Newbuildings - crude or product cargoes?

Jul 06 2018

With the crude tanker market in a depressed state, charterers have tried to secure competitive freight costs on product flows from East to West by using newbuild crude tankers to load products.

It’s not unusual for newbuild crude tankers to carry clean cargoes on their maiden voyage, Gibson said in a report.


However, this activity has had a profound effect on the product tanker market. So far this year, at least three VLCCs have loaded products East of Suez and sailed for the Atlantic Basin.


Not only does loading a VLCC (or Suezmax) take out product tanker demand in the load region, but it also impacts on tanker demand in the discharge area.


This year when the VLCCs ‘Maran Aphrodite’ and ‘New Eminence’ loaded gasoil in China and Malaysia, they collectively took a potential 11-15 MR cargoes out of the Asian product tanker market, negatively impacting regional tanker demand.


But this was not the only impact, as soon as these vessels started signalling Europe as their destination, the European gasoil market started to react.


Eventually, as these vessels moved closer towards their destination, the impact on regional gasoil pricing would have impacted trading activity in the Atlantic and thus product tanker demand, contributing to lower flows from other key supply regions, such as the US and Middle East.


The result could be another 11-15 MR cargoes lost in the Atlantic market, doubling up on the negative demand factor.


In reality, some of the demand loss will be offset by regional distribution of the imported products, although much of these is likely to be distributed by smaller tankers, barges, pipelines and trucks.


Interestingly, it’s not just flows from China and South Korea, which have started to impact the market this year. In June, the VLCC ‘DHT Stallion’ loaded gasoil, which originated from Jamnagar via three STS operations off Fujairah.


Without the involvement of this VLCC, the charterers would have most likely employed three LR2s to ship the product to Europe. But as a result,, these tankers became open off Fujairah after a short voyage, contributing to the regional tonnage list.


Apart from VLCCs, Suezmaxes have also proved popular for moving gasoil cargoes from East to West on their maiden voyages, particularly out of the Middle East and India. And even when these cargoes are not moved on newbuild crude tankers, the ever looming presence of these vessels continues to influence freight.


With 130 VLCCs and Suezmaxes due to be delivered between now and December, 2019, the crude orderbook remains substantial. Provided the crude sector remains under pressure, these tankers will continue to be used where the economics make sense, capping the product tanker markets potential.


Product tanker owners will therefore need to hope for a better crude tanker market and wait patiently for the relentless pace of new crude tanker deliveries to come to a cyclical pause, Gibson concluded.


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