Refining Ramp-up

Last month refining runs hit an all-time high of just over 85mbd, with refineries running much harder this summer than at any other point since the pandemic. Globally, refining has had a pretty good year with margins performing better than many expected; yet the industry is not without its challenges. Increased regulatory costs, competitive pressures from new refineries and changing oil demand dynamics will all continue to increase the pressure on older, less efficient plants, leading to not only changes in flows, but also outright volumes.

For product tankers, the first half of the year saw global CPP export volumes fall back, barely exceeding 2023 levels. However, with refiners cranking up activity through June-August, seaborne CPP exports reached a 16-month high. In particular, strong export volumes from the Middle East were seen over summer, with refining runs there close to maximum levels, whilst Europe imported record volumes of jet fuel last month. Exports are now expected to fall back across most major trading regions, with refineries globally taking 3.5mbd of capacity offline for planned maintenance between now and October before bouncing back strongly by year end, where the IEA expects refining runs to set another new record. Yet, despite these good news stories, the sector faces challenges.

Global Refinery Runs (kbd)

In Europe, refineries continue to come under competitive and regulatory pressure. Over the summer, the insolvency of Prax saw the UK’s 113,000 b/d Lindsay refinery close, just months after Petroineos ceased refining at the 150,000 b/d Grangemouth refinery. Regional facilities also remain under threat as the 650,000 b/d Dangote refinery in Nigeria continues to steal market share from European exporters, although the refinery has faced frequent operational setbacks as it seeks to achieve stable runs.

In the US, P66 is in the process of permanently shutting the 139,000 b/d Los Angeles plant, whilst Valero is planning to close its 160,000 b/d Benicia refinery, also in California. However, with a change in US environmental policy, the fall in US refinery runs is likely to be slower than expected. Even in California, home to some of the strictest environmental policies in the US, the state is considering a support package to keep the Benicia refinery running. Similar to Europe, albeit from a more advantaged position, US refineries are also facing competitive pressures. Mexico is gradually bringing online the 340,000 b/d Olmeca refinery, leading to reduced imports from the US this year, whilst also facing continued competition from cheaper Russian barrels into Brazil.

In China, refiners are also under pressure. Several plants have already closed in the past year, with increasing government pressure to rationalise capacity, whilst a crackdown on tax evasion threatens to further pressure small independent refineries. Adding to the pressure is declining domestic fuel demand as the country shifts towards EVs.

Despite these challenges, global refining throughput is still expected to grow by 500,000 b/d next year. OECD countries will see a 500,000 b/d decline, whilst non-OECD countries, mostly East of Suez will see their runs grow by 1 million b/d, with 40% coming from the Middle East, partly supported by the expansion of Bahrain’s Sitra refinery. In the near term, this may support incremental product flows from the region, but over time, rising domestic demand and declining demand in developing economies suggests that global CPP export volumes may be nearing a peak. However, beyond the fundamentals, considerable geopolitical uncertainty remains. Indian and Turkish refined products face a ban in Europe from January given these countries large imports of Russian crude, whilst Russian refineries and export terminals are a consistent target for Ukrainian drones, impacting product exports. If we are to see major Russia-related changes in volumes and/or flows, global seaborne products trade could be upended once again!

Global CPP Exports (kbd)

Crude Oil

East

The early week dip in the VLCC MEG market seems to have soaked in more ships than anticipated and help support a strong bounce as tonnage lists tighten their grip on anyone needing September lifters. This matched with a busy end of the week has allowed owners to push rates up significantly with TD3C jumping sky high. Not a week for the faint hearted and all will be watching as the new stems come out next week. We are currently calling AG/China at 270 x WS93.5 and AG/USG at 280 x WS57.5.

Rates took a dip in the East this week but with strong sentiment on the VLCCs, Suezmax owners are feeling rather bullish. For AG/West the market has been very stable around 140 x WS60 via C/C. Rates to go East need a fresh test after the rally on the VLCCs and expect owners to be pushing for over 130 x WS112.5 today.

In Asia, APPEC ended as Aframax rates held steady through the week. Enquiries emerged and were swiftly covered at prevailing market levels, keeping the tone balanced. The tonnage list remains tight through the middle of the last decade but opens up for end-month loadings, giving charterers more options further out. Ton mile demand saw some improvement, with long-haul voyages fixed on TD14 alongside northbound FO runs. This activity should help support rates in the near term, with Indo-region earnings hovering around the mid-$20k/day range. Owners will look to maintain this floor given current fundamentals, while charterers are expected to test levels as the list refreshes for the next loading window. We assess Indo/Oz at 80 x WS120.

