The 9 million barrel question

Whilst there is significant debate as to the strength of long-term oil demand growth, there is little debate as to where much of that growth will come from; India. The world’s most populous country sits far behind China in terms of its oil demand per capita, underscoring how much potential remains. Indeed, the country is set to be the largest single source of demand growth between now and 2030. Prime Minister Narendra Modi recently announced a plan to raise domestic refining capacity to 9mbd by 2030; however, for this goal to be achieved, significant new investment will be required.

Currently, the country is home to 5.8mbd of refining capacity and is planning to add another 1.1mbd by 2028. No new refineries have come online since Indian Oil Corp’s (IOC) 300kbd Paradip refinery in 2016. The greenfield Hindustan Petroleum Corporation’s (HPCL) 180kbd Rajasthan refinery is due to start operations in January 2025, whilst Chennai Petroleum Corp (CPCL) is also building a 180kbd refinery at Nagapattinam in the South East of the country, with completion expected sometime around 2028. The remainder of the 1.1mbd expected to come online by 2028 will be delivered through debottlenecking and expansions at existing facilities.

For now, however, the stated goal of 9mbd by 2030 appears out of reach. For this dream to be realised, the expansion of existing facilities will not be enough. For many years, Middle Eastern NOCs have explored building a mega refinery to rival Reliance’s 1.4mbd facility on India’s West Coast. As recently as September, Saudi Arabia and India jointly agreed to develop such a project; yet, so far the NOCs have focused on projects in China where greenfield developments have  been easier to plan and execute. Such projects in India have been plagued by issues such as land acquisition, whilst it is unclear whether Abu Dhabi’s NOC is still interested in the project. Nevertheless, with Chinese oil demand expected to peak this decade, downstream foreign investment in India is likely to increase.

In the near term, existing refinery investment would seem sufficient to both meet domestic demand and maintain export volumes; an important consideration for clean tanker demand. Likewise, with little change in crude production the country will see continued growth in feedstock imports and is likely to become increasingly active in the Atlantic basin crude market as production in the West expands. If the country can succeed in achieving its stated aim of 9mbd, then its impact on tanker markets will be even more pronounced.

Indian Refinery Throughput (000 MT)

Crude Oil

Middle East

Unfortunately for VLCC owners, the boom we enjoyed last week when it seemed that rates were heading towards ws 100 has subsided and we are now almost back to where we were before the upturn started. However it’s not all doom and gloom as freight returns are still good and could recover if we see an uptick in the volume of cargo which was noticeably missing this week. Today we are calling a 270,000mt AG/China run at ws 67 and a 280,000mt AG/USG run is now at the ws 47 level.

The AG tonnage list remains balanced, with only a slow trickle of enquiry throughout the week. Next done for Basrah/West will likely test towards 140,000mt x ws 72.5 via the Cape. To head East the market remains competitive and today Charterers will be looking to break below ws 120.

Limited options are now available in the AG up to the second decade of March after a flurry of activity stripped the list of well approved tonnage. We have in turn seen a climb in rates with AG/East now at the 80,000mt x ws 195 level with the possibility of further gains. We expect the scales to lean towards Owners into next week with market showing further signs of firming.

West Africa

The WAF VLCCs had a quiet week as rates followed the same trajectory as in the AG with too many ships chasing too few cargoes. Owners sentiment has taken a knock and they will be doing well if they can sustain current levels as there is downward pressure everywhere plus we could see negative impact next week with London IE week and oil traders away from their desks. Today we are expecting a WAF/China run to fix at the ws 69.5 level.

Suezmax markets in West Africa remain weak with ample tonnage for even prompt dates. A falling USG market has added to the pressure and for TD20 today, we estimate this at 130,000mt x ws 107.5. Rates to head East are at around a 2.5 points premium.

Mediterranean

The market for TD6 has fallen away at the end of the week, with rates for TD6 at 135,000mt x ws 110. Problems in Libya are adding to the woes in the Med with lower demand to strip the list. Rates are around $5.5M for Libya/Ningbo via the Cape.

Aframax Owners in the Med will be glad to see the back end of this week as rates have nose-dived in the last couple of days for Med Afras. A combination of the Suezmax market, and mainly cargo volume is the cause, placing charterers firmly in the driving seat. We close the week at ws 145 for an XMed voyage with this looking like it could come off further next week as the floor has still not been reached.

US Gulf/Latin America

VLCC rates softened in the region after the week got off to a slow start with the US holiday and activity was limited as Charterers held back and in many cases made use of their own relets rather than expose themselves to the market. Brazil export stems were more active this week but rates also softened as stems off more forward dates pulled in a large volume of offers. Today we expect a USG/China run will fix in the region of just $10.2M in today’s market while a Brazil/China run is paying around the ws 68.5 level.

North Sea

The under-the-radar fixing this week in the North has been widespread. With several ships vanishing from the list balancing out tonnage. The status quo has been restored and we close at ws 160 for a XNsea voyage.

Crude Tanker Spot Rates (WS)

Clean Products

East

The LR2s are seeing a period of correction here, a lack of stems and tonnage building has led to owners being competitive and enthusiastically offering in for the limited stems that there are. We will see a correction on rates. Jet heading West via the Cape is at circa $4.9M levels and TC1 is also in need of a test but when tested expect it to be at the 75,000mt x ws 180 levels. The LR1s are likely to be put under some pressure given underperforming LR2s, all these rates need a fresh test and the notoriously stubborn LR1 owners may see some sharp corrections on last done much to their disliking. MEG/UKC could correct to the $4.25M levels and TC5 to the 55,000mt x ws 205 levels, however, as said these LR1s need a true fresh test to draw a line in the sand.

The MRs east of Suez have seen a sustained level of activity this week mostly driven by EAFR-SAFR deliveries, enough to have reached the bottom and a small bounce with TC17 on subs above ws 300. A more subdued end to the week is seeing a stand off, however with IE week on the horizon there are likely to be some moves made off market. Westbound and TC12 questions have been few and the LRs continue to cap real gains on shorthaul runs. The markets further east have tightened with the north driven by bad weather across Korea-Japan and as such, in the short term at least, expect to see Singapore vessels ballasting North, further limiting resupply for the AG.

Mediterranean

For the majority of this week, the Mediterranean handy market has been steady with Xmed rates trading sideways at the 30,000mt x ws 280 mark. This has been due to consistent enquiry throughout but as we have neared the weekend, the list has grown ever tighter and as a result we see rates beginning to move. 30,000mt x ws 290 has now been achieved off end month dates and with cargoes still to cover in this window before the weekend, Owners are bullish with their ideas. The market is tight as we close in on COB.

Finally to the Med MR’s where it’s been a positive week for Owners with good enquiry and a tight list pushing rates up. We began the week with Med/TA trading at 37,000mt x ws 247.5 but ideas soon heightened off the back of an increase in end-month Naphtha enquiry. This combined with an already tight list for end month tonnage has seen rates spike with reports of 37,000mt x ws 300 now on subs for the Med/TA. The market is firm as the week draws to a close.

UK Continent 

Overall it has been an ok week for Handy Owners in the North as a healthy amount of fixing was concluded between Monday and Wednesday. Replacements and North Spain liftings added some extra spice which pushed levels up to 30,000mt x ws 265 but ARA liftings in the natural window were trading around the 30,000mt x ws 250-255 mark. The list was lacking supply at the back end of the week, however very few cargoes were quoted. All eyes on Monday as we head into March laycans now.

After a slow end to last week, we found Owners in the UKC MR sector a little on the back foot on Monday morning and with some limited testing by Charterers we saw rates stumble a little. By midweek we saw TC2 slip down to around the 37,000mt x ws 220 mark but with some additional fixtures being done behind closed doors, Thursday saw a relatively tight tonnage list produced and with some Naphtha deals occurring in the Mediterranean, this market found its stride again. As the end of the week approaches we see TC2 tested at 37,000mt x ws 240 now and with very few workable options left until we reach the mid first decade of the March window, we could see Charterers get caught out if not carefully done. Owners will be bullish heading into next week but with IE week ahead in London, we question how much market enquiry we will see, and how much will be done across the dinner table.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The front half of the week looked promising for owners in the North, but a slowdown in activity stopped any momentum from being gained. With the bad weather taking its toll on forward itineraries, there are still enough safe units to hold levels for now.

Fresh opportunity was lacking in the Med for the first half of the week, which soon saw Owners succumb to negative pressure and resulted in levels sub ws 290. With not a lot of outstanding enquiry, expect levels to come under further pressure.

MR

It was a familiar theme in the North as firm, workable units remained thin on the ground. We started the week with a fresh test, correcting the region to 45,000mt x ws 232.5 for x-UKC, which left local availability scarce.

In the Med, we expect WMed units will be critical next week if we see enquiry surface again. Availability has been plentiful throughout this week. The market has now been benchmarked, but with good availability remaining and part-sized opportunity dwindling, charterers will be confident of pushing rates further south.

Panamax

If you take a natural last DPP ship, levels have corrected in line with the surrounding Aframax decline; if you have to convince a previous CPP unit, a premium will apply. Despite seeing levels tested this week, which resulted in 55,000mt x ws 170 for USG, sentiment remains flat as there is a lack of consistency with firm enquiry to provide any confidence in Owners for this sector.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeFeb 22ndFeb 15thLast Month*FFA Q1
TD3C VLCC AG-China WS-2168895868
TD3C VLCC AG-China TCE $/day-26,75040,25067,00028,25041,000
TD20 Suezmax WAF-UKC WS-5109114110116
TD20 Suezmax WAF-UKC TCE $/day-2,75038,25041,00039,00042,500
TD25 Aframax USG-UKC WS-7204211203214
TD25 Aframax USG-UKC TCE $/day-2,75048,75051,50048,75052,750
TC1 LR2 AG-Japan WS-56191247354 
TC1 LR2 AG-Japan TCE $/day-20,00042,75062,750101,500
TC18 MR USG-Brazil WS-6254260216229
TC18 MR USG-Brazil TCE $/day-1,00030,25031,25023,75025,500
TC5 LR1 AG-Japan WS-38208246379248
TC5 LR1 AG-Japan TCE $/day-10,00033,50043,50078,75044,250
TC7 MR Singapore-EC Aus WS+7340333321299
TC7 MR Singapore-EC Aus TCE $/day+1,50042,25040,75039,00034,750

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

Bunker Price s ($/tonne)

wk on wk changeFeb 22ndFeb 15thLast Month*
Rotterdam VLSFO  +6574568568
Fujairah VLSFO  +11620609616
Singapore VLSFO  +1638637631
Rotterdam LSMGO  -18775793781

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