Red Sea – Key Tanker Flows

Hopes of a temporary ceasefire between Israel and Hamas, which potentially could help to improve the security situation in the Red Sea have been dashed in recent days, with further attacks reported on commercial vessels and Israel rejecting Hamas’s proposed ceasefire terms. As of now, there is very little change to tanker traffic transiting through the Red Sea compared to two weeks ago. Vessels with significant recent Russian trading history continue to transit en masse, both laden and in ballast, seemingly unaffected by escalating tensions and despite three attacks on vessels with connections to Russia (or Russian cargo). The majority of conventional tonnage continues to reroute via the Cape of Good Hope (COGH).

Perhaps the biggest tanker flow impacted by the Houthi attacks is the Middle East Gulf (MEG)/India clean products trade to Europe, which averaged circa 955kbd last year, but fell to just 690kbd in January, according to preliminary AIS data. Yet, despite lower volumes, we have seen a stunning spike in clean tanker rates, as most vessels opted for a safer COGH routing. Out of 19 LR2s, 13 LR1s and 4 MRs that loaded in January, 12 LR2s, 10 LR1s and 4 MRs routed via Cape. Furthermore, the drop in shipments to Europe was more than offset by increases in exports elsewhere, whilst the lack of LR ballasters from the West also contributed to extreme tightness in tonnage availability.

Another key tanker flow that traditionally relies on Suez transit is the crude trade from the MEG into Europe, which averaged 865kbd in January, down modestly from 910kbd in 2023 (but surprisingly up compared to shipments in Nov/Dec 2023). Out of 15 Suezmaxes and 8 VLCCs that loaded crude in the MEG in January for delivery into Europe, 10 Suezmaxes and 6 VLCCs opted for a COGH routing. In addition, circa 445kbd was exported from the MEG into Ain Sukhna on average last year, with the vast majority of these barrels destined for the European market. This trade collapsed to just 30kbd in January; however, it is too early to draw conclusions as monthly exports are often volatile, whilst there also was an increase in shipments into Ain Sukhna from West Coast Saudi Arabia in the Red Sea.

With most crude tankers avoiding the Red Sea, it is perhaps surprising that we haven’t seen the same response as in the clean market. This is particularly the case for Suezmaxes that dominate the MEG to Europe trade. There are several reasons for this. Firstly, although the affected volumes are broadly similar, bigger cargo sizes mean less tankers. Secondly, fleet size also matters. Whilst the Suezmax and VLCC fleet is over 660 and 900 units each, there are currently circa 250 LR2s and 260 LR1s trading clean, with the rest operating in the dirty segment. In addition, there is also a clear shift away from Suezmaxes, which accounted for 80% of all crude moved from the MEG to Europe last year but just 55% in January. 

Yet, despite the muted response in the crude tanker market so far, if the current situation continues for any significant period of time, the impact of COGH routing will accumulate, offering support to tanker rates. Also, it will be interesting to see how many Mediterranean and CPC Kazakhstan barrels will continue flowing East, with shipments (mainly consisting of CPC and Libyan barrels) averaging 560kbd last year. Unless there is a dramatic decline in these volumes, GOGH routing will offer another boost to crude tanker tonne miles.

MEG-Europe Crude Flows by Vessel Size (%)

Crude Oil

Middle East

It was a positive week for the VLCC market as Charterers moved to cover stems before the start of the Lunar New Year and rates rebounded accordingly. The tonnage supply has diminished especially for earlier cargoes and owners were able to take advantage. The market is now likely to experience a few inactive days as most of the East closes and this could halt the momentum for now. Today we are calling a 270,000mt AG/China run at ws 66 and 280,000mt AG/USG run remains at ws 40.

Suezmaxes in the AG have seen a slightly better level of enquiry this week to prevent the list from building, there is still adequate tonnage to cover demand. Even for cargoes heading via Suez, Owners will be asking for a premium but there are still a good number of ships that are willing. Today we are calling a 130,000mt AG/East run at ws 127.5. While For a 140,000mt AG/West voyage via the Cape would go for around ws 77.5.

For the Afras, it has been a balanced week in the East with a couple of ships reappearing on a list that was beginning to thin. Owners continue to drive a warmer sentiment but with Chinese New Year on the horizon, AG/East remains at the ws 195 level.

