Baltic, UK Continent Aframax rates plunge to multi-year lows as demand stalls

London — Freight rates for Aframaxes in the Baltic and UK Continent have plunged to multi-year lows as a fall in regional oil demand has been exacerbated by output cuts and excess tonnage, sources said Wednesday.

Recent interest from European refineries for sweeter crudes has caused US sweet grades such as WTI Midland to attract more buying interest, which could signify more tonnage arriving in the Northwest Europe at the end of July, maintaining pressure on freight rates in the region.

Rates on the benchmark Cross-UK Continent route, basis 80,000 mt, plummeted to over a nine-year low of $5.29/mt or Worldscale 70 on June 9, S&P Global Platts data showed.

Similarly, the Baltic-UKC route, basis 100,000 mt was assessed at w50 or $4.52/mt on June 9, the lowest rate on this voyage since September 5, 2017, according to Platts data.

Sources said rates were so low for a myriad of reasons, starting from a lack of cargoes which was due to both weak European demand along with production cuts by Russia and Norway, which had steadily reduced their monthly oil loadings.

According to the Russian Urals program for July, scheduled loadings will be the lowest in eight years, with only 24 cargoes of 100,000 mt each predicted to load from Primorsk, where the bulk of the Urals program usually loads. In April, loadings from Primorsk totaled 39 cargoes of 100,000 mt each.

Secondly, there was a lot more North Sea and Russian crude going East on VLCCs and this was draining liquidity from the Aframax routes.

"The market is in free fall," said a shipbroker. "We should be getting close to the bottom, but I feel maybe it could still go a few points as owners are getting close to or just below operational levels apparently."

The lack of demand meant growing tonnage was a huge concern.

"There is just so much tonnage. We have 18 prompt ships today and that gets topped up to 22 tomorrow," a second shipbroker said.

"I think the second decade [of June] of Baltic Urals is covered and most of the North Sea crude is going on VLCCs or on an own-program basis so there is very little to play with," he said.

Sources said trading was likely to remain slow this week unless some charterers started fixing some stems for the last 10 days of June to snap up the excess tonnage, although this was unlikely.