2021 Ends With Tanker Market in Dire Straits

The long-expected year-end recovery in dirty tanker spot freight rates failed to materialize in December, as lockdowns at the end of the year and softer Chinese buying limited tonnage demand, OPEC said this week, in its latest monthly report. On average, VLCCs and Aframax slipped 5% and 3%, respectively, m-o-m in December. Suezmax managed a 7% gain over the month before, but remained well below pre-COVID-19 levels. For the year 2021, average VLCC and Suezmax spot freight rates witnessed their worst performance going back more than a decade, while Aframax rates marked an eight-year low. Clean rates fared better in December, particularly West of Suez, supported by demand on the Mediterranean routes amid tighter vessel availability. Similar to last year, a continued imbalance is expected to weigh on the tanker market in 1H22, with hopes for more sustained incremental support in the 2H22. Much will depend on a revival on the tanker demand side, as the supply-side remains overweighed. If lockdown measures do not occur in the various key demand centres, the case for cautious optimism might turn out to be more credible this time around.

Spot fixtures
The latest estimates show global spot fixtures fell in December, dropping for the third-straight month. Fixtures averaged 13.94 mb/d, representing a decline of just under 1.0 mb/d, or around 6%. The drop was driven by the fall in Middle East-to-West fixtures, as an increase was seen to the East and outside the Middle East. Compared to the previous year, spot fixtures were 2.4 mb/d lower, or around 15%.

Spot fixtures from the Middle East-to-West plunged by 25% m-o-m in December, down 0.2 mb/d in volume terms, to average 0.6 mb/d. Y-o-y, rates were around 0.2 mb/d, or over 23%, lower. In contrast, OPEC spot fixtures rose m-o-m in December, increasing 0.7 mb/d, or around 7%, to average 9.63 m/b. However, compared with the same month in 2020, OPEC spot fixtures were about 0.6 mb/d, or 6%, lower. Middle East-to-East fixtures increased m-o-m by 0.3 mb/d, or around 5%, to average 5.9 mb/d. This was a marginal decline of less than 1% compared to the same month of 2020. Outside the Middle East, fixtures rose 0.6 mb/d m-o-m, or more than 21%, to average 3.2 mb/d in December. Y-o-y, fixtures were down around 0.4 mb/d, or around 11%.

Sailings and arrivals
OPEC sailings increased m-o-m in December to average 22.5 mb/d, a rise of more than 0.4 mb/d or 2%. Compared to the same month of the previous year, OPEC sailings declined by 0.2 mb/d or less than 1%. Middle East sailings rose m-o-m in December, up by about 0.8 mb/d, or around 5%, to average 17.2 mb/d. Y-o-y, sailings from the region rose 1.0 mb/d, or around 6%, compared with December 2020. Crude arrivals were mixed in December. Arrivals in North America declined slightly to average 9.0 mb/d. However, compared with the same month of 2020, North American arrivals were 1.6 mb/d, or over 21%, higher. Arrivals in Europe were unchanged m-o-m in December, averaging 12.8 mb/d, but this was almost 2.8 mb/d, or 28%, higher than in the same month of 2020. In the Far East, arrivals increased m-o-m by 0.3 mb/d, or around 2%, to average 15.3 mb/d. Y-o-y, arrivals were 4.5 mb/d, or around 41%, higher. West Asian arrivals showed the biggest m-o-m gain in December increasing by around 0.9 mb/d, or 11%, to average 9.0 mb/d. This represented a y-o-y gain of 2.9 mb/d, or over 48%, compared to the same month in 2020.

Dirty tanker freight rates
Very large crude carriers (VLCCs)
The anticipated year-end upward momentum failed to materialize in December, with VLCC spot rates fading from the modest gains seen the month before. On average, VLCC spot freight rates declined 5% m-o-m, with rates to the west remaining flat for the third consecutive month and rates to the east moving lower. However, y-o-y, VLCC rates in December were up 21% compared with the very poor performance seen in the same month in 2020. Rates on the Middle East-to-East route declined 7% m-o-m to average WS40 points. Y-o-y, rates were 18% higher than the torpid levels seen in 2020. Rates on the Middle East-to-West route were unchanged m-o-m, averaging WS24 points. Y-o-y, rates were 20% higher. The West Africa-to-East route dropped 9% m-o-m to average WS41 in December. Rates were 17% higher compared with December 2020.

Suezmax
Suezmax rates showed the best performance amongst the classes, increasing 7% m-o-m. This was largely due to a stronger – though still historically weak – performance in the Atlantic Basin in early December. Rates were 82% higher than the exceptional lows seen in December 2020. Rates on West Africa-to-USGC route recovered some of the previous month’s loss, edging up 2% m-o-m to average WS62. Compared to the same month of 2020, rates were 88% higher. Spot freight rates on the USGC-to-Europe route experienced a better performance from the perspective of ship owners, gaining 11% m-o-m to average WS62 points. This was 77% higher than in the same month of 2020.

Aframax
Aframax rates slipped at the end of the year, declining 3% m-o-m in December, although y-o-y, rates were still 88% higher. The Indonesia-to-East route edged lower m-o-m in December, declining 2% to average WS103. Y-o-y, rates on the route were still 102% higher. Med routes continued their recent fall in December, dropping around 10% m-o-m, with the Cross-Med route averaging WS105 and the Mediterranean-to-NWE route averaging WS94. Compared with the same month of the previous year, rates on both routes were around 76% higher.
The Caribbean-to-US East Coast (USEC) route was a bright spot for ship owners. Rates increased 8% m-om to average WS134. Y-o-y, rates were 94% higher.

Clean tanker freight rates
Average clean spot freight rates jumped m-o-m in December, up 35%, driven primarily by a strong performance West of Suez, particularly around the Mediterranean. Clean rates in the west increased 53% m-o-m, while East of Suez rates rose 5% m-o-m.

In the East of Suez, rates on the Middle East-to-East route averaged WS129, representing a m-o-m gain of 9% and a 30% increase y-o-y. Freight rates on the Singapore-to-East route edged up 1% m-o-m to average WS139. Rates were 11% higher compared with December 2020.

In the West of Suez market, rates on the NWE-to-USEC route rose 31% m-o-m to average WS171 points. Compared to the same month of 2020, rates have more than doubled. Rates in the Cross-Med and Med-to-NWE surged m-o-m, gaining 60% 64%, respectively, to average WS240 and WS250 points. Y-o-y, rates have more than doubled on both routes.
Nikos Roussanoglou, Hellenic Shipping News Worldwide