Feature: Clean tanker freight gains seen limited despite strong demand to load China cargoes

Clean tanker freight rates for North Asia loadings have firmed in recent weeks due to strong demand to load cargoes from coronavirus-hit China and South Korea, but the gains have been limited by a sharp fall in supply of oil products from the Middle East, market participants said Wednesday.

Ongoing refinery maintenance in the Middle East has prompted several Long Range or LR tankers, which can load 55,000-90,000 mt cargoes, to position themselves in North Asia instead, they said.

Idle LRs seeing little or no demand in the Persian Gulf scouting for cargoes in North Asia are eating into demand for Medium Range or MR tankers, a source with a clean oil tanker owner said.

But with many ships reluctant to call at Chinese ports, MR rates have also rebounded in the past week after falling when the coronavirus outbreak emerged.

South Korea-Singapore MR voyage rates rebounded from a year-to-date low of $390,000 on February 11 to hit $500,000 Tuesday, S&P Global Platts data showed.

However, market sources said that even this increase was due mainly to a dearth of cargoes in Singapore.

"Owners do not want to undertake a voyage to Singapore because of a shortage of cargoes in the area and are therefore seeking a premium to go there," a Tokyo-based broker said. Chartering sources echoed similar sentiments.

There was an ample supply of MRs to meet the current demand because several cargoes are being loaded on the bigger LRs instead, several brokers, owners and charterers across Southeast and North Asia said.

The freight gains in North Asia have coincided with the sharp fall in freight rates in the Middle East, where hardly any naphtha cargoes for loading on LR1s have been seen in the spot market over the past week. As a result, LR rates have fallen a sharp 15 Worldscale points on Middle East-North Asia routes over the past week, Platts data showed. A similar sharp decline was also seen in MR rates across all routes from the Middle East, the data showed.

"The fixing window is now into March and there is still plenty of tonnage to cover any outstanding cargoes," a broker said. Due to the ongoing refinery maintenance in the Middle East and the upcoming schedule for North Asia, the sluggishness is expected to continue in the near term.

CHINA'S OIL PRODUCT EXPORTS RISE

From China, shipping fixtures showed at least 1.825 million mt of clean petroleum products were booked on ships to load over February 20-March 9, and the total could be higher as several deals were done privately.

This is sharply higher than the 690,000 mt of clean products exported on spot fixtures from China over February 1-19, Platts data showed.

Traders said exports of refined products would continue to surge in March as the coronavirus impacts trade flows, but it is still unclear whether freight rates would be supported because China is already reducing output, appetite for imports elsewhere is limited and LR tankers are nullifying potential gains in MRs.

Shipping industry executives noted that while there was a shortage of supply from Middle Eastern refineries that China could fill currently, this will not be the case in four weeks' time.

Demand for oil products is being directly impacted by restrictions on travel – with air, road and rail transportation all affected – as China imposes lockdowns on cities in an attempt to halt the spread of the coronavirus, said Copenhagen-based Peter Sand, Chief Shipping Analyst of BIMCO, the world's largest international shipping association with more than 2,200 members.

As a result, fuel exports have surged. Latest data from government agency Enterprise Singapore showed the inflow of Chinese gasoil barrels into Singapore hit an all-time high of 260,448 mt over February 13-19. This surpasses the previous record of 259,524 mt in the week ended June 1, 2016, according Platts data.

A string of spot sell tenders in the gasoline market also demonstrated the uptick, with Chinese refiners such as CNOOC, Wepec and even independent refiner Hongrun International Energy collectively offering at least 287,000 mt of gasoline for March -- around four times February's volume of 76,000 mt, Platts data showed.

China's jet fuel exports are forecast to surpass 400,000 b/d, or 1.57 million mt, in March despite an expected 10% reduction in crude runs in the first quarter, Platts reported earlier.

"A significant increase in exports will be seen in March because it will take a long time for domestic demand to recover, [at least] until the spread of the coronavirus stops completely," a Singapore-based trader said.

Tanker fixtures loading from China:

Total: 690,000 mt

(Key: ULSD= Ultra Low Sulfur Diesel, GO= Gasoil, UNL=Unleaded Motor Spirit, rnr=Rate not reported, cnr= Charterer not reported)

Data from: Traders and shipping sources