Scrap the Cap

Last week news broke that the G7 group of countries were considering removing the oil price cap, which was first implemented at the end of 2022 following Russia’s invasion of Ukraine. The removal of the cap would see a full and unconditional ban on G7/EU companies providing maritime services to support Russian oil trade, in effect pushing Russian business entirely to the shadow fleet. Whether this is bullish or bearish for tankers depends on a number of key factors.

It is understood that the British, European, and even American officials are promoting the idea. Even without US involvement, a full maritime services ban could force almost all mainstream tanker owners from the Russian market. Indeed, back in September, the UK and the EU lowered the price cap to $47.60/bbl. The US refrained from joining the lower cap, however, given the importance of London in maritime insurance and the fact that many of the major lifters of Russian price cap oil are located in the EU, the de facto price cap globally became $47.60/bbl instead of the G7 official $60/bbl. Something similar is likely to happen in the event of a full maritime services ban, with it being very difficult for any mainstream shipping player to circumvent EU or UK restrictions. As such, it may not matter whether the US joins or not.

So, if a full maritime services ban is implemented, what might the impact be? Given the ban would force mainstream tanker owners to completely withdraw from Russian trade, one could argue that benchmark tanker rates could come under pressure given it would theoretically increase the number of tankers available for conventional trade. However, much would depend on how the buyers of Russian oil react. Generally, it is not considered a sanctions breach if a buyer uses non-sanctioned tankers and non-G7 services (finance, insurance brokerage, etc.) to transport Russian oil, regardless of the price paid. If Russia can access sufficient non-sanctioned tonnage and India and China remain major buyers of Russian oil, then the impact could be blunted.

The timing of the implementation is also key. It is understood that the measures could form part of the EU’s 20th sanctions package due early in 2026, although some reports suggest the measures could be approved as soon as next week. What is not clear, is how long the phase out period might be. When the price cap was lowered in September, the UK gave a 6-week wind down period. If the implementation period this time is equally short, then it may be tough for Russia to adjust supply chains in time. However, if a longer wind down period is given, then Russia will have time to expand its fleet. This in turn would fuel the S&P market for older tonnage, boosting asset prices for older ships. The migration of older tankers from the mainstream to shadow fleet could also help offset any negative impact from tankers leaving Russian trade and returning to conventional markets.

Overall, the measures are likely to shrink the addressable market for tanker owners who choose not to trade sanctioned cargoes. How negative that is, depends on whether this is balanced by the migration of ships to the shadow fleet. Likewise, if further sanctions pressure forces buyers of Russian crude to reduce their volumes, then we could see upside for mainstream tanker rates. Finally, all of this assumes a path to peace is not found, yet, with Trump pushing for peace by Christmas, some sort of deal cannot be ruled out either.

Share of Russian crude exports on mainstream vs dark fleet (%)

Crude Oil

East

The AG VLCC market remained steady throughout the week, with limited visible activity and freight levels broadly holding. Enquiry was sporadic, and while owners looked for a pickup to build momentum, charterers largely held back. If they did step out, they looked to cover under the radar especially where the list wasn’t overly populated with tonnage. Midweek saw rates edge slightly higher, but it wasn’t pushing up how we have seen recently mainly due to the pace of enquiry. As the week drew to a close, activity remained muted, with most third decade December stems largely covered, which should leave a small overhang of tonnage heading into the first decade of January. Today we are calling AG/China WS126.

The market in the East has begun to turn after a good week of fixing helping to really trim down the tonnage list. With West Africa looking more attractive as a ballast option owners have managed to achieve 140 x ws72.5 via C/C and are likely to be gunning for more next week especially as charterers look to cover ahead of the holidays. Runs into the East continue to pay pretty well, and the market has remained flat at around 130 x ws150. It seems likely we will see improvement on this figure next week if current volumes continue.

The Aframax bull run in Asia has come to a halt as charterers successfully pressured rates lower, with northbound runs now finding a new floor. Earnings have slipped sharply from around $50,000/day to $41,000/day since the start of the month. A slowdown in activity, combined with a replenished tonnage list, softened sentiment as owners became increasingly keen to secure cover ahead of the festive period. That said, several regional deals helped trim the list, leaving it relatively balanced for the next fixing window. Should a rush of third-decade cargoes materialise — as has been the pattern in recent months — rates could firm again. For now, the market closes softer, with Indo/Up assessed at 80 x ws155.