West Africa

The noose has tightened in WAF for the 5-10 window and owners expectation’s have firmed up with IOC going out and paying a three digit worldscale rate. There are few ships to alleviate the pain here for charterers as brazil keeps taking ships and the AG continues to firm. We are currently rating WAF/China at WS95 today.

The WAF Suezmax market has been sluggish towards the end of the week, but the list remains tight on the early position. For TD20 next week expect rates to go over 130 x WS112.5. The premium to go East is probably around the 7.5 mark today as we see owners keen to lock in long runs with current high rates.

Mediterranean

TD6 has remained very stable throughout the week at 135 x WS142.5. With the market looking firmer in the West it does seem likely that this may push up a little next week. Rates to head East will have pushed up, with not too many keen on heading that way at all. The market needs a test, but we estimate $5.3M for Libya/Ningbo via C/C.

It was Groundhog week for Aframaxes in the Mediterranean. Copy and paste from the last 7 days where supply and demand was evenly matched and even where it was not, owners were wary of missing their dates. Charterers having successfully reached forward at basement levels have been able to take the steam out of any owner’s ambition and so the conference rate of WS130 was achieved in most cases. Even when the list was trimmed and the States gave owners reason to be optimistic, we saw a fixture concluded at WS125 for a particular case which was then repeated. The reality of the list was not lost on owners though and a quick rebound to WS130 was seen with Libya cargoes on smaller flats offering premiums. As we look towards the next week owners remain optimistic buoyed by the prospect of some CPC cargoes to come in October once more.

US Gulf/Latin America

On VLCCs, TD22 is still lagging all regions on TCE rates. The catch up in this region is a work in progress with limited fixtures concluded. A handful of cargoes are working but we are yet to see the headline numbers paid especially considering how limited the ship availability is. We are currently assessing USG/China at $10.8m and USG/UKC at $5.4mil, a considerable jump from what has been concluded.

North Sea

A testing week for Aframaxes with rates feathering down from an overtonnaged list. It should level out now with the US attracting units. WS122.5 level is likely what most will be targeting going into next week. The prompter units on the early side will either join those heading west for lucrative US returns or weigh up the WMed options.

Crude Tanker Spot Rates (WS)

Clean Products

East

Softening sentiment seen for both the LR2 and LR1s in the AG this week. The LR2s have suffered from a lack of cargoes reaching the market and when they have appeared they have been hotly fought over. UKC has seen a negative correction to $4.0m via cape, and TC1 at 75 x WS140. The LR1s need to see a new test as with lack of cargoes the sentiment has been driven of the back of the LR2s and expected to soften further. UKC sits circa $3.0m and TC5 at 55 x WS155. Owners will hope that post APPEC the markets sees a flurry of cargoes to try and easy the negative correction that’s on the cards.

Tough week for owners here in this AG MR market as a build-up of tonnage has seen rates collapse. We began the week with TC17 trading around the 35 x WS220 mark and TC12 at 35 x WS165 but fresh lists pulled on Monday showed an armada of ballast tonnage hitting the AG by the 20th. This combined with the already 10 or so prompt ships was always going to be a recipe for softening. Fast forward to Friday and we see TC17 at 35 x WS185 & TC12 sliding 35 points to 35 x WS130. As we approach the weekend a few cargoes are outstanding but with the list still looking healthy expect the pressure to continue here.

UK Continent

With expectations of good earnings in Q1, quite a few refineries are currently under maintenance in preparation putting pressures on MRs. This has reduced flow quite dramatically and has also changed the mentality around the NWE market. This is now very much a back haul market, and owners are now asking for a premium to discharge on the UKC and keen to leave the region in search of better earnings. Obviously the positive of this is the round-trip laden earnings which were only dreamt about a few years ago, the reality is very poor earnings as vessels leave the region. Rates have remained low this week and drifted down to 37 x WS110 TA. There doesn’t feel like much change ahead, although as the wind starts to blow a bit more we do expect some delays so we would expect a midterm tick up.    

