Strait Forward

The Iran conflict is in its 12th week now, and the prospect for a deal which leads to normalisation in the Middle East look tenuous. Despite seeing some progress in the number of tankers transiting the Strait of Hormuz, compared to pre-war levels flows of oil and products remain at a trickle, with Iran and the US both vying for control. Numerous conditions would need to be met before pre-war traffic could resume; security guarantees, mine clearance, and a renewed insurance framework, among others. If these conditions are met, and such a comprehensive agreement is reached today between Iran and the US (as well as Israel and the GCC), what would the timeline be for a resumption of Middle East Gulf exports?

Initially, there is likely to be some residual hesitancy in transiting the Strait, and only higher-risk owners might commit. These transits may occur along the tried and tested post-war routes following the Iranian or Omani coastlines, especially if uncertainty remains about the location of possible mines. At the time of writing there are 157 mainstream tankers above 25,000 DWT positioned inside the Middle East Gulf, of which 123 are laden and will attempt to exit swiftly.

The over 150 ballasters above 25,000 DWT positioned in the Gulf of Oman are promptly positioned and will be able to sail and get fixed to lift cargoes in short order. Freight rates will initially be high and volatile, coming down as vessels enter the Gulf and the risk and hazards are confirmed to be low. A degree of port congestion may occur at this stage, as port loading schedules are re-established. At this stage, differences in readiness of export infrastructure as well as port operations will make themselves known. The latest reports suggest that port operations are in place in most ports inside the Gulf, indicating that this factor will be a minor constraint towards resumption of exports.

Crude inventory clearance should swiftly lead to high volumes available for export. The IEA estimates that countries such as the UAE and Saudi Arabia with more resilient supply chains and greater levels of inventory should be able to sustain high levels of exports within weeks to months. Saudi Arabia may gradually reduce flows on the East-West pipeline to reduce inefficiencies and improve export economics. Similarly, the UAE may return flows through the Habshan pipeline to Fujairah back to pre-war levels. Qatari operations are comparatively less resilient and expected to take more time to return to normality. In Iraq, despite repeated assurances from the oil ministry that exports can be restored to pre-war levels within a week, port congestion, limited inventory, and a reliance on international operators are likely to significantly hinder a return to pre-war exports. Kuwait and Bahrain face similar issues due to a lack of domestic operators and equipment provision. The most pessimistic observers suggest that full oil flows from the region will not return until well into 2027. In the meantime, it is possible that Saudi Arabia could use spare capacity to substantially boost exports and help compensate for the loss elsewhere.

On the CPP side, significant uncertainty remains when it comes to restoring refinery operations and consequent CPP exports inside the Gulf. Several refineries, including Ras Tanura and Ruwais, are operating normally. On the other hand, damage at Sitra, Mina Al-Ahmadi, and Satorp is expected to take longer to repair and timelines are unclear. With that in mind, near pre-war CPP exports are likely to lag oil flows and take well into 2027 to reestablish.

A further consideration is the longer-term availability of tonnage. Tanker supply is still readjusting to the new normal, suggesting it could take months for vessel positioning to normalise. Significantly more vessels are now positioned in the West, in large part due to record volumes of both crude and products coming out of the US Gulf. The tanker market will have to react and adjust to the resumption of operations, with uncertainty around export volumes on both the dirty and clean side complicating operational decisions. Ballasters are thus unlikely to react immediately and reposition themselves efficiently in the wake of a normalisation process beginning. Western-positioned vessels are weeks from the Gulf and unlikely to commit to an expensive ballast without a paying cargo to cover the eastbound leg.

Overall, the path towards resumption of trade through the Strait of Hormuz is fraught with uncertainty, even in a scenario where a comprehensive agreement is reached and all prerequisites for resumption of trade are met. At this point, this scenario is hard to envisage, and a gradual resumption may present a more realistic outlook. Indeed, a full return to the pre-war status quo looks decreasingly likely by the day, as structural changes both on the supply and demand side are taking place globally in response to the war. Further, it will take longer before impacted refineries and petrochemical plants are able to ramp up again, with clarity on lead times and supply chains imperative for normal operations to resume. Accordingly, the recovery sequence is likely to favour crude tankers over product tankers. VLCCs and LRs, with heavy reliance on Middle East volumes, will breathe a more immediate sigh of relief. However, inefficiencies and insecurity about cargo availability will remain significant drivers of volatility in tanker markets in any scenario.

Strait of Hormuz Tanker Transits (no.)