West Africa

The WAF VLCC market remained quiet throughout the week, with limited enquiry and little visible activity to report. Freight levels held steady, though the tonnage list continued to be challenging and somewhat difficult to read. Around mid-week, some activity appeared to take place under the radar as charterers looked to avoid exposing themselves to the market. Towards the end of the week, the list began to tighten slightly after improvements in the surrounding markets. A pickup in enquiry will be needed to inject momentum and provide clearer guidance on market direction heading into next week. Today we are calling WAF/East WS113.

West Africa has started to tick up after a bit of a lull, expect next week for owners to start to push rates back over 130 x ws130 for TD20. Especially as we will likely see the Western world start to cover ahead before the holidays. The premium to head East today is around 7.5 points still but there isn’t a huge number of modern ships willing to go East at the moment, so for those who require something newer, it could easily be pushed to 10.

Mediterranean

Suezmaxes in the Med, TD6 remains pretty steady at 135 x ws160 with several ships reported to have been fixed at this level in the second half of this week. With the expectation of delays pushing up in the straits it seems likely that if we see a healthy level of activity here next week, that owners may improve upon this figure slightly. Libya/Ningbo hasn’t seen a great deal of enquiry this week, as brokers we expect fixing levels to be around $5.8m though.

The Mediterranean and Black Sea Aframax sectors extended their bullish run throughout the week, fuelled by sustained fixing activity and a notably tight tonnage list, particularly on the front end. Owners capitalised on a full last decade December program and worsening Turkish Straits delays, which continued to inject uncertainty and support sentiment. Rates were pushed from the low ws180s for Ceyhan runs up to ws205 – with as high as ws235 for a short Libya run and ws250 for a short run off early tight dates achieved. As firm demand and weather‑related inefficiencies prevail the region is expected to remain strong heading into the Christmas period.

US Gulf/Latin America

Activity in the US market was largely subdued this week, with industry and social events for Christmas was taking place. As a result, little fresh information emerged on the surface. The Brazil export market this week saw a steady amount of activity with a handful of Petrobras quotes, which provided some sense of direction in the Atlantic basin during the week. Overall, rates held steady, and the market now looks to next week for a clearer pickup in enquiry as normal activity might resumes. Today we are calling USG/China $13.8m & Brazil/China WS104.

North Sea

Despite a slow start to the week, the UKC Aframax market held firm, with owners resisting downward pressure and maintaining levels in the mid-high WS150s for UKC load and discharge options. Limited availability and interregional draw on tonnage helped keep sentiment steady, supported by weather disruptions and winter trading patterns tightening positions further. By the week’s end, the region remained one of the steadier markets globally, showing underlying strength despite modest activity as the States continues to pull hopeful tonnage which has missed dates locally.

Crude Tanker Spot Rates (WS)

Clean Products

East

LR2s as expected saw the bulk of the enquiry this week given the correction seen on rates. TC1 done multiple times at 75 x ws155 with West at $3.9m levels. The LR1s remain tight and although TC5 has remained flat at 55 x ws180 West has seen a positive test up to $3.4m levels. Expect to see another busy week ahead as everyone tries to clear their books before the holiday season.

A quiet start on MRs following last week’s slow finish saw rates steady at the perceived floor, with TC17 around WS220 and TC12 near WS170. Midweek cargo flow helped stabilise sentiment, while a tightening list and improved enquiry late in the week pushed rates higher. TC17 firmed to WS230 by Friday. With Owners maintaining pressure into the weekend and with the festive season on the horizon a pre-Christmas rush next week could see levels climb further still.

UK Continent

The sensitive balance to the MR market had created massive expectation that a pre-Christmas spike was potentially on the cards. Weather delays, port congestion and scarce tonnage set the stage for a potential increase in rates. The only lacking ingredient was a good flow of cargoes. The reality is that the volume has just not materialised and a muted desperation has set in amongst the owners.  This has led to the market closing out the week 37 x ws135 TA and ws155 to WAF with $1.49m also on subs north Spain to Argentina. Historically entering the holiday period any sentiment would be amplified during the time off, right now it is looking like weakness into Q1. 

A quiet week comes to a close for the Handies plying their trade in the UKC and with the larger MRs also struggling to get a grip on rates, it’s no surprise to see rates fade in a similar direction. 30 x ws200 quickly became ws180 but for now anyways it seems rates have bottomed out at this mark. Next week we could and should see charterers begin to stretch out a little further on dates looking to cover over the festive window and vessels with solid itineraries will be worth their weight in gold… frankincense and myrrh. 

