Sweeping Sanctions

This week sanctions pressure on Russia was dialled up a notch. On Thursday, the first major US sanctions against Russia under the Trump administration were implemented, marking a step change in the administration’s approach. On Friday morning, the EU followed suit, implementing their 19th sanctions package. A week prior, the UK implemented a fresh batch of sanctions.

The UK struck first, designating Rosneft and Lukoil, as well as a few small port companies in Shandong and Yulong Petrochemical (400kbd). The UK also sanctioned Nayara Energy, which been sanctioned previously by the EU in its 18th sanctions package. A list of 44 tankers of various size was also named. The US also designated Rosneft and Lukoil on Wednesday night, prohibiting price cap compliant trade. Consequently, Indian refiners reportedly will make large cuts to their crude imports from Russia. If confirmed, the degree to which Indian refiners reduce their imports will be a crucial factor to watch. Reports are also circulating that China state oil majors will suspend purchases of Russian oil due to these new sanctions.

The 19th sanctions package was more complex and wide ranging, with various entities and individuals designated, as well as 114 tankers added to the list. Notably, the EU designated Liaoyang Petrochemical (200kbd) and joined the UK in sanctioning Yulong Petrochemical, and now also prohibits price cap compliant trade with Rosneft and Gazprom Neft. Several traders, false flag registries, as well as a Russian shipbuilder were also on the list. Further, the EU ban on products refined from Russian oil was clarified, with rules now stating that if Russian crude oil can be segregated and processed separately by a refinery, then import into the EU is allowed.

Oil prices reacted strongly especially to news of the US sanctions, possibly pricing in supply disruption. The implications for tankers of this coordinated wave of sanctions could be far reaching. Increased demand for non-sanctioned barrels from India is likely, with cargoes sourced from the Middle East and the Atlantic. Mainstream tankers, and especially VLCCs stand to benefit here, particularly if cargoes are sourced long haul from West of Suez. However, greater volumes of Russian barrels may be diverted into sanctioned and/or independent refineries in China, and these increases into China could be met with a reduction from other sources, negatively impacting freight markets. Further, mainstream Aframaxes and Suezmaxes currently engaged in trade with Rosneft/Lukoil are likely to think twice now, with a return to conventional markets made more likely. The designation of the Yulong refinery has reportedly seen suppliers cancel AG and TMX barrels destined for the refinery. So far, the refinery has mostly imported Russian crude, this dependency might be strengthened going forward. Overall, a total of 1.25mbd of Chinese refining capacity has been sanctioned this year, of which Liaoyang is the only non-independent refinery.

Indian and Turkish refiners were soon going to have to reduce their intake of Russian crude to continue selling refined products to Europe, and this process might be accelerated by this latest wave of sanctions. If Turkey reduces its intake of Russian crude, regional sources could make up the difference (e.g. Ceyhan, Libya). Aframaxes would be the main beneficiary, followed by Suezmaxes.

On the clean side, naphtha markets may tighten, with the East/West spread moving higher. Taiwan imported over 100kbd of Russian naphtha so far this year, and over half of Indian seaborne naphtha imports come from Russian sources. Alternative naphtha supply will likely have to come from Middle Eastern suppliers, with possible additions from the USG and Med. Similarly to crude, China may increase its imports of surplus Russian naphtha if India reduces its intake. Further, tighter Russian product supply into Latin America and Africa could strengthen arbs, especially from the USG, benefitting MRs.

News is moving fast, and the overall impact is currently difficult to assess. Short term volatility remains likely. We have seen several times this year how quickly supply chains can adjust to a new reality, though in many cases greater inefficiency is introduced to the market.

Russian crude exports from the West (kbd)

Crude Oil

East

The AG VLCC market started the week slowly, with limited fresh enquiries and reduced activity due to Diwali holidays keeping parts of the market quiet. Early in the week, only a few VLCC cargoes were seen working, and as freight levels eased slightly, some charterers began stepping back into the market to seek cover. Midweek activity on the surface remained muted although cargoes were being worked under the radar. With the tonnage list balanced it offered charterers a reasonable selection of vessels to choose from. By the end of the week, the AG VLCC steadied out, and we are now seeing higher than last done levels being paid which will give owner’s sentiment a boost once we return to the fold next week. Today we are calling AG/East WS90.5.

Rates in the East are firming, there is still difficulty being caused by the new Chinese port fees. Levels for Basrah/West are looking likely to exceed 140 x WS65 via C/C for next done. Rates for AG/East are also looking much firmer and could rise next week with very limited numbers of compromised ships available. Owners will be looking to push to (and possibly beyond) 130 x WS135.

