Vitol tanker to move cargo via Suez Canal; may boost traffic: sources

A Vitol Long Range II, or LR2 tanker, has been placed on subjects for moving a refined products cargo to Europe via the Red Sea, giving a significant boost to Suez Canal trade, shipping brokers, owners and charterers said Dec. 18.

The 2025-built and Marshall Islands-flagged Cape Antibes has been placed on subjects by an Abu Dhabi-based company for Dec. 26 loading on the Persian Gulf-Europe route at $4.4 million, basis Suez Canal transit, three tanker brokers tracking the developments told Platts, part of S&P Global Energy.

A Vitol spokesperson declined to comment on the matter.

It is extremely rare for tankers controlled by oil refining majors to regularly move oil products through the Suez Canal, Red Sea and the Bab-al Mandab strait, and if Vitol's Cape Antibes actually does this voyage next week, it will be a significant milestone, said a broker in North Asia.

Tankers are regularly moving via the Suez Canal, but for an LR2 that is part of Vitol's fleet to do so carries a sentimental significance that will inspire other companies, which are still staying away due to financial and security concerns, to do the same, said a chartering executive with a global commodities trading company.

The latest Vitol fixture comes at a time when there is a significant increase in demand to quickly move gasoil and jet fuel to Europe and beat the Jan. 21 deadline for implementing the new sanctions against Russia.

Since many companies still prefer to take the longer route via the Cape of Good Hope, it has created a situation where the shorter route via the Suez Canal commands a premium of at least $400,000 according to the latest Platts data, despite the latter voyage being shorter by up to two weeks.

Until as recently as October this year, there was no such premium at all, and the Suez Canal transit enjoyed a discount. In November-December 2023, following Hamas' attack on Israel and increased Houthi rebel activity near the Bab al-Mandab Strait, the Suez Canal route carried a $900,000 discount compared with the Cape of Good Hope, tanker brokers' data showed. Over the past two years, differentials narrowed as owners sought a risk premium for the shorter route.

Under the EU's 18th sanctions package, molecule traceability will be implemented from Jan. 21 onward, wherein the import of products refined from Russian crude will not be permitted, even if the processing was done in third countries. It took the EU almost four years after the onset of the Russo-Ukraine war to implement this rule.

While some of the companies, such as India's Reliance, have announced that they are fully compliant to meet this requirement, several suppliers from the Persian Gulf and India want to avoid lengthy documentation and are shipping more refined products such as jet fuel and diesel into Europe before the looming deadline, according to brokers, charterers and ship owners trading on these routes.

Some of the charterers are putting these cargoes into storage in Rotterdam, and by the time the Jan. 21 deadline for the new rules on Russian sanctions is hit, many of the tanks with gasoil in Europe will be full despite the easing of the winter demand, said a source with a clean oil tankers' owner.

The number of tankers willing to pass through the Suez Canal has been in short supply for more than two years now, but then even the charterers did not mind moving their cargoes through the longer route via the Cape of Good Hope because of their own insurance advisories and risks involved, but the EU's 18th sanctions package changed all that. "There is a pressing hurry because it saves all the efforts on documentation that will be needed [just over] a month from now," a chartering executive whose company moves cargoes on this route said Dec. 16.

Charterers are of the view that tanker owners were keen to continue with the longer Cape of Good Hope route because, until recently, it had yielded higher returns and kept their fleet deployed for a longer period. Situation has now changed and increasingly more companies will be willing to offer their tankers via the Red Sea and Suez Canal, which is fetching higher earnings, they said.

At current freight rates, daily earnings for LR2s on the Persian Gulf-UKC routes are around $40,000 via the Suez Canal and $37,500 via the Cape of Good Hope, according to the estimates of a global tankers brokerage. The corresponding estimates of earnings for LR1s are $33,500-$34,000 and $33,000, the same estimates showed.