Positive Signs for the MR Segment
Nov. 14, 2022
We continue to see strong prospects for the MR market entering 2023. A recovery in global oil demand following the pandemic paired with new refining capacity coming online have created positive sentiment for the MR tanker sector. We have witnessed an increase in ton mile demand as a result of the Russian-Ukraine conflict, a trend we expect to persist in 2023. A low expected delivery schedule in 2023 and 2024 will likely result in these vessels remaining in high demand. These versatile tankers continue to operate in an increasing number of regions in the world, capturing about 45% of the total CPP ton-mile demand.
Arguably the most impactful story for the current state of the tanker markets is the war in Ukraine and subsequent sanctions on Russia. This has spurred a reshuffling of trade flows and, along with pent up pandemic demand, brought an overall increase in ton-miles. High gas prices have also incentivized gas-to-oil switching for refining and power generation, adding to the energy crunch in areas such as Europe and increasing demand for CPP imports. With sanctions on Russian oil products set to come into effect in February 2023, we expect to see a continued rerouting of cargo flows and possibly longer haul trades for MR tankers including East to West gasoil and jet fuel flows as well as the potential for Russian product imports into South America – depending on the price cap set after February as well as political developments.
Staying in the Americas, with the reduction of imports from Europe due to Russian sanctions, the LATAM region has been replacing those barrels with cargoes from North America, but also from the Far East. The activity from the US Gulf to the South has recently brought MR freight rates to historical highs. Should the region proceed in importing more Russian barrels at the beginning of 2023, the balance of cargos from the US Gulf is likely going to be exported to the Continent, again likely keeping MR tanker utilization in the US Gulf elevated.
Finally, in the East of Suez, additional refining capacity in the Middle East as well as the increased size of the last batch of export quotas from China have kept MR tankers busy on both fronts. With European demand strong, we have seen an increased number of jet fuel exports from the Middle East and the Far East on MR tonnage. Specifically for the latter region, our projections reveal an over 50% growth in ton-mile demand in 2023. A risk to the downside would be for China to rescind its zero-COVID policies and the recent announcement of shorter quarantine times for close contacts of patients as well as the removal of penalties for airlines bringing in infected passengers could be a step towards that direction.
Figure 1 – Total MR2 Ton-Mile Demand with 2022 Estimate
Source: McQuilling Services
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