Tense Times

Tensions between Israel and Iran are nothing new, but they came to a head overnight. The situation remains fluid and at this point in time could turn in a number of different directions. Israel has been clear that further attacks are planned. The United States, claimed not to be involved in supporting the attacks, but has warned that more intense strikes are planned, unless Iran agrees to a nuclear deal. Talks with Iran are/were planned for this coming weekend, but only time will tell if those talks do indeed proceed. So, with all that in mind, how might the tanker markets be impacted?

Given that further attacks are likely, and Iran will also want to retaliate, our analysis focuses on the options for retaliation.

Iran could try to close the Straits of Hormuz. A prolonged closure is highly unlikely to succeed, but if it did, would have catastrophic implications for global oil trade. Approximately 20 million b/d of crude and products transit Hormuz daily, an amount which cannot be fully replaced from other sources or redirected via pipeline. Whilst tanker rates could surge following a closure, though in the long term they would likely suffer from a lack of cargo, whilst the global economy would also suffer from high energy prices. Given how critical the waterway is for the regional and global economy, any closure is likely to be short-lived.

A more likely scenario is that Iran seeks to disrupt shipping activity in the region, which could include limited attacks, hijacking, and the harassment of ships passing by. Under such a scenario, the pool of shipowners willing to transit would likely shrink, leading to an increase in freight costs for exports via Hormuz. Demand for lifting crude from safer load zones in the Atlantic could also benefit, whilst higher oil prices might help reverse the decline in US production. Under this scenario Middle East exports would be largely sustained, with some upside for producers elsewhere in the world, likely benefitting freight rates.

Iran could also seek to use the Houthi’s to increase attacks against Red Sea shipping, as well as targeting Israel. How much capacity the Houthi’s have remains unclear, given US efforts to substantially degrade their abilities this year. In any case, increased caution in the Red Sea is likely, with UK flagged vessels yesterday being warned against sailing through the waterway.

Diplomatic options may also be considered, although it feels like the opportunity for such diplomacy may have now passed. The US could also step up sanctions pressure on Iran in an attempt to drive its export revenue even lower. Come Monday, we should have a better view of whether Israel really intends to continue strikes, whether any diplomatic measures can succeed, and perhaps further insight into Iran’s response.

Middle East Gulf Crude & Refined Product Exports (kbd)

Crude Oil

East

The VLCC market in AG continued to be a challenging environment this week as lower than expected activity for last decade put paid to any thoughts of recovery with ample tonnage supply. The overnight attack on Iran introduces lots of uncertainty, and while it could potentially impact rates, owners are currently hesitant to commit to working their tonnage until the situation stabilizes. Despite a plethora of cargoes reported for end June/early July this morning it appears that owners may opt to increase their rates as a precaution, irrespective of the weekend developments. Today we are calling AG/China WS53.5 and AG/USG WS30.

Tension in the region to end the week in the Middle East has made calling the Suezmax market here extremely difficult and could vary greatly. We estimate rates for West will exceed 140 x WS47.5 via C/C. Rates to go East are also difficult to forecast but are unlikely to be below 130 x WS95. Sentiment here could change very quickly over the course of the weekend.

West Africa

The WAF VLCC market finally surged into activity after the recent lull especially on runs to the Far East but unfortunately for owners, rates were readjusted downwards as the weak sentiment in adjacent areas and a generous position list contributed to the fall in earnings. We may see more East ballasters next week because of the increased geopolitical tension in the Middle East and this could dampen any hopes a recovery.  We are calling WAF/East in the region of WS52.5 today.

Similarly to the East, Suezmaxes in West Africa are a tricky market to fix in today, with most owners holding back. We expect sentiment to improve here after better levels of enquiry. And rates to be around WS77.5 for a standard TD20 run and its very much going to be dependent on the series of events that unfold in the next few days.

