Asia Long Range tanker rates hit 6-week high as Middle East refineries ramp up output

Asian Long Range or LR tanker rates have hit a more than six-week high as refineries in the Middle East ramp up output after an extensive maintenance season while ships are already busy hauling cargoes from coronavirus-hit North Asia, market participants said Thursday.

After several weeks of hardly any naphtha cargoes being available for loading in the Middle East, at least 10 have emerged in a day, market sources said.

"All of a sudden there are several inquiries and owners are finding it difficult to meet this demand as they were servicing the North Asian region," a source with an LR1 owner said.

What started as a trickle suddenly became a deluge Wednesday -- in less than 24 hours close to 10 LR1s and LR2s were snapped up by charterers to load almost 600,000 mt of naphtha, with loadings scheduled for in the second and third week of March, according to shipping executives in Singapore and across North Asia.

For the first time since January 20, owners are now offering LR1s for naphtha loading on the Middle East-North Asia routes at rates above w120, according to brokers. Rates were last higher around January 20 when ATC took an LR1 at w130 for February 1 naphtha loading on the Persian Gulf-Japan route, S&P Global Platts data showed.

LR2 rates are also gathering steam and Marubeni, one of the world's largest naphtha trading companies by volume, has chartered one such ship at around w123, the highest rate in more than 50 days, according to Platts data.

Market participants across Asia are attributing these gains to the unique situation in which tankers are focused on China and adjacent countries when refineries in the Middle East are stepping up output.

In Saudi Arabia, Yasref refinery's maintenance is almost complete and several distillate cargoes are up for grabs to load in the second half of March. ATC has already chartered at least two LR2s and Unipec has taken one, at around $2.1 million-$2.2 million, for loading Europe-bound gasoil in Yanbu during the third week of March, several brokers and owners said.

"Clean tanker freight is expected to get some support because of the cargoes to be loaded in Yanbu," a source with an LR owner said.

The Yasref refinery is coming fully online at a time when several LR tankers are deployed in North Asia to lift surplus cargoes amid dwindling domestic demand in South Korea and China due to coronavirus outbreaks, the source said.

Another broker noted that this in turn has delayed the return of LRs to the Middle East and tightened supply, pushing up the rates for delivering cargoes from the region to Europe.

Maintenance at Saudi Aramco's Jubail refinery is mostly complete, while Yasref is expected to be fully on course by March 10. Abu Dhabi's ADNOC will step up operations in the second half of the month as well, said a chartering executive whose company is hiring out LR2s in the Middle East and tracking the output of these units, he said. Refinery executives could not be immediately reached for comment.

Chartering activity is expected to be hectic in the Persian Gulf in the next few days, market sources said.

"A tug-of-war is expected as both the Middle East and North Asia pull tonnage towards themselves," a chartering source said.