Feature: Americas midsize crude tanker intertrade to drive freight as TMX expected online at end-Q2

Freight for ships carrying crude in the Americas is expected to remain wrapped up in intertrade dynamics between the midsize tankers, facing uncertainty as US exports remain strong and as the market eyes developing trade flows out of the region heading into the second quarter of 2024.

Rates for midsize tankers are expected to remain dependent on their counterparts, with Suezmaxes frequently being taken on European export runs over the smaller Aframaxes.

"I think [midsize tanker intertrade] still will [be a factor] going forward," a shipbroker said. "But I believe less specific ballasters will be in place."

The cost of taking a Suezmax on a dollar per mt basis averaged just above 46% of the cost to take an Aframax on the same run in the first quarter 2024, after averaging 50% in the fourth quarter 2023, quickly becoming the more economical ship class for many charterers. This has left Aframax rates capped by pricing on the larger counterpart.

Freight for the 145,000 mt US Gulf Coast-UK Continent run reached its peak Jan. 9 at $27.37/mt, however, it has since come back down to $16.57/mt on April 3. Taking a similar path, the 70,000 mt trans-Atlantic run also hit its highest freight level of the year on Jan. 9 at $61.58/mt, and then dropping back down to $32.90/mt on April 3.

An increase in ton-mile demand remains a factor for midsize tankers as Europe and countries in the East look to different sources for crude oil, in order to supplement sanctioned Russian Urals barrels. With this, voyages from the Atlantic Basin to Europe and Asia have become more favorable runs as trade patterns continue to shift.

In fact, US exports reached an 11-month high in February at 4.661 million b/d, with Europe steadily holding 47% of the export share so far in 2023, while Asia remains at 39%.

Despite elevated demand, freight rates took a tumble in March as refineries slowly returned out of spring maintenance season, with refinery throughput levels increasing by 1 million b/d in March to 15.8 million b/d, according to analysts at S&P Global Commodity Insights. This dynamic could continue to weigh on USGC export levels, however, they are projected to remain above the 4 million b/d mark for the remainder of the year.

For the trans-Atlantic voyage, charterer preference sided more with the midsize tankers over the VLCCs, as the Aframax and Suezmax vessels were the more economical options. According to S&P Global Commodities at Sea data, in the fourth quarter of 2023, the number of VLCCs booked carrying crude oil from the USGC to Europe only accounted for 17.5% of the total market share, with the midsize tankers holding 82.5%. That percent share for the VLCCs dropped slightly in the first quarter of 2024 to 16.6% with the midsize tankers capturing an 83.4% share.

Trans-Mountain pipeline could shift dynamics

All eyes are focused on potential ramifications of Canada's Trans Mountain Expansion pipeline, which has begun linefill and is expected to come fully online by the end of Q2. The pipeline is projected to increase crude exports out of West Coast Canada by 590,000 b/d, with the capability to load as many as 34 Aframaxes in a month heading to either US West Coast or Asia destinations out of the Westridge Marine Terminal.

Market participants expect Aframax volumes exported out of the region to realistically lean towards mid-20s, however, supply of the Aframaxes to the region could still potentially be drawn in from the neighboring markets like the USWC and USGC, leaving tonnage availability in the regions limited. Additional considerations around the ease in positioning tonnage currently in the USGC to the West Coast amid delays in the Panama Canal also have fueled ideas of elevated freight rates, according to the BRS Weekly Tanker Newsletter published April 2.

This uncertainty around spot pricing and volatility has a number of shippers committed to TMX crude volumes considering time-charter options instead, as they account for current prices and for transport costs when looking at the number of ways in which crude could travel from the Burnaby terminal to the USWC or Asia. Some market participants, on the other hand, expect that the spot trade could ramp up as trade movements become more predictable, according to the Poten Weekly Opinion published March 22.