Scant availability of middle distillate cargoes coupled with an oversupply of medium-range tankers have pushed the freight for long-range tankers below the key Worldscale 100 mark with earnings falling to $10,000/day.
The LR2 segment -- the worst hit by the lack of distillate stems -- has seen rates drop w12 points during the last seven trading days amid reports of a fresh LR2 fixture done at w75 on the benchmark Persian Gulf-Japan route.
Shell has placed an LR2 vessel belonging to operator Taurus for the voyage, loading on November 21, at w75, which is w22.5 points lower than the last deal, according to market sources. Shell and Taurus declined to confirm the deal.
Early last week, market sources said that charterer Socar had fixed the Haima for the voyage, loading November 3, at w97.5.
The benchmark LR2 rate for moving a 75,000-mt cargo was assessed at w78 Friday, while the LR1 freight for 55,000-mt cargoes was w95.
"We still have tonnage to go through and [the LR2 freight] is closer to the bottom now. We saw a little more volume [last] week, but it's not enough and tonnage is still stacked up," said a source with an LR2 shipowner.
The Cape Endless was put on subjects by Saudi Aramco for a Red Sea-Japan voyage, loading November 15, at w72.5. For a voyage to Japan, a Red Sea loading usually goes at a w5-10 discount to a Persian Gulf loading, market participants said. WEST-EAST NAPHTHA FLOW ADDS TO TONNAGE GLUT
The flow of naphtha on LR2 vessels into Asia from Europe has added to vessel supply in the East of Suez market. At the same time, a limited flow of middle distillate cargoes from the East to the West of Suez has increased the tonnage available in Asia.
During the second half of September, six LR2 and six LR1 tankers were fixed to move naphtha from the West of Suez to the East, according to Platts data, and these vessels are expected to be open for new voyages in Asia during the first 20 days of November.
The time charter equivalents or daily earnings from an LR2 vessel performing the benchmark voyage at w75 was in the range of $7,000/day if the vessel were to steam extremely slow, another LR shipowner source said, adding that current TCE on an LR1 was around $10,000/day.
"This [LR2 fixture at w75] will not allow the LR1 [rate] to go up as LR2s will start undercutting the LR1s," the source said.
Meanwhile, sentiment was positive in the Asian LR1 segment on Friday on the back of a fresh fixture and weakness in the Asian LR2 market was expected to weigh on the LR1 segment.
Market sources said Unipec placed the Justice Victoria on subjects for a PG-Japan voyage, loading November 18, at w99. Unipec could not be reached for confirmation. The LR Persian Gulf-Japan rates were under pressure during July-August with the LR1 benchmark assessed at w77 and the LR2 at w68.
With the spread between the LR1 and LR2 rates widening to w17 on Friday, from w3 on October 22, charterers may opt to combine MR-sized cargoes of 35,000 mt or top up their LR1-sized cargoes, 55,000 mt, on LR2 ships to take advantage of a cheaper freight. MR freight is $31.91/mt, while the LR1 and the LR2 freight stands at $28.07/mt and $23.05/mt respectively.
Logistics could, however, derail charterers, market sources said. "Lately, some Indian ports like New Mangalore, Mumbai and Hazira are having big delays due to berth congestion, so it will not be easy to combine two Indian MR stems into an LR2 [cargo]," a chartering source explained.