Tankers: An Upward Spurt in The Offing?

(gCaptain) – Over the past 2½ years, the tanker market has received much attention and brought good fortune to investors who jumped aboard following the commencement of the war in Ukraine, with additional fuel added by the hostilities in the Red Sea. But the tanker trades are far from monolithic; indeed, the different sub-sectors respond to different stimuli and offer geographically and commodity differentiated supply/demand dynamics.

While still healthy, a “summer slump” (albeit at hire levels still highly remunerative to vessel operators) has impacted the market in the latter parts of Q2 and on into Q3. Brokers Gibson, in an end-August report, called “What’s Next for Clean?” (as opposed to “dirty” crude and bottom of the barrel stuff), point out: “August has seen the weakest clean tanker earnings for the year to date globally across all categories.”

The analyst team at Poten & Partners, a stalwart in the oil and gas business, has provided a detailed view of the “LR2” segment (tankers sized between 100 kdwt and 115 kdwt, hauling refined products in long-range, hence LR, trades—notably in diesel/gasoil, naphtha, and various other distillates) in recent market reports. In an early September Weekly Opinion publication, Poten’s market-watchers noted that the LR2 market has moved from earlier strength to recent weakness and offered some clues about what the next turn might be.

Of course, crude oil is also carried in similar-sized vessels; Poten points to the importance of ships with coated tanks—providing “optionality” to ship operators in which cargoes to haul.

The supply/demand picture painted by Poten reveals that a weakened crude oil market during 2024’s summer months brought about vessels switching into the product tanker runs—effectively driving down their earnings. Looking ahead to the coming months, they suggest that: “we do believe that freight rates for clean Aframaxes <vessels with tonnages varying between 80 kdwt–120 kdwt> will stage a recovery during the winter. VLCCs will revert to their normal employment as higher demand for crude transportation will pull vessels back from the clean trades. At the same time, a seasonal recovery of Asian petrochemical demand is expected to boost demand for long-haul product trades.”

The sentiments of market-watchers at Fearnley’s, a leading broker across all parts of shipping, comport (sort of) with these views. Its weekly report for the week where “the calendar has turned the page to meteorological autumn,” suggests that for Aframaxes, “rates have been stable with soft undertones in the first half of the week…the market looks likely to remain where we are in the short term.” Shrewdly, however, they are highly sensitive to geographical nuances (with some politics in Libya thrown into the mix—oil exports have been shut down since mid-August); they add: “History has shown that an influx of cargoes should hit the market once the dust settles and with this, owners will look to put pressure on rates as the tonnage gets put to work.”

Gibson, looking at the landscape in their clean tanker report, reiterates the notion of an upward shift just around the corner, writing that: “As we move into Q4, market drivers are likely to change. Seasonal refining maintenance in the US, Middle East and Russia will facilitate crude exports. Traditional weather factors in the Northern Hemisphere during Q4/Q1 are also a formidable force behind significant freight volatility over the period. For the clean sector, it means lower competition from crude tankers, a key factor behind the recent downturn, whilst autumn maintenance in Europe and the US will not only increase the European shortfall of distillates, but at the same time support greater East/West flows.”

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