Mediterranean

In Suezmaxes, TD6 held up throughout the week at WS 95, owners are all sitting on the fence here too and don’t expect anything realistic to be paid before the picture in the East is clearer. Rates for Libya Ningbo are relatively soft with a few players very keen on this run for various reasons and we anticipate that charterers may break $4.4m if there aren’t further geopolitical issues over the weekend.

A week of very little change in the Mediterranean Aframax sector. The usual topsy turvy moves did not come to pass and both owners and charterers were happy to fill their boots at WS130 levels XMED, +/- depending on routes in question. There was a spate of fixing which did tighten the list in the Med and gave owners hope, but with the Suezmax sector suffering in the Atlantic so did cargo cannibalisation from the larger sizes pressure Afras to lower their sights. With no support the market has remained rangebound as we approach the close. The fly in the ointment now is the political disruption in the Middle East and owners will look to keep their powder dry before the weekend in the hope that Monday could bear riper fruit.

US Gulf/Latin America

The USG VLCC export market seems to found its floor and stayed there for most of the week, but one positive bit of news was a return of long-haul activity to the Far East. The fundamentals still appear to favour the charterers with an ever-growing tonnage list but owners will hope that another active week could start the recovery. There was a steady flow of Brazil cargoes this week, but rates followed the softer tone witnessed in WAF and will be reliant on activity in other areas if we are to see any improvement. Today we are calling USG/China $6.1m & Brazil/China WS51.

North Sea

A week in the North which simply failed to ignite with rates consistently trading in the mid-low 120s. States market falling has stopped further potential ballasters which will keep the tonnage list well stocked as rates will likely trade sideways for the time being with fresh enquiry remaining slow.

Crude Tanker Spot Rates (WS)

Clean Products

East

World events have somewhat put a halt to activities in the AG as everyone sits back and assesses the situation. Prior to this, it had been a very active week for the LR2s, and as expected there was a negative correction as the list needed to see a clear out and charterers were able to apply pressure and see rates take a downturn. Currently TC1 at 75 x WS115 and UKC at $3.4m. There are still ships in the window so there could be a little movement on these rates, however, at these levels sentiment is that we have reached the floor or very close to that. The LR1s have a ticked along in the background, but the light has very much been on the larger ships offering better value. TC5 needs a true test and has the potential to see a large spread depending on charterers requirement. However, for now we assess 55x ws140. West again untested and expect to see a negative correction on next done to circa $2.7m levels. Expect to see a slow and calculated start to next week as all eyes are on the next 48hrs.

A week of small gains and plenty of promise in this MR AG market has come to a halt after a slip in TC12 and XAG levels yesterday. A handful of cargoes remain looking for cover but expect a steady finish rate wise. However, the main topic of conversation as we approach the end of the week is the Israeli strikes on Iran overnight. It is a little too early to see what effect this will have on the shipping world but expect the weekend to give us a better insight come Monday.

UK Continent

General MR Atlantic sentiment has slowed this week, and rates have corrected down as the stem flow changed from a stream to a trickle. Some fixing and failing has kept the volatility theme going but in general rates have traded down and the softening as it stands looks set to continue. The next likely bearish factor would be the price cap being lowered to $45 which would likely see tonnage driven back into the non-price cap trades. Still a very sensitive dynamic in the Atlantic with a lot of push and pull factors. 

Not a vast amount to talk about here in this UKC Handy sector as despite the limited fixing levels, this was paired equally with limited tonnage and therefore rates held steady. 30 x WS155-160 has been the general range for fixing with things becoming a little tighter as the week developed and with a couple of tricky stems to cover still there, potential for further gains remains. Owners will have to keep a look over their shoulder though as we come close once again to being pinned back by the larger MRs being equally competitive for the short runs. 

