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Tankers: Suezmax earnings on the rise due to strong demand from the East

London — Suezmax earnings have risen rapidly in the Mediterranean and West Africa in the past two months due to high crude arbitrage flows to the East at a time when the number of available vessels has been dented by the retirement of older ships, sources said Tuesday.

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Generally, the market has been challenging for shipowners this year and 24 Suezmaxes have been sent for demolition, the highest number since 2012 and going some way towards reducing the excess supply of tonnage.

The West Africa to UK Continent route, basis 130,000 mt, has seen earnings rise to over $35,000/d, compared with approximately $7,000/d two months ago.

The Black Sea to Mediterranean route, meanwhile, has seen an even bigger increase to more than $63,000/d from $10,000/d two months ago, shipbroking sources said.

However, the order book for new Suezmaxes represents 9% of the current fleet, according to Affinity Tankers data.

The huge volume of Mediterranean crude going east has been the result of refiners looking to replace Iranian volume after US sanctions forced them to curtail or halt imports of Iranian barrels, sources said.

"The amount of Suezmaxes going east out of the Mediterranean recently is going to leave a hole in the position list into January and then they will all gradually flow back west," a shipbroker said.

Meanwhile, there have been so few Basrah-West cargoes, Suezmaxes are not ending in the Mediterranean any more. So, to meet the demand in the Black Sea, ships need to ballast from the East and that takes time, sources said.

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"The price rises were quite unexpected and [the market] did not expect Iran to affect the tanker market so much. But it looks like long-haul business keeps the markets busy," a shipowner said.

However, even though rates are at multi-year highs in West Africa and the Black Sea, there was expected to be a slight lull in the first quarter of 2019 when vessels flow back from the East in greater numbers and repopulate the Mediterranean and West African position lists, sources said.

--Peter Farrell, peter.farrell@spglobal.com

--Edited by Dan Lalor, daniel.lalor@spglobal.com