West Africa

The WAF market also witnessed a upturn this week as Charterers struggled to cover first decade stems against a shrinking number of available VLCCs and Owners were able to take full advantage as freight levels began to firm. Owners sentiment was further enhanced by a surge in USG activity which looks likely to continue into next week.   Today we are expecting a WAF/China run to fix at the ws 67 level.

Suezmaxes in West Africa are firming off the back of busier USG markets for both Afras and Suezmaxes. Owners will be looking to push on further next week and with the USG picking off Nigeria willing ships, the list is thinning out. Today a 130,000mt WAF/UKCM run would go for in the region of ws 107.5. While a 130,000mt WAF/East run is at ws 112.5 levels.

Mediterranean

Suezmaxes have been quieter in the Med this week, with collapsing Afra markets, Owners in the region will be contemplating ballasting West on spec. Today a 135,000mt CPC/South Korea run would fetch in the region of $7.1M via Suez while a 130,000mt Libya/Ningbo run is at $6.1M via Suez.

At the start of the week, the soft sentiment amongst Med Aframax Owners was pounced upon by Charterers as last-done levels were continually eroded down to the bottom of ws 160 for an X-Med run. but, as the week progressed and the list trimmed of prompt units, the tide turned (all be it late on in the week) allowing rates to push back up to ws 165 levels for X-Med. Regarding CPC, vessels opening up in the BSea scrambled for employment and hence rates close at ws 185 for this run down from ws 220 at the start of the week. Looking ahead to next week, the US markets have shown a slight pick-up in TD25 overnight. This may lead to the loss of a few UKC/WMed units, which will set sail for a transatlantic ballast. Along with some expected bad weather in the region, we could see rates continue to firm.

US Gulf/Latin America

This zone has started to recover after a tough couple of weeks and a resurgent USG export market has pushed levels upwards and by weeks end were almost back to the levels we witnessed at the beginning of the year. There was also a busy programme in Brazilian exports and with the overall VLCC market doing well Owners will attempt to push levels above last done. We expect a USG/China run will fix in the region of just $9.25M in today’s market while a Brazil/China run is paying around the ws 65 level.

North Sea

With activity in the Northern Afra market hard to come by this week, rates took a hit in line with surrounding markets. Falling from ws 165 levels to close the week at ws 155 for a X-North Sea voyage. Looking ahead to next week, local Owners will need to keep a close eye on the USG market as it is threatening a jump. If the USG market does jump, then the region will find itself thin of tonnage allowing those remaining to try and push rates where possible.

Crude Tanker Spot Rates (WS)

Clean Products

East

It was a quieter week for the LRs however, there has been enough ticking over in the background to ensure that although the rates have seen a slight correction, the lists are looking balanced for the LR1s and tight for the LR2s out to the 20th. With Chinese New Year on the horizon, expect that it could be a bit of a slow start to next week. However, it won’t take much to see a rally on these rates especially on the LR2s. For now, TC1 is at at 75,000mt x ws 260 and TC5 is at 55,000mt x ws 290 (this needs a fresh test) and for Jet heading West (via Cape) LR2s are at $7.5m and for an LR $6.25m. A slight correction has been seen on the rates, but this doesn’t come as a surprise. Owners will be hoping that there isn’t too much more to come off, however, expect that Charterers will be monitoring the lists and targeting Owners with off market direct deals to entice more favorable rates.

The cooling off on the MRs has continued where the cargo base has been drip fed to the market but despite tonnage being tight on the front-end, Owners staying power has been tested. It was a mixed bag of results up to mid-week which saw a 10-15 point gap on TC17 rates while those with stems to cover sat back to see where levels ended up. We close the week with very little momentum and East is now rated below ws 300 with AG-Spore on subs at ws 335 and TC17 now trading below the ws 400 mark. Into next week expect some aggressive countering while one eye is kept on the LR1’s and LR2’s to see where value lies.

Mediterranean

All in all, it’s been an active week for the Handies in the Mediterranean with rates pushing up throughout. We began the week with X-Med trading at the 30,000mt x ws 245 mark but with good enquiry levels, especially midweek, the list has tightened and we now see levels at 30,000mt x ws 270. BSea action has also been strong this week with BSea/Med now up above the 30,000mt x ws 300 levels. Fast-forward to Friday and activity has slowed a touch but with poor weather expected over the weekend Owners will remain positive come Monday.

