Singapore — Asian tanker rates -- both clean and dirty -- have spiked since last month on strong fundamentals and geopolitical factors and the sentiment is likely to be firmer still in the fourth quarter, market participants and analysts said Wednesday.
Attacks on Saudi oil installations and US sanctions on subsidiaries of China's Cosco Shipping last month have seen supply squeezed and rates for most vessel sizes have hit their highest levels this year.
To be sure, while the spike in bunker prices also raised operating costs, the recent downward correction coupled with higher freight rates has pushed up owners' earnings. On the VLCCs, for the first time in four years, owners are now earning around $120,000/day on the key Persian Gulf to North Asia routes.
Owners have full control of the market, as rates on all major dirty tanker routes are climbing and touching new highs daily, said Masood Baig, director of Straitship Brokers.
VLCC rates are expected to continue to rising until mid-November, Baig said.
It remains to be seen whether Persian Gulf-China rates hit the new psychological mark of Worldscale 150, brokers said.
The US sanctions on Cosco Dalian subsidiaries has reduced global VLCC supply by 5% but analysts say fundamentals were already strong.
"Sanctions on Cosco's subsidiaries are definitely impacting the market but they are the proverbial match that lit the fire and not the single cause for the rise in rates," Ole-Rikard Hammer, an Oslo-based oil and tankers' analyst with Arctic Securities told S&P Global Platts.
In addition, rising crude exports from the US, Brazil and Norway combined with tonnage being taken off the market to install scrubbers has turned supply very tight and is likely to create plenty of volatility in freight, Hammer said.
AFRAMAXES AND LR2S With super tanker rates garnering significant gains, the Aframax market followed suit. This in turn prompted at least four Long Range II product tankers to turn dirty and kept supply of the biggest clean segment under a tight leash.
Platts Tuesday assessed the key Indonesia-Japan Aframax route rate at w140, equivalent to $16.79/mt, and Persian Gulf-East route at w160, which translates into $27.81/mt.
This is a substantial jump because for most of the year, rates on the Indonesia-Japan and Persian Gulf-East routes did not even breach w115 and w130 respectively. With many refineries undertaking prolonged maintenance to prepare for the upcoming lower sulfur regime for marine fuels, rates declined during second quarter.
Freight rates rebounded strongly in the third quarter and are likely to remain robust into the current one, ahead of the implementation of low sulfur emission norms for marine fuels, Hammer said.
Historically, dirty and and clean tanker rates have moved in tandem.
While clean rates are lagging at present, they are likely to catch up as demand for distillates should rise by above-normal levels in the current quarter, he said.
According to clean tanker brokers, some of this is already happening due to demand to move gasoil to Europe ahead of the implementation of the new marine fuel sulfur regulations.
Clean tanker rates are typically tied closer to trends in end-user demand, Hammer said.
LR2 rates are closing in on their highest level so far in 2019 and daily earnings have shot up to over $25,000 from less than $10,000 earlier this year. Unless earnings rise further, owners have the option to switch to the dirty market, according to shipping industry estimates.
Daily earnings for Aframaxes on the Persian Gulf-North Asia routes is now $35,000 compared with $25,000 on Indonesia-Japan and $52,000 for a Cross-Mediterranean voyage, the estimates showed.
There is a positive correlation between the Persian Gulf and Mediterranean market for Aframaxes. Owners will compare earnings and have an option to ballast through if one region doesn't offer similar returns, sources said.
NAPHTHA LOADINGS SLOW
The attack on Saudi oil installations slowed naphtha loadings from the Persian Gulf amid higher product prices, and spot buyers are seeking other origins such as Russia, Norway and the US. While this has buoyed the LR market in the West, tonnage is still piling up considerably in the Persian Gulf.
Close to 15 LR1s are available for loading in the region up to October 20 and a dearth of cargoes for long-haul eastbound voyages means the rates increases are unable to keep pace with LR2s gains, said brokers tracking the movement of ships.
It has resulted in a situation where LR2s are now more expensive than LR1s in Worldscale points. In a rare flip of differentials, LR2s are now commanding a premium of w15 over LR1s. Typically, it is the other way round. One of the implications of this role reversal is that it will prevent LR2s from turning dirty in large numbers as earlier expected. It will also largely depend on how long the increase in rates is sustained, market participants said.
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