Aframax earnings in Asia surged to a 16-month high of around $42,200/day, finally catching up to adjacent markets. The main catalyst was the introduction of special Chinese port fees, which lifted sentiment and combined with a steady flow of enquiries from both the Atlantic and Pacific basins, drew tonnage away from the region and left the Indo list noticeably scarce. Regular AG and regional stems added further support, driving freight levels higher. As a result, charterers increasingly turned to smaller sizes, which also experienced a steady rise in rates. The list remains tight through the first decade of November, with charterers awaiting new availability—though fresh tonnage may not materialise if Vancouver earnings continue to attract local owners westward. The Indo market closes the week firm, with Indo/Up assessed at 80 x WS165.

West Africa

The WAF VLCC market began the week quietly, with little outstanding enquiry.  Owners were hoping for an uptick in activity after a slow previous week marked by charterers drip-feeding cargoes into the region. Rates held relatively steady early on, though with freight levels easing in the AG market, sentiment in WAF also began to soften. As the week progressed, enquiry remained muted and freight levels continued to ease under pressure from adjacent markets. Toward the end of the week, activity was still limited, with only a handful of offers seen for the few cargoes that did emerge. However, a positive sign was that rates in the Atlantic basin began to improve and now a WAF/East style run should be paying WS5 points above last done levels. However, a fresh test is required next week to see how the land lies. Today we are calling WAF/East WS90.

In West Africa despite a quiet start to the week it has really started to pick up again off the back of a tight list in the USG; expect owners to keep pushing next week. Last-done remains at 130 x WS135 for WAF/UKCM and lots will be hesitant to fix expecting more to be paid. Runs into the East remain pretty unpopular, and owners will be looking for around a 5 point premium today.

Mediterranean

In the Med, TD6 tested lower this week but with improvements in West Africa, expect owners to be able to push rates back up to 135 x WS150 in early trading next week. The list remains tight, and owners are still feeling very ambitious. Med/East has not really been tested this week, though there hasn’t really been any growth in the list of those keen to fix that type of voyage. Expect Owners to make life quite difficult for these runs and push for more than $6m.

For most of the week conditions were kept stable for Aframaxes with fixtures ticking along and enough activity to ensure sentiment remained favourable for owners. Levels were mainly concluded at around WS200 for XMED with healthy flat rates; CPC was concluded at WS220 for Med, albeit with a premium discharge option attached, inflating the baseline rate. As the week progressed, owners were handed an additional boost to sentiment with prompt stems needing to be covered. Finishing the week with the US trading up and surrounding Suezmaxes also lending support, the Med remains firm into the next days.

US Gulf/Latin America

The Americas VLCC market began the week on a firm footing, though this momentum was short-lived as rates eased and now hover around $12.0 million for eastbound voyages. Fresh enquiry in the US Gulf remains limited, yet tonnage availability continues to pose challenges, suggesting that any pickup in activity could quickly translate into firmer levels. The Brazil export market has provided some interest, with freight rates and sentiment initially under pressure before showing signs of recovery later in the week. Charterers fixing cargoes to China have adopted a more cautious approach regarding vessel selection, which remains a key factor, and we expect to see it continue moving forward from now on. Today we are calling USG/East $12.0M & Brazil/China WS89.

North Sea

After a decent start to the week the North Sea market found it’s form and was able to hold strong footing at WS150 with ships getting tucked away and little waiting time making decent returns. The short turn around has helped to keep levels where they are and given owners cargoes basically off their dates. Some have ballasted, but with neighbouring markets offering similar returns when taking waiting into account most have stayed put. Some delays can be expected over the next couple of days with weather and maintenance in a couple of ports slowing things up. We see the market firm.

Crude Tanker Spot Rates (WS)

Clean Products

East

A very active week for the LRs in the East. Owners have taken hold of the sentiment and gladly run with it, and with each new fixture ideas have become increasingly bullish. TC1 at circa 75 x WS120 level, West needs a fresh test, but owner’s ideas are all starting with a 4 and as such expect to see a big positive correction on last done. The LR1s although not being hugely publicly active have been steadfast in their off-market activity. TC5 on subs at 55 x WS145 (nearly 25 points up from Monday). West also in need of a fresh test but assess in the $2.85m-2.95m levels given the positive sentiment. With both lists looking tight if charterers want to fix Friday, expect to see some big numbers as most owners will be shutting up shop ready to hit Monday with the wind in their sails.

The week for MR markets in the East began on a softer note as a replenished tonnage list put pressure owners, with TC17 easing from 35 x WS225 to 35 x WS205 by midweek. Although enquiry remained active, the length of the list kept rates under pressure early on. As the week progressed, steady fixing cleared much of the prompt tonnage, tightening the front end. By Friday, most end-month stems were covered, and dates had moved into early November, leaving the market on firmer ground, with rates poised to bounce entering next week.

UK Continent

On MRs this week, a lack of TC2 enquiry partnered with owners wanting to head West due to the strength of the USG, so it’s no surprise the few cargoes quoted saw rates offered pretty much as low as we’ve seen all year. This has subsequently led to a much larger premium being applied for alternative routes and on WAF especially we see around the 50-point mark being bound on top. The few extra South America runs have given more options for owners with fewer Russian barrels satisfying demand. Until the divide between European rates and USG comes closer, we anticipate this TC2 run to remain undervalued and potential for ballasters in that direction to remain.  

