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Clean LR2 freight at almost four-year highs as Red Sea conflict squeezes supply

Clean tankers’ freight rate for Europe-bound voyages Jan. 25 hit its highest level in almost four years, as longer voyages via the Cape of Good Hope amid the Red Sea crisis have led to increased turnaround time for ships and squeezed supply.

Platts assessed Persian Gulf-UKC Long Range II, or LR2s, at $8.25 million Jan. 25, a level not seen since end-April 2020, when it was at $8.8 million, according to S&P Global Commodity Insights data.

“There are no LR1s or LR2s available in prompt positions, and charterers would like to cover their requirements before the Lunar New Year, and this is pushing the freight higher,” a broker in North Asia said.

Increased freight rates are likely to push inflationary costs, increasing the delivered price of jet fuel and diesel into Europe, thereby raising the travel budgets, according to sources.

The LR2s are up more than 60% in the last five trading days on the Persian Gulf-UKC routes basis Suez Canal routing, S&P Global data showed, implying that charterers have to cough up more than $9 million for voyages via the Cape of Good Hope. Charterers are currently commanding a premium of up to a whopping $1 million for a voyage via the Cape of Good Hope on the Persian Gulf-Europe routes over the earlier more common and shorter transit via the Suez Canal, sources said.

Dozens of tankers have already been diverted to the longer route since the US and UK-led naval forces launched counter-strikes against the Houthi rebels in Yemen earlier this month.

The distraught charterers have now pinned their hopes on double-coated Aframaxes turning clean and bailing them out by replenishing the supply. The surge in earnings in the LR2 segment will attract several Aframaxes to switch over and cash in on the trend, sources said.

The potential influx of dirty tankers into the clean could prevent a further spike in LR2 rates and help them find a ceiling, another broker in North Asia said. The extent of the impact hinges on the number of Aframaxes that will be cleaned, the broker added.

At current freight levels, an LR2 owner can earn around $90,000-$100,000 daily on the Persian Gulf-Europe voyages, basis ship ballasting from Chiba, and assuming bunker prices of over $640/mt, brokers said.

Aframaxes on the Southeast Asia to China routes earn hardly around $33,000/day, they added.

Platts is part of S&P Global Commodity Insights.
Source: Platts

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