647321795213
TD3C VLCC AG-China TCE $/day291,750506,750215,00080,000197,000
TD20 Suezmax WAF-UKC WS118329211156203
TD20 Suezmax WAF-UKC TCE $/day76,500180,000103,50074,75092,000
TD25 Aframax USG-UKC WS99393294317304
TD25 Aframax USG-UKC TCE $/day38,000118,75080,75094,75079,250
TC1 LR2 AG-Japan WS250447197214 
TC1 LR2 AG-Japan TCE $/day81,250126,25045,00054,750
TC18 MR USG-Brazil WS151454303231301
TC18 MR USG-Brazil TCE $/day26,25066,25040,00029,50035,750
TC5 LR1 AG-Japan WS253469216219230
TC5 LR1 AG-Japan TCE $/day59,25095,00035,75039,50033,250
TC7 MR Singapore-EC Aus WS35267232247240
TC7 MR Singapore-EC Aus TCE $/day3,00028,25025,25029,25022,000

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

Bunker Prices ($/tonne)

wk on wk changeMar 5thFeb 26thLast Month*
Rotterdam VLSFO  +118595477446
Fujairah VLSFO  +244753509472
Singapore VLSFO  +190704514489
Rotterdam LSMGO  +3011017716696

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