A positive week draws to a close for Handies in the North. Continued demand partnered with a tonnage list lacking supply on the front has seen levels firm to 30 x WS165 for XUKC. Freight did have all the ingredients to push higher although with a healthy number of MRs available and limited TA stems working, MR owners have competed on short-haul stems. The weekend break has come at a good time for charterers which should see a few more itineraries firm up come Monday. MRs once again the thorn in Handy owners’ side. 

Med 

Contrary to Med Handies, MRs have maintained an element of inactivity and flatness. Throughout the week the focus has been for external factors to drive rates, such as the attractive USG market, the bad weather in the North which hasn’t really spilled over into the Med, and the firming TC6 market making MRs competitive on Handy stems. However, rates haven’t really moved from the 37 x WS110 mark. 37k DWT units are competitive on Handy stems now which could lead to more activity, but the market remains enquiry dependent, which is an issue when there is no supply. A 30kt Med-UKC run may be of interest, as it equates to just over the WS180 mark for MRs but with a weak TC2 the return prospects are not desirable for owners. All eyes on what gets quoted on Monday to see if this market will get a breath of new life. 

A very positive week for owners in the Med. We started the week at bottom levels, 30 x WS130, where grade sensitivity and a tightening list were key factors in play. As we progressed the lack of vanilla tonnage was a catalyst for rate increases with charterers reacting by pushing the fixing window in hope of capping off the market. Charterers also went to fix direct, creating a speculative fog regarding next done, to try and do away with owners’ bullishness. However, the healthy enquiry and short list were themes throughout and gave owners enough to play with, as such we have seen a high of 30 x WS240 on an ex-Libya stem. Discounting the premium on Libya loads, a fair assessment it seems is around the 30 x WS187.5 mark and we are anticipating an active Monday come next week. The telling sign on where this market goes will be how the list restocks and if charterers can get some relief from more vanilla tonnage.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

It’s been a week of under-the-radar dealings this week both in NWE and the Med, as charterers and owners alike prefer to keep their activity off market. Up in the UKC, the week started on a fairly active manner with levels firming up to WS235 before ideas now look to kick on towards the WS240 mark as enquiry continue to surface into a tight market. Early next week, we expect to see levels soon firm up. 

The Med has not seen the active week that owners were hoping for, despite what looked like a relatively tight list on Monday morning, rates failed to firm upward from WS200 as enquiry surfaced just enough to keep levels repeating before quieting down toward the back end of the week. Come Monday, we expect to see levels hold initially, although some negative sentiment is starting to creep in.

MR

Little to report with regards to MRs in the North as natural tonnage is scarce and isn’t expected to arrive until early November. However, there are a couple of Panamaxes expected to open in a similar time frame, which could potentially consider local MR stems. We think next done levels lie between 45 x WS165-170 for an XUKC run. The Med has seen a relatively active week for full-stem enquiry with levels between WS160-165 repeated a couple of times as MRs have been in thinner supply as of late. Owners will be hoping for more of the same early into next week.

Panamax

TD21 has gone from strength to strength in recent weeks and continues to rally upward the WS200 mark as cargoes continue to flow from the region. Aframaxes have been busy, which has also had a positive impact on this sector. With tonnage tight, we expect levels to continue to trend upward early into 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 changeOct 23rdOct 16thLast Month*FFA Q4
TD3C VLCC AG-China WS-10849510189
TD3C VLCC AG-China TCE $/day-13,00075,75088,75094,50077,000
TD20 Suezmax WAF-UKC WS-6126132111124
TD20 Suezmax WAF-UKC TCE $/day-3,25059,50062,75047,50055,750
TD25 Aframax USG-UKC WS24191167165183
TD25 Aframax USG-UKC TCE $/day9,50052,50043,00041,00045,500
TC1 LR2 AG-Japan WS17121104112 
TC1 LR2 AG-Japan TCE $/day6,25028,00021,75023,500
TC18 MR USG-Brazil WS-53244296219225
TC18 MR USG-Brazil TCE $/day-10,00035,50045,50029,25030,000
TC5 LR1 AG-Japan WS15129114127146
TC5 LR1 AG-Japan TCE $/day4,00020,75016,75019,00023,250
TC7 MR Singapore-EC Aus WS-3182185198189
TC7 MR Singapore-EC Aus TCE $/day-50021,00021,50023,00021,500

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

Bunker Prices ($/tonne)

wk on wk changeOct 23rdOct 16thLast Month*
Rotterdam VLSFO  +9430421455
Fujairah VLSFO  +3453450482
Singapore VLSFO  +13462449486
Rotterdam LSMGO  +40680640686

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