A week which started with promise with tricky Med stems being the catalyst for Handy freight improving. Owners have had little appetite to head south as TC6 continues to hug the floor at 30 x WS135. TC23 did trade up to 30 x WS162.5 by the mid-week stage but with the MR market collapsing and at the time of writing TC2 trading at 37 x WS110 the feeling is pressure will come from the larger ships forcing Handy freight to correct down. For now, though, owners are trying to hold the line at last done levels.

Med 

A tale of two halves for MRs in the Med this week. We opened at 37 x WS115 levels but there was activity which saw a high of 37 x WS132.5 go on subs for a Med-UKC naphtha stem. Owners quickly became bullish in what looked to be a grade sensitive and date dependent market and tried to capitalise on this movement, however, with a few lesser rates going on subs this seemed to be a fleeting high. The list restocked nicely for charterers and the numerous northern stems with Med options hinted that rates were due to soften. We close the week where we started 37 x WS115 levels off the back of 37 x WS110 being paid on an ex dry dock vessel for Med-TA. As mentioned, it does seem that rates become tougher to move when we reach these low levels so rates may drift sideways depending on how much enquiry we see next week and how the list shapes up. 

Handy rates remained flat here this week, with XMed trading sideways at 30 x WS135. Enquiry has been steady, but a balanced replenishment of tonnage put charterers under no pressure to improve levels earlier in the week. That said, a slight tightening of the front end by week’s close suggests that prompt stems could command a premium. However, with the weekend approaching, charterers are expected to hold off and reassess positions post weekend restock before considering any upward movement.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Activity on Handies has bubbled away in the North this week as WS225 repeats multiple times, keeping the list ticking over for the most part. Naturally positioned units are expected to open up over the coming days; however, these units are of an older vintage. Tonnage positioned WMed may look at UKC loads where rates are steady and holding some 30 points above the Med, which could bring a slightly softer feel and possibly see levels tested down early into next week, but for now we see XUKC runs at WS225.

The Mediterranean Handy market continues its downward trajectory against the backdrop of a lengthy list and minimal enquiry. Rates began the week at WS205 and equivalent with fresh enquiry trickling into the market, but levels soon succumbed to the negative pressure and WS195 was tested and repeated. Levels here are yet to find a floor and additional units are set to open over the weekend. An active start to the week is needed to clear tonnage if rates are to steady but unfortunately, we expect to see levels slowly trend downward for now.

MR

A quiet week for both regions on MRs, with a couple of under-the-radar dealings concluded. Up in the North, availability has been scarce with few options to call upon, leaving WMed ballasters the order of the day. We expect owners will look to test upward towards the WS170 mark on next done. In the Med, what little opportunity owners have seen has come mostly by way of handy or part cargoes. Units remain available to work across the region; we expect to see levels soften toward WS150 here.

Panamax

Another quiet week for Panamaxes in Europe as backhaul opportunities continue to elude the market. A couple of units are workable both WMed and up in the North which could create some competition should enquiry surface. We expect to see levels around WS115 tested on next done. TD21 tracked steadily for the front end of the week as activity clipped units away from the list. Enquiry continued to flow, firming up rates toward the WS160 mark by the end of the week. Owners will be hoping for more of the same as we look to next week.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeSep 11thSep 4thLast Month*FFA Q3
TD3C VLCC AG-China WS1787706762
TD3C VLCC AG-China TCE $/day21,50077,00055,50052,50041,500
TD20 Suezmax WAF-UKC WS4112108110101
TD20 Suezmax WAF-UKC TCE $/day2,75048,50045,75047,25037,750
TD25 Aframax USG-UKC WS12176164154155
TD25 Aframax USG-UKC TCE $/day4,25044,75040,50037,00032,500
TC1 LR2 AG-Japan WS-14143157138 
TC1 LR2 AG-Japan TCE $/day-4,50034,25038,75032,500
TC18 MR USG-Brazil WS-4212216249209
TC18 MR USG-Brazil TCE $/day-75028,00028,75035,50025,250
TC5 LR1 AG-Japan WS-3154158157154
TC5 LR1 AG-Japan TCE $/day-50026,00026,50026,75023,750
TC7 MR Singapore-EC Aus WS-3210213207198
TC7 MR Singapore-EC Aus TCE $/day-50025,00025,50024,50022,000

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

Bunker Prices ($/tonne)

wk on wk changeSep 11thSep 4thLast Month*
Rotterdam VLSFO  +9461452457
Fujairah VLSFO  +0484484491
Singapore VLSFO  -10480490494
Rotterdam LSMGO  -7651658658

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