Clean tanker owners are opting to sit their ships rather than trade at current spot market levels, with freight having fallen to year-lows in the wake of US Gulf Coast refinery shutdowns after the landfall of Hurricane Ida in Louisiana Aug. 29.
Not registered?
Receive daily email alerts, subscriber notes & personalize your experience.
Register NowThe US Gulf Coast-loading clean tanker routes fell to nine-month lows after Hurricane Ida made landfall and the subsequent decline in activity. The USGC-Caribbean route was assessed at lump sum $275,000 Sept. 9, the lowest rate observed since Dec. 14, 2020 when freight was assessed at lump sum $265,000.
Shipowners said daily earnings were well into the negatives at current rates, making it more advantageous to sit one's ship rather than offer on a cargo. One shipbroker estimated daily earnings on the USGC-Caribbean route were almost at negative $6,000 per day at lump sum $275,000, before adding on around $7,000 for daily operating expenses.
The clean tanker market was already weakened by the long supply of ships, with position lists showing more than 45 Medium Range tankers available in a 10-day window Sept. 9, amounting to at least 1.71 million mt, or around 12.5 million barrels of product volume, unladen.
"It was a painfully slow end-August anyway, but the hurricane put an exclamation point on it," a shipbroker said.
Spot inquiry for clean USGC export cargoes was already slow before the Category 4 hurricane made landfall at the end of August, but shipbrokers said the refinery shutdowns, amounting to 2.2 million b/d of refining capacity at the peak of outages Aug. 30, exacerbated the lack of activity for tankers exporting product from the USGC. As of Sept. 9, 1.195 million b/d of capacity was back to operational, and an additional 843,000 b/d was restarting, according to S&P Global Platts data.
operating
Refinery outages cut diesel output
In the wake of refinery outages after Hurricane Ida, diesel inventories on the Gulf Coast drew to a 16-month low during the week ended Sept. 3, falling 2.52 million barrels to 38.12 million barrels, US Energy Information Administration data released Sept. 9 showed. Stocks were last seen lower at 36.60 million barrels during the week ended April 10, 2020.
Regional net production sank 501,000 b/d to 2.09 million b/d, the lowest it has been since the aftermath of Winter Storm Uri, when production totaled 2.08 million b/d during the week ended March 12.
Platts assessed ULSD on the Gulf Coast reached an over five-month high on Sept. 3 at the NYMEX October ULSD futures contract minus 3.40 cents/gal, the highest it has been since March 16 when it was assessed at prompt-month futures minus 3.35 cents/gal. Prices have since fallen, last assessed Sept. 9 at October futures minus 4.50 cents/gal.
ULSD coming off the Colonial Pipeline, the main refined product supply artery from the USGC to the US Atlantic Coast, jumped to a four-month high Sept. 7, when Platts assessed offline diesel at October futures plus 1.25 cents/gal, the highest level since May 21 when it was assessed at the same level. The same market was assessed at October futures plus 1 cent/gal Sept. 9.
"The Mississippi River accounts for a good portion of the Colonial Pipeline," the same shipbroker said. "All USGC material will supplement that pipeline and others."
USGC freight stifled
Shipbrokers said a potential market turnaround would come alongside an increase in petroleum product demand in Latin America, with Mexico and Brazil two of the largest import markets from the USGC.
Shipping sources said South American markets have been increasing import shares from Asia and West Africa in 2021, following more opportune arbitrages. West Coast South American countries have increased importing from Asia, shipbrokers said, in part to avoid increasing Panama Canal transit costs and wait times experienced when sourcing product from the USGC.
Diesel barrels making their way from the Gulf Coast to Brazil fell significantly in August, dropping 1.4 million barrels on the month and 1.31 million barrels on the year to 3.48 million barrels, Kpler data showed.
The downturn comes as the premium for S10, a Brazilian specification of diesel, reached a multiyear high, with the market assessed at Gulf Coast prompt pipeline ULSD plus 1.85 cents/gal Sept. 3, the highest it has been since Platts began recording the value on Sept. 4, 2018.
Brazil has instead increasingly sourced diesel off the coast of West Africa, reverse lightering from newbuilt Very Large Crude Carriers, shipping sources said. In March 2021, product barrels imported from WAF made up 39% of the share of flows compared to imports from the USGC and Europe, according to Platts cFlow trade-flow analytics software. In August 2021, the share of WAF imports amounted to 34% into Brazil, amounting to around 127,056 mt of cargo.