The 'stronger for longer' banter on the global clean tanker markets sums up Scorpio Tanker's market outlook for the balance of the second quarter and the second half of the year, as the company attributes the substantial drop in clean tanker freight rates during the month of April to global refinery maintenance.
"The substantial turnarounds in all three regions has been playing a big role. I think in April you have global refining maintenance topping at 9.4 million barrels," Scorpio Tanker commercial director Lars Dencker Nielsen said during the company's Q1 earnings call May 2. "By June-July, 6 million barrels of that will come back onto the market." Robust product demand, low inventories ranging 7% and 12% below the five-year average for diesel and gasoline, respectively, an historically low orderbook, an aging fleet coupled with tight shipyards makes us "extremely bullish on the outlook", according to James Doyle, Scorpio's head of corporate development and investor relations.
Shifting refinery landscape grows ton miles
The connectivity in the regional markets is seen to play a defining fundamental role that is underpinned by the tighter tonnage supply as a large share of imports are coming from further afield with European sanctions on Russian exports continuing to influence supply chains, Dencker Nielsen explained. In combination with changes in the refinery landscape where capacity has been closed down or converted to import terminals or biofuel plants in the mature demand markets and expanded in the Middle East and North Asia markets, the company expects seaborne exports and ton-mile demand to outpace supply over the next two years.
Scorpio Tanker representatives expect Kuwait alone to ship 640,000 b/d of refined products by the end of the year, when all three trains of the Al Zour refinery were said to be operational, with middle distillates and gasoline to be shipped to the long-haul markets in the West and East of Suez regions, respectively. "We can see already that volumes are coming out of Kuwait and Iran on LR2s and MRs and we will see that increase during the second half of the year."
Record level refined products exports
Scorpio Tankers expects refined products demand to increase 2.4 million b/d between Q1 and Q4 to 78.9 million b/d from 76.5 million b/d, while seaborne clean refined products exports so far have remained at near record levels, averaging 18.6 million b/d during Q1, down 1.1 million b/d from the historical high of 19.7 million b/d last December compared 69.8 million b/d and 74 million b/d during the pandemic years of 2020 and 2021, the Q1 earnings presentation showed. Seaborne clean refined product exports for April eased 300,000 b/d to 18.8 million b/d from 19.1 million b/d in March. The earnings presentation estimates refined products ton-mile demand to increase 11.5% to 3,624 billion ton miles in 2023 and a further 7% to 3,881 billion ton miles in 2024.
S&P Global Platts freight market analysts caution that oil demand in the US and Europe may well experience headwinds from economic sluggishness, expecting oil demand to decline 250,000 b/d in 2023, according to the April 6 freight markets quarterly snapshot. Yet for the full year of 2023 oil demand growth is estimated at 2.2 million b/d, with elevated refined product exports from India to Europe expected to support Long Range tanker rates, while refinery maintenance in the US should increase the West Coast's intake of barrels from North Asia and Singapore, in turn supporting Medium Range tanker rates in the East.
April spot freight spirals lower
In the Americas clean tanker markets spot freight rates went into a downward spiral during April losing 42% on the MR US Gulf Coast-Brazil run, 36% on the MR USGC-Chile route and 45% on the MR USGC-Caribbean trip to land at $34.66/mt, $47.37/mt and $13.82/mt at the end of the month, respectively, Platts data showed. Yet Scorpio Tanker's global time charter equivalent revenue levels continued robust as Q2 spot and pool TCE rates gained 10% in the MR sector from Q1, registering $37,000/d for the 35% of days so far booked in Q2. TCEs for LR2 tankers improved 22% from Q1 to $53,000/d for the 39% of days booked in Q2.
Platts expects market support in the MR sector to stem from increased trade flows from Singapore and North Asia to the Americas west coast markets amid refinery turnarounds in the US.
Scorpio Tankers operates 113 clean product tankers, including 14 Handymaxes, 60 MRs and 39 LR2 tankers, with an average age of 7.3 years. 87 of the tankers have been outfitted with exhaust gas cleaning systems, with another 12 tankers planned to be fitted with a scrubber.