Crude Oil

East

The AG and Red Sea VLCC market saw a relatively subdued week, with only a modest pickup in enquiry at the start before activity faded again. A few cargoes were quietly covered under the radar, keeping rates broadly unchanged for most of the week, though sentiment gradually softened. Tonnage availability remained healthy, leaving charterers with the upper hand, while geopolitical developments continued to dominate sentiment and restrain visible activity. Toward the end of the week, rumours of a potential easing in US/Iran tensions added further pressure, with the market closing on a quieter and slightly softer note.


The AG Suezmax market remained largely inactive, with geopolitical uncertainty continuing to dominate sentiment and underlying activity staying limited. Owners are largely keeping vessels in the region awaiting further developments, contributing to a growing list and softer sentiment. With enquiry still subdued, the market remains case by case.


The Asia Aframax market came under sustained pressure this week, with earnings falling to an eight-month low, down 41% week-on-week to around $31,600/day. Charterers remained firmly in control, allowing tonnage to build while holding back enquiry. A vanilla Australian-bound run eventually tested the market and set the tone for subsequent fixtures, triggering a sequence of softer levels. Each fixture established a new floor, and the market continues to search for a bottom. Fundamentally the region remains weak, with little to suggest an immediate turnaround. While elevated bunker prices may offer some resistance, this is unlikely to offset the current supply overhang. We close the week on a softer footing, assessing Indo/Up at 80kt × WS175, with downside risks persisting into next week.

West Africa

The WAF VLCC market started the week with firmer sentiment following stronger Brazil activity, though momentum quickly faded as Atlantic rates softened. Activity remained relatively limited throughout, with only a handful of cargoes emerging and fresh tests needed to properly assess the market. Good tonnage availability, including some prompt vessels around Cape Town, kept pressure on owners, while softer US Atlantic fixtures weighed on sentiment. The week closed with freight slightly lower, as subdued enquiry prevented any real momentum from building.

The West African Suezmax market started under pressure, weighed down by continued Eastern ballasters and softer Atlantic sentiment. USG and Guyana activity provided some support, though overall sentiment stayed weak as tonnage continued to build.

Mediterranean

The CPC Suezmax market saw some steadying this week, with prompt tonnage remaining relatively tight and supporting rates, though with the June programme yet to fully materialise, sentiment softened toward the end of the week as safe positions grew and charterer resistance increased.

The Med Aframax market has been a disappointing one for owners this week, as activity surfaced in sufficient quantities only to absorb the tonnage overhang that had persisted for some time. Ceyhan rates were in the WS170s throughout, with a brief moment of excitement as one cargo achieved WS185 — though this proved a false dawn as it included an undesirable discharge option. In all other cases rates were concluded in the WS170s, or WS160s for Cont discharge, with CPC fixing at WS195. As we reach the bank holiday weekend the list is much tighter, though the extra day’s rest may allow some restock heading into next week.

US Gulf/Latin America

The States VLCC market saw a mixed week, with early rumours of cargoes and recent South American fixtures initially supporting firmer sentiment in the USG. Activity remained patchy overall, however, with healthy tonnage availability preventing any meaningful upside. As the week progressed, softer sentiment from South America began to weigh on the market, even as USG rates remained relatively stable. With Memorial Day approaching and activity expected to slow further, the week closes on a softer note as owners wait for a clearer pickup in enquiry next week.

North Sea

A feathering down of rates this week for Aframaxes after numerous ballasters weighed anchor and headed for the States or Mediterranean markets. Most local business has been snapped up by relets or programmed tonnage. The prospect of some version of peace in the Middle East may give owners medium-term hope, but looking ahead to next week we see levels fixing at WS170-175. The States still holds plenty of draw for those untempted by cross-North Sea business, and little is likely to change in the near future.

Crude Tanker Spot Rates (WS)

Clean Products

East

Another deathly quiet week in the Middle East for the LRs. Red Sea loading cargoes remain the focal point for those looking to reposition West, though $4.25m represents a hefty reduction from last traded levels. Naphtha has been traded ex Sohar, but plenty of competition suggests we will settle well below the WS200 mark. LR1s are also suffering from a lack of volume, with Duqm/EAFR fixed at 60 × WS210 trading close to parity with TC5. With volume so thin, each number done provides a target for the next to push past on the way down, with TC5 today likely WS195-200 ex GOO/India and westbound extremely untested. It is worth noting that distillates are pushing into the MR market where optionality is easier to come by, though the LRs really need some help.