Med 

The MR Med has been divided this week with the WMed being driven by Sines and grade sensitivity, seeing highs of 37 x WS145 TA. In contrast the EMed has been a little lacklustre and owners in that region have taken what they can to get back into the Atlantic basin with levels around the 37 x WS132.5 level. A lot of questions surround the impact of events in the Middle East and knock on effects to the Med market. If one were to strip those events out then in general the Med is looking bearish, but the impact from the East could throw in multiple curve balls so it’s a developing situation with an unknown outcome.

A stagnated week ends for Handy owners in the Med with TC6 remaining steady at 30 x WS130. There was some positive sentiment from owners at the start, with hopes that some grade sensitive stems could create some upward momentum. However, this turned out not to be the case and the tonnage list proved too well stocked with rates favouring charterers. Looking forward, owners will be hopeful ships get their subs and tonnage tightens next week. Additionally, geopolitical developments in the AG region may be the catalyst owners need to kickstart some positive movement. With 30 x WS130 seemingly being the floor, all prospects of rates rallying are dependent on steady enquiry and chopping through tonnage.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Another relatively quiet week across both regions with charterers managing to claw some points back from owners, who have seen the market steadily firm of late. The North started the week with a softening of 2.5 points as 30 x WS257.5 was repeated and fixed. Vintage tonnage is available, and we feel it is there to be tested at below the 30 x WS257.5 mark as the two-tier market now feels quite pronounced. The list has tightened as tonnage has been clipped away leaving a steadier feel here and we expect this to continue early into next week.

The Med has also come under pressure this week with minimal activity early on, building negative pressure on rates. However, a Taranto cargo on Monday set the tone by going on subs at 30 x WS157.5 marking a softening in levels. Soon after 30 x WS250 failed subs for a prompt West Med load leaving some to think the WS250 barrier was there to be broken. As the week went by, under the radar fixing managed to keep tonnage build-up at bay for the most part. Looking ahead to next week, owners will need a fast start to proceedings if steadier feeling is to continue.

MR

The North has seen another fresh test with 45 x WS175 fully fixed marking a 5-point drop from last done. However, one positive for owners is the list is looking tighter for naturally positioned units which should keep levels steady on the next done. In the Med, little by way of full-stem enquiry surfaced with owners finding employment through Handy stems. After a healthy number of units were clipped away during the second half of the week, the list looks tighter with levels hovering around the 45 x WS175-177.5 mark XMed.

Panamax

Little for Panamax owners to get excited about unfortunately as enquiry stays elusive this side of the Atlantic. Tonnage is there to be worked but there is a flat regarding this market for now. TD21 has further softened this week along with the surrounding region. More enquiry will need to surface to clear tonnage build-up if the bleeding is to stop.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeJun 12thJun 5thLast Month*FFA Q2
TD3C VLCC AG-China WS-144446456
TD3C VLCC AG-China TCE $/day-1,25022,50023,75047,50033,250
TD20 Suezmax WAF-UKC WS-1475898691
TD20 Suezmax WAF-UKC TCE $/day-9,50024,25033,75032,25032,500
TD25 Aframax USG-UKC WS-35138173148156
TD25 Aframax USG-UKC TCE $/day-13,50031,25044,75035,25034,000
TC1 LR2 AG-Japan WS-15114129142 
TC1 LR2 AG-Japan TCE $/day-5,50023,50029,00032,750
TC18 MR USG-Brazil WS-4163166137163
TC18 MR USG-Brazil TCE $/day-1,25018,75020,00014,25016,750
TC5 LR1 AG-Japan WS-20139159161145
TC5 LR1 AG-Japan TCE $/day-5,25021,50026,75026,75021,000
TC7 MR Singapore-EC Aus WS-4196200199185
TC7 MR Singapore-EC Aus TCE $/day-1,00022,00023,00022,50019,250

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

Bunker Prices ($/tonne)

wk on wk changeJun 12thJun 5thLast Month*
Rotterdam VLSFO  +4477473466
Fujairah VLSFO  +19515496517
Singapore VLSFO  +20524504527
Rotterdam LSMGO  +23631608619

Print the report