Eastbound dirty tanker rates via the Red Sea climb as Suezmax supply dwindles

Following the latest wave of attacks on commercial vessels in the Red Sea, Suezmax operators with vessels located west of Suez have been increasingly hesitant to cross the canal, which is now reported to command a premium over the longer Cape of Good Hope passage.

"Despite the longer journey via the Cape of Good Hope, the pool of available vessels willing to do the trip is much larger than the number of ships willing to dare a run via the Red Sea," explained a dirty tanker market source, pointing to supply fundamentals to elucidate the higher price for eastwards Suezmax transits via the Canal. "Surprisingly, it's not directly related to the age of the vessels, but it's down to the owners; some do it and some don't, and those who do are very few."

Indeed, Platts, part of S&P Global Commodity Insights, assessed dirty tanker freight for the 135,000 mt Black Sea-to-Far East route at $6.8 million via the Suez on June 19 on a lumpsum basis, with the Cape of Good Hope route trading at a discount of $200,000.

"This $200,000 barely covers the inherent costs of the Canal passage such as fees and other relevant expenses," said a second dirty tanker source. "In my view, the premium for those Suez transits over a Cape passage could reach as high as half a million dollars due to the risk involved."

Similarly, Platts assessed dirty tanker freight for the 130,000 mt Med-to-Far East route at $5.8 million via the Suez on June 19 on a lumpsum basis, with the Cape of Good Hope also indicated at a $200,000 discount.

"Well, it does pay quite well, and as a shipowner securing a lumpsum payment, you also get your vessel back much, much sooner," added the first dirty tanker market source. "Insurance is indeed high but it's not reaching the rumored levels of 1% of the vessel's value. For example, a vessel valued at $100 million had to pay somewhere around $250,000 for insurance to pass via the Red Sea."

"Another factor is the origin of the cargo," the first dirty tanker market source added. "Some ships carrying Russian or Libyan oil, for example, might be more willing to risk a passage via the Red Sea."

Shorthaul Black Sea Suezmax rates stall

Further North, healthy vessel supply and uneventful trading in the dirty tanker Suezmax markets for short runs out of the Black Sea have left participants wondering what comes next.

"July seems set to be a quieter month, and we have been seeing vessel lists grow somewhat," the first dirty tanker market source explained. "Black Sea Suezmax rates for trips to Med have stagnated in the w120-ish levels."

Indeed, Platts assessed the dirty tanker Suezmax freight rate for the 135,000 mt Black Sea-to-Med route at w120 on June 19, flat for the fourth consecutive session.

"The market is seeking direction, following a couple of quieter sessions," added a third tanker market source. "Rates seem stuck in the w120s for Suezmax vessels trading from the Black Sea to nearby regions."

Looking ahead, vessel inquiries from cargo owners, paired with the risk appetite of vessel operators, appear set to drive sentiment throughout the second half of the year, with any sign of normalization in the Red and Black Seas applying bearish pressure on both ton-mile demand and rate expectations.