A fairly active week, given the geopolitical circumstances, for Middle East MRs. TC17 opened the week at WS410, and WS420 for a two-port load ex Duqm and Sohar, while TC12 traded at WS400 on the same basis. The market then saw strong activity on shorter runs, with Cross-AG failing below the $2.0m mark, while XECI fixed at $950k, X-Red Sea at $1.0m and New Mangalore/Colombo at $675k. The Red Sea also generated further long-haul enquiry, with Yanbu/EAFR reported at WS520 and Yanbu/Singapore at WS490. Toward the end of the week activity slowed slightly, with TC17 trading down to WS325 before recovering to WS335, a level repeated twice. With the list remaining balanced, rates are expected to hold steady in the near term.

UK Continent

Clean Products

UK Continent

An active pre-bank holiday week, but as the Spanish plume breezes north so do numerous units, and this has been the overbearing weight on rates that has trumped any enthusiasm. Owners have done a superb job of keeping WAF differentials around WS260, whilst the base TA rate has taken a beating down to WS177.5. Demurrage has also held up reasonably well so far, staying in the low $50s, which remains somewhat disconnected from real earnings. The theme of June may well be narrowing differentials and some pressure on the demurrage rate as tonnage continues to appear.

Handy owners are digging in and pushing hard to keep rates up, though the threat to that success may come from the larger-cubic MRs. Good volume of UKC/Med action means owners may choose to head south.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A week marked by softening levels across both regions as enquiry was drip-fed into the market and tonnage worked its way up the list. The North has seen very little activity, with a well-publicised fresh test required to determine levels. The week started with vessels ready to work at the top of the list, and most ships remain there as enquiries have struggled to surface and chip away at the tonnage build-up. Levels are under pressure and we think WS415 could be on the cards soon.

The Med saw a week similar to the North’s, but with slightly more activity. Monday’s list showed plenty of availability, with supply skewing WMed overall. Enquiry struggled to surface initially as pressure on levels mounted. WS430 was fixed away before WS420 and WS415 were covered in quick succession. Strong rumours of WS410 XMed covered by the end of the week were never truly confirmed, though we think these levels will not be there for long — come Monday we expect to see units ready to work, and charterers will have their eyes on sub-WS400 levels.

MR

A disappointing week for MR owners in the Med, as full-stem enquiry has once again been elusive. Units are ready to work across the region and we expect levels to be tested down toward the WS320-325 mark on next done. The North has seen a touch more activity, with a cargo off early June dates fetching 45 × WS300 TA, which caused some interest, though a softer feel persists overall with tonnage expected to remain available early into next week. We expect levels to be tested down to the WS310-315 range for XUKC runs.

Panamax

There has been little change to the Panamax sector this side of the Atlantic for some time, as tonnage workable for TA runs stays in scarce supply, with units heading to the Cont/Med taking the opportunity to drydock. A fresh test is needed, though with Aframaxes under pressure and TD21 softer, we expect levels around the WS190 mark for unrestricted cargoes to the USG ex UKCM. TD21 softened further this week, though with the US on holiday on Monday there was a flatter feel as the week drew to a close. Tonnage remains workable but enquiry still struggles to clear supply, so owners are not yet out of the woods.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeMay 21stMay 14thLast Month*FFA Q2
TD3C VLCC AG-China WS-46403448459431
TD3C VLCC AG-China TCE $/day-52,500420,000472,500489,250444,750
TD20 Suezmax WAF-UKC WS-7187194206204
TD20 Suezmax WAF-UKC TCE $/day-3,25084,25087,50097,50087,750
TD25 Aframax USG-UKC WS-11225236354329
TD25 Aframax USG-UKC TCE $/day-3,25051,00054,250100,50083,750
TC1 LR2 AG-Japan WS-17530547557 
TC1 LR2 AG-Japan TCE $/day-5,750150,500156,250162,250
TC18 MR USG-Brazil WS-5205210494371
TC18 MR USG-Brazil TCE $/day-25017,00017,25069,25044,000
TC5 LR1 AG-Japan WS-31571601657468
TC5 LR1 AG-Japan TCE $/day-7,250116,750124,000140,25088,750
TC7 MR Singapore-EC Aus WS-24324348386317
TC7 MR Singapore-EC Aus TCE $/day-4,00035,25039,25047,75032,750

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

Bunker Prices ($/tonne)

wk on wk changeMay 21stMay 14thLast Month*
Rotterdam VLSFO  -19732750684
Fujairah VLSFO  +32907876752
Singapore VLSFO  -10818828713
Rotterdam LSMGO  -2111841,2051,226

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