Home / Shipping News / International Shipping News / Asia Clean Tanker Market Outlook Q4 2017: The Sun is Out

Asia Clean Tanker Market Outlook Q4 2017: The Sun is Out

While growth in the product tanker fleet has been fairly moderated this year compared to the crude tanker segment, overcapacity has weighed on clean tanker freight rates in Asia over the year. Fleet growth for LRs and MRs hit around 6% and 3% respectively so far this year. The pace of newbuild deliveries is expected to ease in Q4 due to high rates of slippage.

A series of unplanned refinery outages in the West provided some respite for LR owners in Q3, most notably Hurricane Harvey which took out nearly 25% of USGC refining capacity. The subsequent redrawing of trade patterns boosted ton-mile demand significantly as more LR tankers were chartered to move middle distillates from Asia/AG to Europe following the open East-West arb which was shut for most of the year. As a result, LR freight rates rebounded from their sluggishness to hit the year’s high at w145 for TC1 and w152.5 for TC5 on the back of tight tonnage until 2H October. Rates are currently coming off as these vessels return from their long-haul voyages, lengthening the position list in Asia/AG once more. While there is some near-term downside, we expect to see a surge in LR rates towards the end of the year due to robust demand-side factors.

Naphtha demand in Asia typically sees a seasonal boost in Q4 due to higher LPG prices which makes it less competitive as well as the end of cracker turnaround season. Winter heating demand for LPG renders the fuel too expensive to be used as a petchem feedstock, with propane trading at a $76.25/T premium to naphtha as of 11 October. As such, higher naphtha imports into Asia in Q4 are expected to underpin LR tanker demand and subsequently freight rates.

With the East-West gasoil EFS widening to more than -$25/T on 10 October, the arb remains open. Middle distillate flows from Asia/AG to Europe are expected to remain elevated in the short run, lending support to LR tanker demand. The trading play in the Asian gasoil market last month led to Winson Oil taking at least 7 LR2 vessels for gasoil storage around Singapore ranging from 30 to 90 days. This helped to tighten the prompt supply of ships, putting a floor under LR tanker rates.

The effects of Hurricane Harvey reverberated through the MR tanker segment as well, with a surge in MR vessels taken for long-haul voyages from Asia to the US and Latin America. Similar to the LRs, the return of these ships has lengthened the position list in Asia once more and led to a moderation in MR rates. Tighter quotas are expected to cap Chinese exports in Q4, weighing on MR tanker demand and freight rates. In a bid to curb pollution, the recently-released fourth batch of Chinese fuel export quotas (under both processing trade and general trade terms) stands at 5 mmt, 67.4% lower than the previous batch. This brings the year’s total amount of quotas to 37.4 mmt, 19% lower than that of 2016. As such, any seasonal spike in MR rates is likely to be fairly muted compared to previous years.
Source: OFE Insights

Leave a Reply

Your email address will not be published. Required fields are marked *



Please enter the CAPTCHA text

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping