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About Commodity Insights
Maritime & Shipping, Refined Products, Wet Freight, Diesel-Gasoil
January 06, 2025
HIGHLIGHTS
Med-Med route shows volatility in fourth quarter
Participants show hesitation on geopolitical factors
As 2024 wrapped up, clean tanker routes saw widely varying rate situations and faced little certainty with the arrival of the new year.
For Medium Range tankers, the UKC-USAC route was under steady pressure in the fourth quarter, while notable volatility marked the Med-Med Handysize route. In contrast, the Long Range tanker market remained relatively stable. As the market moves into 2025, emerging factors such as a new US president and the potential reopening of the Red Sea could significantly alter trading routes, with subsequent implications for freight rates.
The overall trend for the UKSC-USAC route for the MR tankers was quite bearish due to depressed demand for voyages to the USAC, meaning rates struggled as ship tonnage remained in the UKC area, market participants said. At the same time, a charterer said that "despite consistent gasoil demand in the US, the stability has been attributed to a close USAC route and limited fixing activity."
Platts assessed the Clean UKC-USAC 37,000 mt route at w115.75 Dec. 30 and at w160 Dec. 29, 2024, down compared with the previous year.
In the fourth quarter of 2024, MR clean tanker freight rates displayed notable volatility for Med-Med runs, marked by price surges as prompt cargoes scrambled to secure tonnage at competitive freight levels.
This volatility was effectively illustrated by Bollinger Bands, which charted the fluctuations around recent mean prices, highlighting the extremes of high and low levels of deviation based on observed market conditions.
In a significant development, Platts assessed the 30,000 mt MR clean tanker freight prices for the Med-Med route above the upper Bollinger Band in the latter half of November, indicating pronounced upward pricing momentum. The widening gap between the upper and lower bands further reflected the heightened volatility in the market. Platts is part of S&P Global Commodity Insights.
Adding to the bullish sentiment, short-term moving averages broke through the longer-term average, signaling a robust push in the physical spot market, which has remained relatively stable ever since despite the recent moderation in rates.
Meanwhile, the Relative Strength Index, a key momentum indicator that gauges the speed and change of price movements, briefly indicated overbought conditions during the final trading sessions of November before gradually returning to more neutral levels as the freight supply crunch began to resolve.
Several fundamental drivers were behind the fresh regime of price volatility in the MR clean tanker segment for the Med region, notably the lingering effects of the Red Sea Crisis -- a geopolitical upheaval that erupted over a year ago. This disruption restricted the flow of competitively priced clean tonnage from the East of Suez and threw the Mediterranean market into disarray.
A trader said that if US President-elect Donald Trump "wants more people to start driving with cheap gasoline to get the economy going faster, then they may see gasoline imports going up, and more UKC-USAC 37,000 mt vessels used to get it into the country. At the same time, this may take Med-Med vessels out of play, which will support the rates for Med-Med."
Another market participant said, "It is very hard to call what Trump 2.0 will mean for shipping. Will tariffs impact European products, causing a lack of demand in the US? Will the war end in Ukraine?... I can't see Russian products or tonnage joining the market again for a while, even if the war comes to some sort of end."
The wild card with Trump is that "if tensions with China heat up, their demand for imports could drop like a cliff," according to a market source. This would pose issues for LR1s for the Asia-Pacific market but could benefit the Atlantic basin if the US keeps exporting.
"They are expecting an increase in the US refined product exports," a shipbroker said. "Trump has the desire to promote domestic energy."
At the same time, another market participant added that an increase in refined products is expected, which will also "keep MRs busy out of the USG."
Finally, market participants added that if Trump tightens the tensions and sanctions on countries such as Iran or Venezuela, global supply and trade may change dramatically.
"We would see a lot more reliance on compliant tonnage, which is great news for LR2s and the longer-haul trades," a shipbroker said.
If the Suez Canal is back in play, there is a consensus in the market that voyages such as Med-Japan runs, as well as Middle East to Europe or to the Med routes, will become much shorter. This consequently means that although it is more efficient, it means shorter ton-miles and long-haul utilization, especially in the LRs. Thus, there will probably be pressure on freight rates.
At the same time, ships will be able to reposition between the Atlantic and Asia faster, which, according to a market source, "it's good for logistics, but bad if it floods both regions with tonnage."
A charterer said that "vessel availability would increase in the spot market, pressuring freight rates."