Increased numbers of Long Range vessels carrying clean products on the US Gulf Coast-Northwest Europe route in 2014 have brought Medium Range tanker rates to two-year lows in June, shipping and trading sources said Friday.
The average MR freight rate to transport 38,000 mt of clean products on the USGC-NWE route in the first two weeks of June is below the average for the same period of June 2012 and 2013, according to Platts data.
Platts data shows the average for the first two weeks of June was $16.01/mt in 2012 and $19.30/mt in 2013. The average is $13.70/mt this year.
Freight rates on the USGC-NWE voyage, basis 38,000 mt, have remained at 19-month lows at $13.28/mt (Worldscale 60) since June 6, and they were pegged at the same rate over the last week. Freight rates on the route remained steady at same rate Friday.
According to shipping sources, newly built MR tankers in the US Atlantic Basin and more flows of clean products on LR tankers from the USGC to Amsterdam-Rotterdam-Antwerp are putting pressure on rates.
June has recorded the lowest tanker bookings on the USGC-TA route, basis 38,000 mt, shipbrokers said.
“June has been the slowest month so far, this year. There is just a lot of tonnage in the region. When the arbitrage is open, the traders, or the charterers, prefer to move diesel on Long Range 2 tankers than on the MRs, which keeps the MR tonnage in the region,” a US-based shipbroker said.
“There are more 150-200 newly built MRs in the US Atlantic Basin, which are also keeping the rates depressed,” a shipowner said.
“The trade on the USGC-TA route, basis 38,000 mt, is also a reflection of lower demand for US Gulf barrels to Latin America,” another source said. “We have seen a handful of LR1 cargoes over the past month.”
A US Gulf Coast trading source said a big reason for the lack of shipping activity is because “not a lot of diesel is going from the US Gulf Coast to Europe in June.”
Motiva’s 600,000 b/d Port Arthur, Texas, refinery, the largest US refinery and a significant contributor to the export diesel market, has had multiple reported issues in June, which market sources said have put a damper on diesel exports.
MORE LRs TO NWE IN 2014 COMPARED WITH 2013: PLATTS DATA
According to ship-tracking tool Platts cFlow, of the 228 ships traveling to NWE from USGC so far this year, about 13.6% were LR vessels, which typically have the capacity to carry 55,000-80,000 mt.
Platts cFlow has shown a steady rise of LR tankers heading to NWE over the last two years.
Of the total 514 vessels arriving in NWE in 2013, 10.5% were were LR tankers, according to Platts cFlow. Of the 480 vessels to arrive in 2012, 6.5% were LRs.
“There is a larger pool of LR tankers available in general in the US Gulf Coast,” a US-based trading source said. “The ultra low sulfur diesel grade is pretty fungible so Europe is more comfortable buying bigger sizes.”
Another chartering source said charterers are using a larger percentage of LR tankers to keep freight levels down on MRs, and also due to traders working on thinner margins.
“Also, they are trying to operate on economies of scale. They can do that now that there have been more LRs become available,” he said.