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Unexpected Conditions Undermined The Tanker Market’s Recovery During February

Dirty tanker spot freight rates were buffeted by unexpected developments in February, undermining the optimistic outlook that began the year, OPEC said in its latest monthly report. Disruptions caused by measures to stem the accelerating outbreak of the Covid-19 in China led to a sharp drop in economic activity, including refinery runs, which weighed on crude import demand and freight rates. At the same time, tanker availability further increased by the unexpected lifting of sanctions on a subsidiary of China’s Cosco at the end of January, which dampened dirty tanker spot rates, particularly for VLCCs. The market appeared to be looking for a bottom by the end of February, but considerable uncertainties remain for March, given the widening disruption brought about by the ongoing spread of the Covid-19. At the same time, the announced increases in crude flows by major exporters is likely to support the tanker market in the near term. In the first ten days of March dirty tankers spot freight rates rose by 7%. The clean spot tanker market saw a further monthly fall in February, down by 12%, with losses on all major routes. However, in the first ten days of March clean spot rates rose by 3%.

Spot fixtures
Global spot fixtures rebounded somewhat in February, up around 0.6 mb/d, or 3.4%, m-o-m. Spot fixtures were sharply lower than in the same month last year, representing a decline of 9.4 mb/d or 33%. This was due mainly to stellar performance last February, when fixtures were boosted by Chinese imports amid healthy demand around the Chinese Lunar New Year. Disruptions caused by the outbreak of Covid-19 weighed down fixtures this February.

OPEC spot fixtures averaged 12.87 mb/d in February, up 2.4%, or 310 tb/d, over the previous month, but still a considerable 31% or 5.84 mb/d lower y-o-y. Fixtures from the Middle East-to-East edged 1.4% or 0.1 mb/d lower to average 7.59 mb/d in February and were almost 29% below last year’s level. Middle East-to-West fixtures saw improved performance, with a gain of 9.5%. However, compared with the same month last year, they were just under 1 mb/d, or 44%, lower. The y-o-y change was largely driven by lower US crude imports of Mideast grades, along with increasing exports amid debottlenecking in the Permian Basin. Outside of the Middle East, fixtures averaged 4.04 mb/d in February, an increase of 0.3 mb/d, or over 8%, from the previous month. In annual terms, fixtures followed a similar trend, down by almost 31%, or 1.8 mb/d, compared with the same month last year.

Sailings and arrivals
OPEC sailings rose by 1.6% m-o-m in February to average 25.33 mb/d, remaining broadly in line with levels seen last year. Sailings from the Middle East were flat m-o-m at 18.38 mb/d, but down slightly, by less than 1% y-o-y. Crude arrivals were largely negative m-o-m for all destinations in February, except West Asia. Arrivals in North America fell by almost 10% m-o-m to 8.0 mb/d. Y-o-y, arrivals were 22% lower, reflecting a decline in crude net imports in the US.

In the Far East and Europe, arrivals were down by roughly 3% m-o-m. However, both destinations saw y-o-y gains, with arrivals in Europe up 2% and in the Far East up 4.5%, with the latter reflecting increased crude needs due to the steady expansion of refinery capacity in the region. West Asia was the only route showing gains this month, up 200 tb/d, or 5%, m-o-m and some 170 mb/d, or 4%, higher y-o-y. The positive showing was partly supported by improved demand in India at the start of the year, although arrivals in the region have generally fluctuated by similar amounts in recent months.

Dirty tanker freight rates
Very large crude carriers (VLCCs)
VLCC spot freight rates fell across the board in February, with rates suffering from the twin impact of the lifting of US sanctions on a Cosco subsidiary, which boosted availability, while disruptions caused by Covid19 led to a sudden weakening in tonnage demand. Rates on the Middle East-to-East route led losses in February, dropping by more than half to WS43. Rates on the route have been at healthy levels since October 2019, when sanctions on Cosco surprised a market that had already been tightening due to seasonal factors and preparations for IMO 2020. The decline leaves rates on the route 16% lower compared with the same month last year. Freight rates registered for tankers operating on the Middle East-to-West route in February also fell sharply, down 43% m-o-m. At WS30, they still showed a gain of 17% compared with the same month last year. The West Africa-to-East route declined 47% m-o-m in February to stand at WS48, representing a drop of just 9% compared with February 2019.

Suezmax
Suezmax average spot freight rate declines mirrored those seen in the larger class, falling by more than 40% in February. However, rates managed a y-o-y improvement of 27% compared with the same month last year, when they averaged around WS71. Rates for tankers operating on the West Africa-to-US Gulf Coast (USGC) route averaged WS77 in February, down sharply from WS130 the month before. Y-o-y, however, rates were still 22% higher than in February last year. The Northwest Europe (NWE)-to-USGC route fell by 39% m-o-m to average WS66, which was still 31% higher than the same month last year.

Aframax
After a strong start to the year, Aframax rates lost around 44%, mirroring losses in all other classes. The Indonesia-to-East route fared better than the other routes, down 33% to average WS100 points, but still 8% higher than in February 2019. Both the intra-Mediterranean (Med) and the Med-to-NWE routes fell by 47% to average WS80 and WS73 points, respectively. Both routes were also lower y-o-y, with respective declines of 16% and 20%.


Nikos Roussanoglou, Hellenic Shipping News Worldwide

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