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Americas dirty tanker freight sees little impact from Hurricane Laura

Houston — Freight for Aframaxes loading in the USGC saw little to no impact from Category 4 Hurricane Laura, which made landfall in the USGC early Aug. 27, in contrast to hurricane seasons in previous years.

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In the wake of Tropical Storm Gordon in the year 2018, Aframax trans-Atlantic freight saw an 11% increase on the day, and a 27% increase the same year ahead of Hurricane Michael, as itineraries were delayed and tonnage tightened.

The Aframax market has seen a particularly low freight environment since the end of May, in the midst of the typical summer lack of charterer demand, exacerbated by the coronavirus pandemic.

"The demand is so bad; the tonnage is overwhelming. Even with a hurricane, there's really no hype for rates to even budge right now," a charterer said.

Several ships were reported on subjects in the week ended Aug. 29, likely booked by charterers as replacements for ships booked earlier in the month, sources said. However, inquiry was not enough to dry out the prompt tonnage in the USGC, and the upper hand in negotiations remained with charterers.

"I don't see the storm being a catalyst for rates to go up," the charterer said Aug. 27.

"VLCCs are very soft, Suezmaxes are very soft, and for Aframaxes there's so much tonnage."

Aframax upcoast freight typically gains weight from storms as well, even from storms that do not directly impact Mexico's East Coast and the Caribbean, as a consequence of delayed itineraries and tightening tonnage in the Gulf of Mexico.

In the year 2017, Hurricane Harvey caused up to 33% gains in freight rates for the 70,000 mt East Coast Mexico-USGC route, and up to 28% increases in the Caribbean-loading run.

As put by a charterer: "We're going into the seasonal low right now in demand [for shipping], but we're going into the seasonal high for weather disruptions. So, we'll see which one wins."

So far, this summer's extraordinary lows in demand have proven they can overcome even a hurricane.

For the larger-tonnaged VLCCs, freight typically sees less volatility in light of weather disruptions along the USGC. VLCC freight over the week dipped as overtonnage concerns were reflected in freight rates after a summer classified by historical crude supply cuts by OPEC+ and reduced demand from the coronavirus outbreak left charterers with the upper hand in negotiations.

Freight for the benchmark VLCC 270,000 mt USGC-China route fell $100,000 from Aug. 21 to end the week Aug. 28 at lump sum $5.25 million.

Clean tanker freight falls on refinery closures

As refineries closed ahead of Hurricane Laura's landfall on the USGC, clean tanker freight fell. Charterers held off cargoes, and available tonnage built in the region, breaking a bout of strength observed in mid Aug. The 38,000 mt USGC-Brazil route fell 17% from Aug. 24-28, beginning the week at w157.5 or $33.56/mt and settling at w130 or $27.7/mt. The short-haul USGC-East Coast Mexico run saw some inquiry from PMI during the week, and the activity dropped freight from lump sum $490,000 Aug. 24 to lump sum $350,000 Aug. 28, a drop of 28%.

Freight decreases were observed during the week that Hurricane Harvey made landfall in Houston between Aug. 25-31, 2017, however the decreases were not as dramatic as those observed with Hurricane Laura. The 38,000 mt USGC-Brazil run fell 8.5% from Aug. 28-Sep 1, 2017, and the USGC-East Coast Mexico route stayed unchanged. Activity out of the USGC was more muted in the wake of Hurricane Harvey, with no USGC-loading fixtures reported by Platts between Sep. 1-5, 2017.

Market participants are unclear on how the clean tanker market will behave going forward into September 2020, as petroleum product demand remains diminished in the Americas due to effects from the coronavirus pandemic. However, record-high ULSD stocks in the USGC could provide renewed cargo supply for USGC-loading tankers should US diesel demand remain low and Latin American demand increase.