Several spot tankers’ freight deals to deliver around half a million mt of gasoil and jet fuel into Europe have been cancelled in the last few days as refineries in the Middle East reduce output and countries in Europe struggle to handle surplus oil products due to varying levels of coronavirus-related lockdowns, industry sources across Asia said Tuesday.
At least half a dozen LR1s and LR2s, taken last week to move jet fuel and gasoil into Europe, have been released, putting a downward pressure on freight rates, the sources said. The development may help ease the severe congestion at various European ports, where more than 50 clean tankers are either employed as floating storage or stuck in long queues as they are unable to discharge cargoes as per schedule.
“While most of them [cancelled fixtures] involve ATC’s gasoil fixtures, a couple of them relate to jet fuel [and other companies] as well,” a broker with direct knowledge of the matter said.
Aramco Trading Company, Saudi Aramco’s sister company, could not be immediately reached for comment, but several brokers in Copenhagen, London, Seoul, Tokyo and Singapore confirmed that not only have these ships been released, but there has been no fresh demand to replace them.
“There has been a big change in sentiment as ATC has released ships and now no one knows the cargo volume [size] to be expected,” a broker in Copenhagen said.
The released ships are not being replaced because the cargo volumes were not firm, a broker in London added.
Currently, it can cost $6.5 million-$7 million to move a cargo on an LR2, and almost $5 million on an LR1 on the Persian Gulf-UKC routes, which are off last month’s record high rates of $9 million and over $6 million, respectively, according to brokers’ estimates.
Refineries are slashing middle distillate output, which will help to clear existing inventories, a large part of which is currently stuck on ships, market sources said.
In the last two months, with almost no automobile on the roads and hardly any passenger planes in the skies, there has been very limited consumption of gasoil, gasoline and jet fuel by end-users, but charterers had continued to move cargoes to ports where they were unable to discharge.
However, as countries cut crude output and refineries reduce processing rates, trading companies are hopeful that some of the existing backlog will finally be cleared. The easing and lifting of lockdowns in many countries as they slowly restart their economic engines will help to further draw down stocks.
While it is difficult to pinpoint the exact volume of oil products floating at sea, it is estimated to be equivalent to 200 Medium Range tankers, across all segments combined, according to Poten & Partners, an international shipping brokerage and consultancy, who had said this in a webinar late last week.
However, a substantial part of this storage is actually on Long Range, or LR tankers, it added.
MRs, LR1 and LR2s typically carry up to 45,000 mt, 65,000 mt and 90,000 mt of cargoes, respectively.
OUTPUT CUTS; LESS PRODUCT EXPORTS
OPEC’s core Arab Gulf members — Saudi Arabia, the UAE and Kuwait — on Monday announced additional voluntary crude oil production cuts in June, to levels not seen for a decade or more, in a bid to bolster the market against the coronavirus pandemic.
Refineries that were planning to line up fresh volumes of oil products to export from the Middle East and India are either rescheduling their shipping lineup or putting off their requirements to pick up tonnage, industry sources said.
South Korea and China, both major exporters of oil products, have slashed output and scheduled refinery maintenance for this quarter and the next.
“The North Asian [freight] market is weak and ships are ballasting to Singapore and the Persian Gulf,” an MR broker said, adding that there will be further downside in the next few days.
On the other hand, an oil product exporting country such as India, is resuming domestic public transport services in phases, which to a certain extent will reduce the pressure to export.
According to market sources, the sharp increase in India’s export of gasoil and jet fuel in April, had contributed substantially to the jump in freight rates, and a downward correction is now in the cards.