Going Long on LR Tonnage
Sept. 28, 2017
Long-range product carriers operating in the Arabian Gulf region have enjoyed a recent run-up in rates as assessments for TC1 and TC5 have traded up 38% and 25%, respectively, since the start of September. In general, demand within this market has come under some pressure this year amid increased refining capacity in the East serving local demand as well as an extended maintenance schedule at refineries in the Middle East this year. Since late summer, maintenance levels have tapered off, redirecting cargo demand back to the market with a considerable jump in activity over September. Through September 28, we have observed 41 LR loadings (30 LR2 + 11 LR1), the second highest month of the year next to March with 48 loadings. Higher demand coupled with a relatively balanced tonnage list has allowed rates on TC1 and TC5 to trade up to WS 137.5 and WS 152.5, respectively, as per today’s assessment.
A tighter supply of naphtha in Asia amid strong petrochemical demand is likely to support more flows into the region; however, we observe slight risk amid an expected rise of Middle East refinery maintenance over October. From the supply side of the equation, efforts to rebuild product inventories in Europe, through gasoil shipments from the East and the Arabian Gulf, have absorbed tonnage. In our view, the beginning of October may see a slight correction of current rates levels, but over the course of the 30-day period rates will generally trade above September averages with additional upside potential.
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The Mid-Year Tanker Market Outlook Update provides an outlook for spot market freight rates and TCE revenues for 19 major tanker trades, including two triangulated trades, across eight vessel classes for the second half of 2017 and the remaining four years of the forecast period to 2021. We revisit our forecasting process at the mid-year point, distilling data from the first half of the year to better understand recent market developments and expectations for the future. In our view, this process allows us to accurately adjust our forecasts and provide additional value to our clients.
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