Rate Rally in the Gulf
June 27, 2017
Freight rates for clean tankers in the US Gulf-Caribbean are on the rise, underpinned by a conglomerate of supportive fundamentals. TC3 was assessed at WS 195 today, a 26% rise from June’s open, while freight on the US Gulf > Carib route has risen by US $150,000 over the same period. US Gulf refiners continue to run at high utilization with crude intake reaching 17.2 million b/d in the last week, boosting gasoline inventories to 242 million barrels. Clean cargoes out of this region have been plentiful with total US product exports averaging at 5.1 million b/d per month, providing support for tanker demand; however, there is some risk for refining margins building due to a 400,000 b/d product inventory surplus forecast for the July-September period.
Weakness in the Latin American refining sector has increased import requirements and pulled much of these volumes south towards the Caribbean, Brazil and Chile. Refining activity in this region is projected to trend upwards in the coming months, which may pressure imports; however, in the near-term, we see support stemming from the recent shutdown of the 330,000 b/d Salina Cruz refinery in Mexico after violent weather caused a fire on June 14th. We have already observed an increase in gasoline cargoes on the US Gulf > EC Mexico route as Pemex scrambles to meet domestic product demand. Ample cargo supply in the US Gulf and strong product demand to the south have supported increased fixing activity and in turn tightened the position list for July dates, which will likely provide further support for tanker freight rates in both US Gulf and Caribbean.
We also see some supported stemming from a rally in European jet fuel regrades, which rose towards US $2.0/bbl higher year-on-year, indicating a potential opening of arbitrage opportunities for trans-Atlantic flows out of the US Gulf. The US Gulf-Caribbean market stands supported by stronger fundamentals in the short-term, which will likely continue the current freight rate momentum, while also considering that inclement weather during the Atlantic hurricane season may provide some temporary upside volatility.
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