Tanker Market: All Eyes on Hormuz Strait
Hellenic Shipping News
he resumption of crude oil flows and ships from the Strait of Hormuz is the catalyst of any future move in the tanker market, as oil supply is currently being restricted. Meanwhile, just as things started looking rosier by Friday afternoon, Saturday proved to be a different case, with IRGC closing the Strait once again, as long as the US Naval blockade continues. As a result, dozens of ships were forced to turn back, while there were reports of firings against at least two vessels.
In its latest weekly report, shipbroker Gibson said that “given the importance of Middle East Gulf trade flows, everything else pales in comparison. In perhaps the most significant development since hostilities began, Iran’s foreign minister has just announced that the Strait of Hormuz is open to all commercial vessels transiting via a coordinated route for the remaining duration of ceasefire. Whether this translates into a meaningful resumption of traffic remains to be seen, as US blockade will remain in force for now, whilst some reports suggest that IRGC coordination will still be required”.
According to Gibson, “crude and clean freight out of the Middle East Gulf continues to command skyrocketing premiums; but these rates are theoretical given the absence of physical trade for now. In the Atlantic basin, freight levels also witnessed impressive spikes, albeit nothing close to levels in the Middle East. For crude, the peaks seen in March were underpinned by US SPR releases, a surge in Asian demand for Atlantic basin cargoes to replace lost Middle Eastern barrels and favourable arbitrage economics. Crude to Asia out of the US Gulf jumped by over 30% in March month-on-month and further strong gains are seen so far in April. Latin America and West Africa tell much the same story, with both regions recording in March robust monthly gains in exports to Asia”.
“Still, what goes up must come down. An increasing wave of eastbound ballasters is beginning to make its presence felt, with freight levels correcting sharply over the past two weeks, although for now earnings remain at very respectable levels. There is, however, significant further downside. VLCCs are in the most vulnerable position, with over 60% of their trade originating out of the Middle East. An increase in VLCC ballasters from the East into the Atlantic Basin is unprecedented: in early April, this reached the highest level since our records began. As a result, we are now seeing the number of ballasting VLCCs in the West at a over 1-year high”, Gibson said.
The shipbroker added that “the downward correction in crude markets has not been mirrored in the clean segment. MR rates in the Atlantic Basin have moved from strength to strength over the past six weeks, also driven by a surge in long haul demand. Long haul trade from the USG and Europe to Asia Pacific more than doubled in March, while shipments to East and South Africa more than quadrupled, albeit from fairly limited levels. The bulk of this volume has been carried on MRs, although LR shipments have also risen notably. As a result, although vessel supply to the West has also increased due to ballasters, for MRs this has been more than offset by the number of ships fixed long haul out of the region”.
“MRs are, in any case, relatively insulated from the Middle East disruption – just 9% of all clean MR trade originated out of the Gulf last year. LR2s and LR1s are a different story, with 44% and 33% of their respective volumes tied to Gulf flows. As more LRs ballast West and compete for MR cargoes, downward pressure will build. The other question is how long Europe can sustain current export levels. In the US, refinery utilisation rates are already close to their seasonal peak, and rising domestic demand over the summer will also divert some barrels away from exports”, Gibson noted.
The shipbroker concluded that “the longer-term outlook for the tanker market depends heavily on how long the conflict lasts. There have been some encouraging signs in recent days but the twists and turns since the start of the war illustrate that the situation in the Middle East can change at any moment. The hopes are there will be a swift resolution to the conflict, but if Hormuz remains blocked, the tanker market in three to four months’ time will look very different to what we see today”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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