Americas, West of Suez tanker markets bank on trans-Atlantic revival

Shipowners positioned on either side of the Atlantic Basin are hopeful a revival of refined oil product demand could spark a resurgence in the traditional trans-Atlantic trade flow in the near term, with increased vaccine usage now a key talking point to spur on demand growth.

The trans-Atlantic trade flow for gasoline for the UK Continent-US Atlantic Coast arbitrage and the backhaul trade from the US Gulf Coast to the UKC of ultra-low sulfur diesel provides the bedrock for Medium Range tankers – the most abundant tanker class in both EMEA and Americas markets. Recent months have crimped the latter journey of ULSD to the Continent as refinery runs in the USGC slowed in the wake of the coronavirus pandemic and severe weather events in mid-February.

With MR tankers in EMEA having only a fronthaul market and no backhaul options, tonnage lists continually replenished as the region has become the only focal point for outgoing refined product supply in the Western Hemisphere.

Around 770,000 mt of ULSD has been shipped from both Northwest Europe and the Mediterranean to the US Atlantic Coast since the start of 2021, but flows have totaled 2.08 million mt since November 2020.

Despite the increase in outgoing cargoes from EMEA markets in the new year, shipowners have long bemoaned the dissipation of the Americas markets, and hope that the forthcoming quarter will bring better fortunes for trans-Atlantic flows to resemble something of a normality.

"There is a feeling we're at a turning point right now with the markets in the coming weeks," a shipowner said. "There are small glimpses of life that seaborne ULSD could come back online from out of the US Gulf, and this could change the picture in the period ahead."

The arbitrage opportunity for ULSD to flow from the USGC to Northwest Europe was reported trading at minus $1.88/b March 5, according to Platts Analytics data, having been closed for a majority of time since June 2020.

Freight on the 38,000 mt USGC-UKC route continually traded along the freight floor for the last decade of February and the first week of March, assessed at Worldscale 60, or $10.36/mt, since Feb. 25, the lowest level observed on the route since Dec. 15, 2020.

Freight increased marginally to w65, or $11.23/mt, March 5-8 on the back of increased activity out of the USGC, though market participants in the Americas were unsure if the pickup in cargo supply would last with refined product stocks in the USGC having drawn significantly in the week ending Feb. 26.

The Continent market has seen more activity since the start of 2021, though rates have been more volatile, peaking on the 37,000 mt UKC-USAC route at w160, or $21.12/mt, on Feb. 18. Rates have fallen since, and the route last settled at w120, or $15.85/mt, on March 8.

Shipping participants on both sides of the Atlantic expect the revitalization of both clean tanker markets are likely to come with the expansion of the vaccine effort and the resurgence of international travel and hence jet fuel demand.

All rests on USGC refineries, product demand

After the polar vortex impact on the wider US Gulf Coast region, ULSD production there plunged to 11-year lows, and also lead to the largest regional week-on-week inventory draw in the US, falling 5.71 million barrels to 43.25 million barrels, according to the US Energy Information Administration. Stocks were last seen lower during the week ended Nov. 27, 2020, at 42.21 million barrels.

The EIA reported refinery utilization had fallen to 56% in the US and 40.9% on the USGC in the week ended Feb. 26. Power outages due to extreme cold weather in the week of Feb. 15 led to as much as 4.4 million b/d of refining capacity going offline

Platts reported March 5 multiple refineries across the USGC, totaling around 3.3 million b/d of capacity, affected by the cold weather in February having already returned to operation or due to return by March 16. However, a handful of USGC refineries totaling around 2.2 million b/d of capacity still had uncertain return dates as of March 5.

Market participants expressed uncertainty on whether USGC refineries will ramp up production to compensate on lighter stocks or whether margins remain unfavorable for them to do so.

In addition, USGC refineries were heard to typically embark on yearly turnarounds for maintenance work in this period, which will continue to slow outbound seaborne supply for tankers ex-USGC, and the level of uncertainty here could play a factor for MRs embarking on trans-Atlantic trades in the coming weeks.