Average dirty tanker spot freight rates rose 25% m-o-m in September, with gains experienced across all classes
According to the latest monthly report from OPEC, average dirty tanker spot freight rates rose 25% m-o-m in September, with gains across all classes. The seasonal upward trend was amplified by unplanned disruptions, allowing rates to recover from the relatively sluggish performance seen for most of 2019 due in part to a high level of new deliveries in the first half of the year. Compared to a year-ago, only VLCCs exhibited a positive performance, which was offset by the cumulative declines in Suezmax and Aframax.
Clean spot tanker freight rates remained at low levels in September, weighed down by ample tonnage supply, particularly West of Suez.
Global spot fixtures averaged 19.55 mb/d in September, an increase of 0.28 mb/d or 1.4% m-o-m but a decline compared with the same month last year of 1.95 mb/d or 9%. Relative to the previous year, global spot fixtures have been sluggish since the exceptional performances of February and March, when fixtures averaged in excess of 28 mb/d.
The increase was driven by seasonal factors as well as higher loadings in the US Gulf Coast, particularly from Corpus Christi, which has pulled in vessels, lightening availability elsewhere and increasing the average voyage length.
OPEC spot fixtures have followed a similar trend, remaining below 2018 levels since April 2019. In September, OPEC spot fixtures averaged 13.21 mb/d, a decline of 0.39 mb/d or some 1.4% compared to the previous month but about 1.71 mb/d or 11% lower y-o-y.
Fixtures from the Middle East-to-West averaged 1.14 mb/d in September, representing a drop of 0.14 mb/d or 11% m-o-m and 42% y-o-y. A key driver behind the decline has been the increasing competition from burgeoning US crude exports.
In contrast, fixtures on the Middle East-to-East route rose 0.20 mb/d or 2.4% in September to 8.25 mb/d, representing only a marginal gain compared to last year’s levels. Outside of the Middle East, fixtures averaged 3.81 mb/d in September, a decline of 0.44 mb/d or 10.4% from the previous month but only a marginal increase compared to the same month last year.
Sailings and arrivals
OPEC sailings rose 0.7% m-o-m in September, averaging 24.88 mb/d, but 0.2% lower y-o-y. Sailings from the Middle East edged up marginally in September, increasing 0.4% or 0.07 mb/d m-o-m.
Crude arrivals showed mixed movements in September. Arrivals in the Far East increased 0.15 mb/d or 1.6% m-o-m but were up just 50 tb/d or 1% y-o-y. Arrivals in Europe declined by 0.05 mb/d or around 0.4% m-o-m, but were 0.31 mb/d or 3% higher y-o-y. North American arrivals fell by 0.01 mb/d or 0.1% m-o-m and declined 0.57 mb/d or 6% y-o-y. Arrivals in West Asia rose 0.10 mb/d or 2.3% m-o-m in September but were some 0.21 mb/d or 5% lower y-o-y.
Dirty tanker freight rates
Very large crude carriers (VLCCs)
VLCC spot freight rates rose in September with gains across all routes. Middle East-to-West routes in September rose 11% m-o-m to stand at WS30 points. Freight rates registered for tankers operating on the Middle East-to-East route rose 9% compared to the previous month, to stand at WS62 points in September. West Africa-to-East routes in September also showed gains, increasing 10% from a month ago, to average WS64 points.
A number of factors have contributed to the increase in VLCC spot freight rates, including a seasonal pick up in global trade, increased activity in preparation for the implementation of IMO 2020 and a general improvement in market sentiment over the month. A factor that caught the market by surprise – and appears to be the final trigger for the spike in freight rates – was the announcement on 25 September that the US was putting sanctions on two subsidiaries of China’s state-owned Cosco Shipping, one of the largest shipping companies in the world.
This had the effect of reducing tonnage availability and suddenly forced charters to turn to the spot market for replacement vessels, with the obvious impact on rates. The combination of these factors lifted rates and has created what one refiner called a “golden age” for shipping that is likely to persist into the coming year. The need to take ships out of the market to install scrubbers – for those that decide to go this route – and the increase cost of bunker fuel is also expected to further support freight rates in the coming months.
Suezmax average spot freight rates saw a recovery in September. Rates for tankers operating on the West Africa-to-US Gulf Coast (USGC) route averaged WS68, a gain of 20%. Rates on the Northwest Europe-toUSGC route also rose, increasing 3% to average WS51 points. As with VLCCs, seasonal factors, increased exports from the US Gulf Coast, and the impact of sanctions on availability, as well as increased voyage lengths, supported the Suezmax market in September.
The Aframax sector in September also enjoyed across-the-board gains on all routes. The Caribbean to US East Coast led gains with an increase of 77% to average WS133 points. Meanwhile, the intra-Med route increased 45% to average 110 points, which was outpaced by a 49% gain on the Med-to-North West Europe route which averaged WS106 points. The Indonesia-to-East route edged up 4% to average WS91 points.
Ample availability have kept Aframax rates immune from some of the upward pressures facing other ship classes; however, tonnage lists tightened as the month progressed.