Following a period of uncertainty caused by effects of the Covid-19 pandemic, crude and petroleum product tanker owners have experienced different trends driving demand amidst an industry decline. Trade patterns, however, continue to shift, in ways both expected and unexpected. Current trends in the West Africa market reveal slow crude oil exports, while an emerging route is being fuelled by rising refined product imports to Africa.
Below are 10 trends identified by oil and gas market intelligence company Vortexa as being key to the health of the tanker freight market:
Floating storage: Global crude offshore stocks wane, but high volumes off China
-Incremental tonnage released from floating storage will increase availability. Freight rates will be pressured downwards without a simultaneous rise in cargo availability.
-China is accounting for the bulk of floating storage globally, pushing against a faster global unwinding.
Floating storage: Very Large Crude Carrier (VLCC) fleet utilisation for floating use holds firm as other segments fall
-In line with the global crude and products floating storage destocking, the number of tankers used for floating storage around the world is down by 36% from 2.5 months ago.
-Tonnage availability in market segments such as Suezmax, Aframax and LR2 has risen, offsetting a recent build of crude stocks on VLCCs in the Far East driven by China.
VLCCs: Floating storage aside, VLCC utilisation reached a yearly low in August
-VLCC utilisation as a percentage of the total VLCC fleet reached a yearly low in August.
-Declining crude-in-transit and fragile crude demand recovery have weighed on utilisation.
VLCCs: Freight rates also fall to yearly lows
-VLCC freight rates heading east have fallen to year-to-date lows in August across all major exporting regions.
-Lack of cargoes in the market, a seasonal slowdown in activity and weak global economic sentiment have applied downwards pressure on freight rates.
-With ample global stocks onshore and offshore, rates are waiting for an export flow pick up for further support.
VLCCs: Tonnage could rise if recent Chinese crude discharge prompts easing congestion
-Weekly Chinese crude imports are ticking up from Week 30 based on quantities discharged.
-The increasing trend might be an early indicator that congestion at Chinese ports is finally beginning to ease.
-Destocking of floating storage volumes in China would release additional tonnage into an already depressed freight market.
VLCC and Suezmax: West African crude export levels offer little hope
-West African crude exports are down double digits since March highs.
-The slump in global crude demand and slowdown of purchasing by Chinese refineries has hit west African intake hard.
-Though Angolan exports have picked up in August – partly stimulated by Indian buyers – Nigerian exports are on the decline for the 8th consecutive month.
Suezmax: Saving grace could come from fuel oil flows
–Fuel oil cargo inquiries have gone up in the Baltics and South America, specifically for Suezmax tankers.
-The upside is emerging for September with Brazilian fuel oil arrivals into Singapore expected to increase.
Long Range (LR) tankers and Medium Range (MR) tankers: Clean imports are weighing on long and medium-range segments
-Clean petroleum products imports by West Africa – typically a strong demand driver for LR and MR tanker segments – stands at a year-to-date low.
-While July-loading European gasoline flows to the US rose, any drop in transatlantic exports could pave the way for increased flows to West Africa, providing support to tonne-miles in the LR and MR tanker segments.
Medium Range tankers: Medium range tankers in northwest Europe to tighten and support rates
-Availability of medium range tankers in Rotterdam is set to be at its lowest for loading in 5 to 10 days, the traditional fixing window for this tanker segment.
-While fundamentals are balanced, tightening availability could lead to a strengthening of freight rates for MRs.
Medium Range tankers: Sharp uptick in utilisation of MRs for diesel/gasoil versus gasoline
-While on average MR tanker utilisation for diesel/gasoil used to be 6% higher than gasoline, this has now doubled to 12%.
-An uptick in intra-regional flows – namely China buying from South Korea and PADD 3 flows to Latin America – helped MR tankers find solace in the diesel market, as gasoline demand recovery stalls.
In summary, Vortexa noted there is a lack of inquiries for tonnage across most tanker segments and tankers exiting storage will have a negative impact on freight rates. The fundamentals are currently not in the owners’ favour and do not look to reverse anytime soon.