Divergence in refinery margins between the Atlantic and the Far East is driving both product and crude carrier freight rates, according to shipping analysts at Pareto Securities in Oslo.
Crude tanker rates started to move upwards last week, as product tankers fell back from the recent record high levels.
“Refinery margins are a big part of this puzzle, and with Singapore margins now improving as Atlantic margins fall, we could very well see further VLCC strengthening and MR weakening,” Eirik Haavaldsen and Oystein Dalby, the Pareto analysts, said in a weekly report emailed to IHS Maritime
“The small bounce in crude prices also had an impact on VLGC rates last week, with Shell pulling a small handful of vessels out of the AG [Arabian Gulf] spot market – and thus making rates rebound,” the two analysts noted.
Refineries usually buy their crude oil at least one month ahead and consequently it will be up to the margins to determine how quickly they will now revert to normal operations. Last week’s activity increase on the Gulf -East leg could be a first signal of another very strong winter market.
“Recent cutbacks seem to have triggered bargaining power, perhaps also due to slightly lower Middle Eastern exports (falling LR-rates could be a sign of this),” they said in the report.
In the Atlantic, US Gulf and northwest Europe lost about USD 4.6 and 3.0/bbl respectively, which could hurt MR rates. “The Europe-US arbitrage has fallen back sharply, thus limiting what traders and refiners can pay for freight.
With [the northern] summer driving season now officially over, this could continue to weigh on MR rates – unless demand from north and west Africa keeps holding up,” they said.
Refinery utilisation has already fallen back in the US, dropping from the 96% level seen in early August, to about 93%. “With ample inventories in Europe, crude demand in the Atlantic could be lower over the next month, which would be slightly negative for Suez and Aframaxes,’ they pointed out
“Overall, very interesting times in the tanker market. We remain encouraged by the incredibly strong product tanker rates seen recently, emphasising that it is perfectly normal for them to fall in September. With refinery production increasing again in October, so will rates,” they concluded.
Meanwhile, Jacob Pedersen, senior analyst at Sydbank in Denmark, said last week that freight rates on the product tanker market had been better than for many years and a slight drop from recent firm levels was likely. However, secondhand values of product tankers would most likely rise as the year progresses, he pointed out in a monthly report on the shipping markets.
Tanker rates get a boost