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TANKERS: Asia LR2 rates fall below w100 for first time in three months

Highlights

Daily earnings fall to $17,000 from $150,000 a month earlier

Rates hit lowest since mid-February

Singapore — East of Suez Long Range II tanker rates slumped below the key psychological mark of w100 on June 3 for the first time in three months to a 15-week low, as refineries slow their output and barrels for trading dry up in all major exporting regions from the Persian Gulf to North Asia and India.

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As recently as a month ago, the route had hit an all-time high of w500 but could not sustain such levels as a short-term reverse freight cycle took its toll. Rates hit fresh highs in uncharted territory in early May when ships were struggling to get a discharge order in ports across Europe and therefore unable to return and pick up cargoes for their next voyages from the Persian Gulf and India.

The supply of ships had dried up then and now the reverse is happening as there is a dearth of cargoes, leaving owners "high and dry," according to market participants.

"A few shorthauls are taking place but there is nothing that can turn the tide," a broker in Copenhagen said.

"It is hard to be optimistic anymore," the broker added.

In the latest long haul deal, the Front Puma was placed on subjects by BP at w85 for June 14 naphtha loading on the Ruwais-Japan route. The route was last assessed below this level in mid-February, according to S&P Global Platts assessments.

The daily earnings that had risen above $150,000 on this route for the LR2s when rates were at record high, are now barely $17,000, a UK-based broker said.

Several countries have cut crude output and refineries in turn have lowered their capacity utilization. This implies that there are fewer cargoes to be moved, therefore adding to the surplus supply.

The overall LR rates have fallen for 17 of the last 19 trading days, not only slumping from the record high reached last month but in a 180-degree turnaround, returning to pre-pandemic levels.

The common refrain from market participants is that while they are still working from home, the rates have fallen to levels that were common when they were working from office.

However, owners are optimistic that the latest drop will stimulate demand and at least modestly support rates. The slump is providing an opportunity to those with cargoes to cover their requirements at much lower rates.

"There will be more cargoes seeking tonnage now," said a source with one of the owners in the Persian Gulf.