Americas MR freight drops 13% ahead of refinery turnarounds

Houston — An influx of ballasters and a dearth of fresh cargo activity has prompted Americas tanker freight to drop as much as 13% on key routes in the last week of January, and market participants expect the downturn to continue into February as refinery maintenance season in the US Gulf Coast starts up and bunker prices continue to slip.

"The downward spiral may have started ... back to doldrums," a USGC shipbroker said.

The last week of January has seen freight on short and long haul markets soften, with cargo inquiry for early February dates barely at a trickle compared to the onslaught of exports seen from the US Gulf Coast in January. On Monday and Tuesday, market participants reported no fresh cargoes working for Medium Range tankers out of the USGC, and Wednesday saw just a handful of cargoes covered on the trans-Atlantic ULSD arbitrage, settling at w160 in the February 1-4 window.

Trafigura, Mabanaft and a third unconfirmed charterer placed tankers on subjects to load on the US Gulf Coast and discharge in Europe at w160 Wednesday, shifting the rate w15 day on day, more than 8%, and w25 since the last reported rate traded on January 23, more than 13%. The last-traded level still tops where the route started at the beginning of the year and rates seen in December 2019, with freight having increased 36% since December 31 and almost 54% since December 1.

EXPORTS TO FALL IN FEBRUARY AMID REFINERY MAINTENANCE

US Energy Information Administration, or EIA, data showed petroleum product exports at over 5 million b/d in the weeks ended January 17 and January 3. For the week ended January 24, petroleum product exports increased slightly to just over 5.8 million b/d. Despite the increase in end-January exports, shipping sources expected the amount of February export cargoes would not meet that of January, as clean tankers in the Americas typically fix to load 3-10 days ahead.

Shipping market participants expect the high levels of activity seen in early January will come off, as scheduled refinery maintenance in PADD 3 begins. Scheduled crude distillation unit maintenance in February includes 505,000 b/d of distillation capacity at Exxon Mobil's Baton Rouge plant for the entire month, 610,000 b/d at Motiva's Port Arthur location through third decade February, and 260,000 b/d and 265,000 b/d at Phillips 66 Belle Chasse and Sweeny refineries through the third decade and second decade of February, respectively, according to market sources.

Bullish fundamentals at the beginning of the month allowed ship owners to push freight higher and thus fully incorporate the higher-priced 0.5%S bunker fuel compliant to the International Maritime Organization's 2020 mandate. The spread between the formerly-compliant HSFO and new 0.5%S bunkers peaked January 3 at $320/mt basis ex-wharf Houston, and has since halved to $150/mt basis ex-wharf Houston based on January 28 bunker assessments. Bunker prices have fallen more than 21% from the start of the year, with ex-wharf 0.5%S bunker fuel assessed January 28 at $501/mt compared to the start of the year when rates stood at $640/mt on January 2.

STAGNANT CONTINENT MARKET TO FOLLOW USGC FREIGHT DROP

With the Continent and Asian clean tanker markets already relatively weak in January and the USGC poised for a fall in activity and freight, market participants believe the over-saturation of tankers in the USGC will mean a buildup of tonnage on the Continent and a subsequent drop in freight as well.

"Our concern is that the US Gulf will fall away as quickly as it rose – it is still more attractive than the continent right now but that could quickly change, which will bring the ships back here," a shipowner said.

A recent slowdown in West Africa inquiry has also placed pressure on MR owner options in the Continent market, with charterers now having the luxury of options from available LRs to look at in the near term.