TANKERS: Russia's Lukoil pays freight premium for USGC crude export cargo

Russia's Lukoil booked an Aframax at a Worldscale 25 premium to typical stems for purposes of lifting a US crude cargo for export to Europe as shipowners weighed the risks of sanctions related to potential payment issues amid further escalation of the Russia-Ukraine conflict.

Lukoil placed the ExxonMobil-operated 109,995 dwt Navig8 Prestige on subjects in late trading Feb. 28 for a USGC-UK Continent/Mediterranean run at w185, set to load March 11-12.

S&P Global Commodity Insights assessed freight for the Platts benchmark 70,000 mt USGC-UKC run at w160, up w5 on the day, up w25 on the week. Indications shifted to the w160 level after several shipowners were willing to fix their tonnage for trans-Atlantic voyages at w160.

Lukoil was largely believed to have paid a premium at between w5-w25 amid growing concerns over sanctions on Russia and potential risks associated with Russian-linked counterparties. The only other offer on the cargo was heard at a sky-high w310 on Feb. 28, further prompting shipping market participants to look towards a potential premium on the voyage.

Apart from the ever-changing geopolitical environment, the majority of fundamentals for the USGC Aframax freight market would suggest weaker rates. In the USGC, there were an ample nine ships available for prompt loadings March 1, sources said. In addition to the lengthy regional position list, fresh cargo inquiry was virtually non-existent over the day as sources believed that charterers held back cargoes awaiting a more certain freight environment.

Despite this, many owners remain resolute in looking to push rates further towards the w185 level, looking to see freight gains amid dismal daily voyage earnings, which have been stifled by increased bunker prices.

"It wouldn't take much to get to get w175-w180 [levels]," a shipbroker said. "Just need more than two to three cargoes to cycle out the w160."

Lukoil previously booked the Sea Turtle for a March 6-7 loading stem for a similar trans-Atlantic voyage at w145 on Feb. 24, hours after Russia's military invasion of Ukraine. Market participants were mixed about whether the charterer had paid a premium on the voyage, with many still uncertain of the extent of threats of potential sanctions. The fixture has since failed, with the Sea Turtle returning to the market in the week beginning Feb. 28. Freight for the benchmark 70,000 mt USGC-UKC route was assessed at w135 Feb. 24, inching up just w2.5 on the day.

Aframax USGC-UKC FFAs support Russian premium

The Forward Freight Agreement, or FFA, market supported market ideas that a typical trans-Atlantic spot cargo would trade below Lukoil's transacted level. The March contract for the 70,000 mt USGC-UKC route traded at as high as $30.8880/mt, or a Worldscale equivalent of w165 in mid-morning trading, only to fall to $30.1392/mt, or w161, right before the Platts Market on Close assessment process from S&P Global Commodity Insights. The current month was assessed at the w161 level.

The paper market has shown a great deal of activity amid the geopolitical uncertainty, with about 1 million mt trading since Feb. 24, averaging just over 250,000 mt daily, up from the 129,000 mt from the same time period last week.

Market participants continue to keep a watchful eye on the ever-changing conflict and its impacts to crude tanker trade flows.

"Still anything can happen, sanctions can get worse and at many minute there could be a rise in WTI demand in Europe," a second shipbroker said. "It's all up in the air right now, we just have to go with the flow."

S&P Global Commodity Insights believes that should Europe need to replace its 2.7 million b/d of Russian crude from the Black Sea and the Baltic Sea due to sanctions, the continent will have to look for supplies from West Africa or the US.

"Increased Trans-Atlantic flows from the US could be an area of interest for the Aframax fleet, while there will also be increased competition from their bigger-sized counterparts," S&P Global Commodity Insights analysts wrote in a spotlight Mar. 1.