Freight rates for Suezmaxes are rising due to strong demand for shipping West African grade crude to India and may rise further as older ships are scrapped as well as on potential crude exports from the US, shipbroker Poten and Partners said in a report released over the weekend.
The number of cargoes moving from West Africa to Asian destinations has more than doubled to 15 in November from less than six a month in 2012, the report said.
Suezmax demand took a hit as US domestic crude oil production and consumption expanded at the expense of West African imports.
However, this has now been more than offset by the rising West African crude shipments to Indian refineries, the report said.
The distance from West Africa to India is 2,000 nautical miles longer than the voyage to the US Atlantic Coast and as a result Suezmaxes are now deployed for a longer duration to deliver a cargo.
On the supply side, the thin order book for Suezmax vessels relative to number of vessels that are 15 years or older is bullish news, Poten said The current order book for Suezmaxes is a notch above 10% of the 440-ship fleet; however, 13% of the fleet is 15 years or older.
A potential balancing of the order book against possible demolition candidates aged 15 years or older that is likely to take place in the next few years.
POTENTIAL US CRUDE EXPORT COULD BOOST SUEZMAX RATES
Another possible boost for Suezmax market is the possibility of US exporting crude oil. If such exports are authorized, due to the limited number of ports in the US Gulf that can handle VLCCs, the oil will likely move via Suezmaxes or Aframaxes, the report said.
US inland grades of crude currently trade at a discount to WTI, due in part to transportation costs required to bring them to market. If restrictions on exports were lifted, this discount would be reduced as pipelines would feed inland crudes to the US Gulf coast for export more efficiently and the Brent's premium to WTI would also narrow.
In such a scenario, the additional cost of rail transportation might again make the seaborne grades from West Africa an attractive option for US refiners, the report said.