Cross-Med clean tanker markets at record lows on surplus tonnage, dearth of cargoes

London — Cross-Mediterranean basis 30,000 mt freight rates reached a new low on Sept. 30, as overwhelming tonnage and a dearth in cargo availability breached a previous floor in the market with shipowners making sharp losses on reduced cargoes in the basin.

Freight rates for cross-Med shipments basis 30,000 mt were assessed at Worldscale 75 ($4.52/mt) on Sept.30, breaching the previous floor of w80 and the lowest since Platts records began in 2002.

Shipowners will now have to acclimatize to a period where earnings are negative, with many claiming that time charter equivalents are producing losses on cross-Med voyages, which could in turn prompt owners to sit and not take cargoes.

"I think we'll see a lot of owners stand firm now and not let the market settle here, which could result in less willingness to move," a shipbroker said.

Oil product length the reason for Med downturn

Med shipowners will likely have to contend with diluted trading activity in the fourth quarter compared to previous years, as oil product fundamentals dictate slowing demand and a lack of liquidity to settle in for the months ahead.

In the gasoline market, the prompt Mediterranean market has seen a supply-side crunch during September with liquidity drying up as buyers struggle to find available gasoline volumes on the market.

Sources also said that run cuts at some Russian facilities had added to tightness in the Black Sea region.

Demand remains muted in the Med as the European holiday season has ended, and surging coronavirus cases in Spain, France and other countries raises the spectre of more domestic travel restrictions into October.

But a number of refineries are billed to resume operations, including the anticipated restart of the Aspropyrgos refinery and the Saras-owned Sarroch refinery in Italy, which could help ease the supply-side tightness in the region during October.

In the ULSD market, participants foresee likely bloated supply stifling demand for fresh cargoes from refineries that are lowering production, but less incoming cargoes from the Middle East and US could prove to be upside factors.

"The Med market should be quite supportive in the month to come thanks to decent demand and refineries run cuts...there is very little coming from the Middle East to the Mediterranean and not much either coming from US," a trader said, adding the diesel arbitrage from this US had been closed.

However, fundamentals still dictate a situation of oversupply and a lack of demand, with little sense that refineries could push for more output in the near-term.

"I think the market is very long and getting longer in October... I have cargoes to sell that I have difficulty to place," a second trader said. "There are tenders for sale from Greek, Turkish and Israel refineries. Most buyers have to postpone their laycans and delay deliveries due to the lack of demand and the uncertainty regarding the current situation...I expect October to be quite depressed."

He further added that refineries are minimizing production as margins are very poor, with gasoline cracks having improved but diesel cracks are very low, and jet demand is not bound to increase in the coming months," he also said.

Med naphtha volumes shift away from the basin

In the naphtha market, expectations of refinery run cuts across the region brought a boost to prices. However, as petrochemicals producers started switching from LPG to naphtha on seasonality and a strong RBOB contributed to some naphtha blendstocks demand in NWE, demand had also contributed to a stronger sentiment north, which led possibly to reduced interest in the Mediterranean and Black Sea.

Naphtha FOB Mediterranean saw a 2.21% increase on the week to close at $359/mt on Sept. 30., with the CIF Mediterranean cargo up 1.175% at $366/mt on the same day.

Only 31,000 mt naphtha volumes moved cross Mediterranean on week comparing to 163,000 mt the week before, Kpler intelligence firm data showed.

Additionally, interest for naphtha arbitrage volumes East was muted, particularly as Black Sea October loadings ex Tuapse showed a 30% drop on month, at 210,000 mt. This could be at least partially associated with increased US naphtha volumes reaching Asia, while some European product holders also expected freight costs to decline further.