The decision is out on how far into the second quarter Americas clear tanker markets can maintain the fixing bonanza that has pushed freight to peaks not seen because the third decade of April 2020, when pandemic-related world lockdowns prompted steep contangoes on the oil markets and put over 200 million barrels of crude and merchandise into floating storage, taking over roughly 5% of the worldwide tanker fleet.
At present a scarcity of native diesel provide within the Caribbean and South America amid heightened energy era demand, lowered refinery utilization charges and an elevated name on diesel through the harvest season in Argentina and Brazil have been seen to immediate the robust charterer inquiry, which rapidly depleted Medium Vary tanker tonnage opening on the US Gulf Coast. The tonnage squeeze had some charterers upsizing their 38,000 mt stems to load onto Lengthy Vary 1 tankers, which generally carry 60,000 mt cargoes.
The onset of the fixing bonanza, which coincided with Russia’s Feb. 24 invasion of Ukraine, boosted Medium Vary US Gulf Coast loading clear tanker benchmark spot charges by 180% to the Caribbean, 170% to Brazil, 260% to the UK Continent and 112% to Chile between Feb. 23 and April 6, based on information from S&P International Commodity Insights.
“It’s laborious to see this stopping, to be sincere; can’t see the place the aid could also be coming from,” a shipowner mentioned.
- Advertisement -
“I feel this can be a tonnage squeeze,” a second shipowner mentioned, noting that spiking freight charges had re-shut the diesel arbitrage on the backhaul route from the USGC to Europe and helped elevate worldwide merchandise costs above home South America market ranges.
Diesel arb firmly shut
Evaluation from S&P International Commodity Insights confirmed that the diesel arbitrage had been pried open on March 7 to $1.38/b for the primary time since Nov. 27, 2018, as European diesel importers have sought to exchange self-sanctioned Russian merchandise barrels into Europe. Russia has exported 1.1 million b/d of merchandise and 820,000 b/d of refinery feedstock from the Baltic and the Black Sea. In keeping with S&P International evaluation, 63% of Russia’s clear merchandise exports headed to Northwest Europe and 16% to the Mediterranean in 2021, with 90% of the commerce depending on Medium Vary tankers. Whereas ULSD flows from the USGC to Europe did work on an open arbitrage from March 7 by way of March 30, the arb has been firmly shut since to be indicated at minus $15.70/b foundation April 5 information.
Regardless, charterers with downstream belongings on both aspect of the Atlantic, akin to worldwide refiner and marketer Valero, have been reserving tankers to cowl diesel stems. Petrochemical corporations Dow and Ineos have additionally contributed to the vessel stream throughout the Atlantic, as they’ve been transporting naphtha cargoes from the USGC to their European downstream belongings, whereas the East-West naphtha arbitrage seems to be a steady problem.
“Till Europe can determine itself out and the barrels are sitting within the east, the one place saving the world is the USGC — it’s the one outlet,” a charterer mentioned. “It’s loopy, the charges we’re seeing, however it’s that tight. Cargoes usually are not stopping anytime quickly. It’s an enormous sting proper now, however charterers shall be ready for a later restoration.”
Backwardation spurs end-month fixing
Within the Americas, the latest end-month fixing spree was spurred on by a steep backwardation on the NYMEX extremely low-sulfur diesel futures contracts, with April ULSD swaps buying and selling from $8.1/b to $11.7/b above the Could contract over the last decade of March. Merchants tried to delay the contract roll by fixing cargoes as late as potential, inflicting charterers speeding to a market already primed with extremely tight tonnage towards a plethora of USGC-loading cargoes to be lined at first to the Caribbean, then to locations on the east and west coasts of South America in addition to to disports throughout the Atlantic. Because the merchandise markets proceed to be steeply backwardated, with the frontline ULSD Could/June swaps unfold indicated at $7.50/b on the April 6 market shut, the latest previous might repeat itself and underpin the recurrence of an end-month fixing spree.
- Advertisement -
Ballasters to the rescue
Whereas most shipowners gave the impression to be chasing the greenback at current, additional into the second quarter variety of ballasters might cap the upside of the Americas freight market.
“I do suppose some European ballasters will get right here in some unspecified time in the future, which might trigger some strain, however the cargo nonetheless appears to stream,” a 3rd shipowner mentioned.
With the USGC market presently the best priced area globally, homeowners are inclined to offer repositioning of their fleet some severe thought weighing the East of Suez diesel pull to Europe versus flows from the USGC.
“There ought to be extra demand of US Gulf Coast merchandise barrels, as we at the moment are beginning to see the results of the Russian-Ukraine battle,” a fourth shipowner mentioned.
Product availability on the USGC and the variety of ships ballasting to the area will dictate whether or not this fixing bonanza can help present charges.
ULSD shares on the USGC stood at 104.5 million barrels the week ended April 1 and at a March common of 103.9 million barrels, the bottom onshore inventories since 2014, based on newest information from the Power Info Administration.
Supply: Platts