Finally, to the Med MR’s where the week got off to a positive start after 37,000mt x ws 240 went on subs for a prompt replacement. Ever since Owners ideas in the Med have been heightened with the sector continuing to trade higher than its UKC counterpart. Vanilla Med/TA is now at the 37,000mt x ws 235 mark but higher remains achievable depending on dates and grade. WAF is due a positive correction with levels to land at around +25-30 points on Med/TA. At the time of writing, a couple of cargoes remain outstanding and with the list tight for natural Med openers expect Owners to remain bullish into the weekend.

UK Continent 

It has been quite a week for the MR Owning fraternity with this sector picking up some real momentum due to the lack of ballast tonnage and good levels of enquiry throughout. Monday produced a glut of WAF stems which have been problematic with many Owners preferring to head TA, but with a lack of TC2 to begin with, a standoff was met. Come Thursday the floodgates were opened, and we saw a healthy jump into the ws 200s and with some delays and a strong Med market also especially on the Naphtha’s, there seems no doubt this enthusiasm will continue ahead. For now, we call TC2 around the 37,000mt x ws 215-220 region with WAF still needing a fresh test but expect closer to the ws 240-250 mark to be achieved.

Freight took a dip at the start of the week for Handies in the North as there was still a healthy amount of supply to clear from the front end of the tonnage list. An increase in cargo volumes was in the market by Wednesday and X-UKC at the time of writing levels have bounced back as 30,000mt x ws 215 is now paid for X-UKC. Higher freight being paid on the MRs will keep Handy Owners bullish as we head into next week. Potential

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Activity levels in the North have been enough to trim the top of the list as both Handy and MRs are steadily clipped away. If replenishment is kept to a minimum over the weekend and cargo enquiry picks up early next week, levels will surpass last done which was ws 347.5.

In the Med, an injection of pace came at the right time this week after we started with a rather lengthy tonnage list. With one Owner fixing ws 317.5 for an X-Med voyage, an uptick in enquiries soon followed, giving some legs to this sector. As a result, Owners’ confidence grew, enabling them to maintain levels between ws 315 and ws 317.5 throughout the week. For the short term, there is little to suggest sentiment will swing in either Owner or Charterer’s favor.

MR

This week was active for MRs in the North as levels reached 45,000mt x ws 250 for X-UKC. Slow replenishment and tight positioning kept Owners fully in the driver’s seat and expect Owners to be bullish should full stem enquiry continue to flow next week. As natural tonnage thins in the North, West Med units will be key and expect them to capitalize on the firming market. As we look further South, in the Med, MR Owners have seen little opportunity basis 45kt, which has resulted in Owners throwing their hat in the ring for 30kt stems as a time filler.

Panamax

Gaps in availability have seen an increase in levels this week as one Owner fixed 55,000mt x ws 190 for an ARA/TA voyage. Recently, tonnage replenishment has been slow to surface in Europe, and with the US market looking strong, Owners were feeling quietly confident that if TA enquiry were to surface, a bullish approach could be taken whilst the list remained in their favor. After the recent test, expect Owners to look to gain further upon the next test.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeFeb 8thFeb 1stLast Month*FFA Q1
TD3C VLCC AG-China WS+866586967
TD3C VLCC AG-China TCE $/day+10,25038,25028,00043,50039,500
TD20 Suezmax WAF-UKC WS-3103106143119
TD20 Suezmax WAF-UKC TCE $/day-1,00034,75035,75060,50045,000
TD25 Aframax USG-UKC WS+7192185303218
TD25 Aframax USG-UKC TCE $/day+2,75044,50041,75086,50054,500
TC1 LR2 AG-Japan WS-61262323154 
TC1 LR2 AG-Japan TCE $/day-21,75068,50090,25031,250
TC18 MR USG-Brazil WS+15234219220222
TC18 MR USG-Brazil TCE $/day+3,00026,25023,25025,00024,250
TC5 LR1 AG-Japan WS-60296356188256
TC5 LR1 AG-Japan TCE $/day-15,75056,75072,50029,75046,250
TC7 MR Singapore-EC Aus WS-1343344250285
TC7 MR Singapore-EC Aus TCE $/day-25042,75043,00027,25032,500

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

Bunker Price s ($/tonne)

wk on wk changeFeb 8thFeb 1stLast Month*
Rotterdam VLSFO  -10565575546
Fujairah VLSFO  -12609621585
Singapore VLSFO  -6630636590
Rotterdam LSMGO  -2801803740

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