The ongoing shift in refined products trade patterns is likely to strengthen the demand for products in 2023, maintaining attractive vessel earnings.
Europe’s efforts to displace Russian refined products are proving to be positive for the product tanker market since replacement barrels are coming from distant markets such as the Middle East, US and Asia.
Russia, on the other hand, is on the lookout for newer destinations for its refined products since the EU sanctions have come into effect from 5 February 2023. Although it will be difficult for Russia to fully divert its refined products from Europe to alternative buyers, Russian product exports to Turkey, Morocco, China and even India have increased after the embargo.
Russia’s exports to Turkey, Morocco and other African countries will not add to the tonnage demand of product tanker shipping as they are short-haul trade routes similar to Russia-Europe. However, any surge in China’s naphtha imports from Russia at the expense of the Middle East will boost the tonne-mile demand for product tankers. Nonetheless, as China is a small importer, the scope for growth in this trade is limited.
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Naphtha and gasoil/diesel cargoes from Russia to Brazil have become frequent with trade of 0.3 million tonnes and 0.1 million tonnes of naphtha and gasoil/diesel, respectively, in the first two months of 2023. However, we believe Russian cargoes will likely displace product volumes from the Middle East and South Asia, leading to a modest decline in tonne-mile demand for product tankers.
Surprisingly, Saudi Arabia, one of the largest exporters of diesel in the Middle East, has started importing Russian diesel since March 2023, claiming that it imports refined products from various sources to meet the domestic demand. However, we believe Russian diesel imports by Saudi Arabia will inflate the latter’s diesel surplus, which in turn will eventually move to Europe, increasing the global diesel trade and tonne-mile demand. While it is too early to consider this as an emerging trend, it has the potential to boost the already strong product tanker market.
Rise of exports to Saudi Arabia
Saudi Arabia imported 0.3 million tonnes of gasoil/diesel from Russia until 10 March (post-sanctions), more than six times the imports of 41,900 tonnes in 2022, with the entire volume being imported in December.
If Russia exports only 0.25 mbpd of refined products to Saudi Arabia in 2023, in line with its trade in March, it will generate incremental demand of 44.4 billion tonne miles for product tankers, which will absorb 25 additional MRs on this new route.
Although a clear picture of the entire shift in refined products trade is yet to emerge, Drewry anticipates positive tonne-mile growth and additional vessel demand in 2023.
Source: Drewry Maritime Research