Trans-Atlantic crude export drive prompts tanker class intertrade, sinks rates

Increased competition between Suezmax and Aframax tankers on the US Gulf Coast-Transatlantic runs prompted rates to fall 48.3% and 29.3% from the crude export-driven freight spike seen in early April.

Charterers looking to cover trans-Atlantic crude stems were heard to have been looking at both Suezmax and Aframax options, all of which ultimately chose a Suezmax vessel and fixed at Worldscale 80.

"Suezmaxes are taking the cake on USGC inquiry," a shipbroker said.

Repsol placed the Maran Helen on subjects for a USGC-Spain run, loading May 10-12; Vitol placed the Selena on subjects for a USGC-TA run, loading May 5-7; and Suncor placed the Navion Gothenburg on subjects for a USGC-TA run, loading May 7-8.

Alongside the accomplished w80, all eyes were on a deal done, wherein Philips 66 placed the Cascade Spirit on subjects for a USGC-TA run, loading May 5-7, at w77.5. Market participants noted the downward trending freight, coupled with increased pressure from the Aframax market, which left active market indications deeming w75 as the current market level. Freight for the 145,000 mt USGC-UKC/Med route was assessed at w75, dropping w10 April 27, down 48.3% from highs seen April 7-11.

On the Aframax front, the benchmark 70,000 mt USGC-UK Continent route was assessed April 27 at w165, or $30.89/mt, down w70, or 29.8%, since it reached just over two-year highs on April 8-11 at w235, or $43.91/mt.

The Suezmax/Aframax freight spread widened 11.9% on the day April 27 to $17.22/mt. As the spread between the two shipclasses widens, the larger Suezmax tankers become economically favorable on a $/mt basis. The spread has hovered over the $15/mt level since March 21 and reached its highest level since January 2020 on April 1 at $22.98/mt.

The threat of shipclass intertrade has spiked in recent days, as European crude buyers have increasingly looked to replace Russian crude barrels with other sources, and USGC-origin barrels seeing a large percentage of the share.

"China [is] in shutdown and so expect more US and South American crude to go to Europe," a second shipbroker said.

The uptick in trans-Atlantic flows has subsequently increased Aframax freight, leading to a 74% increase in rates from the day Russia invaded Ukraine through the beginning of April. Suezmax freight saw a spike as large as 107% in the same period.

VLCCs employed in export spike

US Energy Information Administration data shows US crude exports have skyrocketed 32%-52% in the past two weeks from the January-March average of 2.82 million b/d, with 3.72 million b/d exported the week ending April 22 and 4.72 million b/d the week ending April 15.

The export spurt incentivized major oil companies to also employ VLCCs for the trans-Atlantic play looking in order to avoid the spike in both Aframax and Suezmax freight by shifting into the larger tonnage at the end of March and early April.

So far in the month of April, a total of nine VLCCs have been booked for USGC-UKC runs, up from the five seen in March. There were only two seen booked in both January and February 2022, up significantly from a total of five VLCCs making trans-Atlantic runs in 2021 and two in 2020.

In the short to medium term, the market expects freight to fall, with the 70,000 mt USGC-UKC Forward Freight Agreement, or FFA, market holding a backwardated market structure. The May contract for the route was assessed at w169 April 27, down w1 on the day. The second- and third-month contracts for June and July were assessed at w164 and w153, respectively.