Med 

It seems the MR Med market has taken a breather this week with an overall lack of activity and any activity we have seen has been slow. We saw some bad weather in the Atlantic at the start of the week, but it was all too brief to have any major impact on the list which has remained a mixed bag. As always when approaching a festive period, the prospects of activity are there as parties will look to lock in business, however, this is yet to materialise. It is not entirely clear where we will end up heading into Christmas, but it is slowly starting to seem more negative regarding rates. Last done 37 x ws140 Med-TA with usual differential in place for Med-WAF at 37 x ws170 with barrel flows slower and other routes driving MR rates as it stands.

A steady week passes for Handies in the Med with rates remaining at the 30 x ws180 mark for the most part. We saw an uptick in enquiry on Monday which was able to counter the weekend restock, chipping away at tonnage which ultimately left owners positive on rates with the potential to see incremental increases dependent on enquiry levels. The list remains tight regarding vanilla tonnage hence why we are seeing business happen under the radar to avoid feeding owners positivity. Nonetheless, positive rate pressure can only be deferred for so long with various grade/age requirements on stems and whispers of 30 x ws185 on subs today. With two fresh cargoes outstanding this leaves all eyes on next Monday to see how the list shapes up.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

It’s been an overall quieter week in the market. The UKC saw the better of the two regions in terms of firming levels. Bad weather in NWE, the Bay of Biscay and in Portugal has seen delays and slipped itineraries, creating tighter market conditions. Despite seeing few cargoes, levels have firmed up from WS250 up to the equivalent of WS260 by the close of play on Friday. Rough seas are expected again next week, should more cargo enter the market, we expect levels to firm up further early into next week.

The Med has experienced a lull following a consistent firming of rates over the past few weeks, with enquiry slowing and allowing for the position list to open up. WS270 was tested early into the week following a tight list on Monday; however, extra tonnage began to re-populate the list soon after, and this coupled with a lack of enquiry, began to soften sentiment and rate ideas. 30 x WS250 was on subs on Thursday under somewhat unique circumstances but we don’t feel these levels are there to be repeated just yet. The market needs a fresh test, and we would expect to see levels tested between WS260-265 for next done.

MR

MRs have stayed tight this week, but we haven’t seen enough enquiry in either region to test levels upward. Units are expected to open up in the North around end second/early third decade, with rate ideas around the WS180-185 mark as things stand. In the Med, the list is tight for now, but we expect to see some replenishment in the list on Monday, which could see sentiment soften and with it, rates. We think WS180-185 could be on the cards early into next week.

Panamax

TD21 has seen another positive week for owners, where under the radar fixing has kept clipping units from the list and rates continuing their upward trend towards the WS220 mark. Owners will be looking to keep the momentum in their favour and kick levels on further as we head into next week. Another quiet week for Panamaxes in Europe overall but local enquiry has seen 60 x WS192.5 tested for a short North Spain Portugal run but we don’t expect this to have much bearing on UKC-TA. However, due to stronger surrounding markets, we do expect owners to change their ideas upwards from WS120 levels when next called upon.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeDec 11thDec 4thLast Month*FFA Q4
TD3C VLCC AG-China WS2126123129114
TD3C VLCC AG-China TCE $/day3,000128,250125,250131,250109,000
TD20 Suezmax WAF-UKC WS-6126133157137
TD20 Suezmax WAF-UKC TCE $/day-3,50059,75063,25078,25064,750
TD25 Aframax USG-UKC WS-4198202214198
TD25 Aframax USG-UKC TCE $/day-1,00055,50056,50060,25052,000
TC1 LR2 AG-Japan WS-4155159144 
TC1 LR2 AG-Japan TCE $/day-1,25040,50041,75035,750
TC18 MR USG-Brazil WS-22208230241228
TC18 MR USG-Brazil TCE $/day-3,75028,75032,50034,75030,750
TC5 LR1 AG-Japan WS-1179181150154
TC5 LR1 AG-Japan TCE $/day-25034,25034,50024,50025,500
TC7 MR Singapore-EC Aus WS-4238242196201
TC7 MR Singapore-EC Aus TCE $/day-50031,50032,00023,25023,750

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

Bunker Prices ($/tonne)

wk on wk changeDec 11thDec 4thLast Month*
Rotterdam VLSFO  -16396412425
Fujairah VLSFO  -13416429453
Singapore VLSFO  -5429434455
Rotterdam LSMGO  -24611635728

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