VLCC's Freight Rates Stable in March, Gains for Suezmax-Aframax
The tanker market for crude oil showed a mixed pattern in March. Spot freight rates for VLCCs remained flat, while Suezmax and Aframax rates increased by 4% and 17% respectively backed by open arbitrage of crude oil between North West Europe and the US, regulation changes in the Mediterranean, and increasedactivity from Indonesia to East. In the VLCC sector, balanced tonnage supply and demand in different routes in March led to flat average VLCC"s spot freight rates. The Middle East to East route decreased by a modest WS1 point compared to the previous month and Middle East to West as well as West Africa to East increased by a modest WS1 point. The small decline in Middle East to East is backed by the startup of refinery maintenance in Asia, especially India and China.
The small gain in Middle East to West spot freight rates was supported by the reduced tonnage availability as well as increased crude oil imports in the West. Moreover, bullish sentiment affected west-bound shipments where US refineries, coming back onstream and gearing up for the approaching driving season, were competing to secure tonnage to transfer their volumes. However, the bullish sentiment from Middle East to West is tempered by the increasing WTI/Brent differentials posting a more-attractive note making Brent-priced crude more competitive in the US and resulting in more US imports from Northwest Europe (NWE) and West Africa and less from the long-haul Middle East. West Africa to East spot freight rates increased by WS1 over the previous month to stand at WS81, driven by increasing Chinese and South Korean crude oil imports from West Africa.
The Suezmax sector increased by WS4 points in March compared to the previous month. Spot freight rates for voyages from West Africa to the US Gulf Coast (USGC) and North West Europe to USGC and USEC increased by WS4 points compared to the previous month. The increase of the latter was supported by open transatlantic arbitrage as Brent-related crude was more attractive in the US, encouraging higher US imports from Europe. In addition, the increase of WS4 points in West Africa to USGC is also backed by increased tonnage demand as refineries, coming back onstream and gearing up for the approaching driving season, were competing to secure tonnage to transfer their volumes. Additionally, the WTI/Dubai differential drove more West African cargoes to the US.
In March, the Aframax sector displayed a healthy gain of WS19 points. Cross- Mediterranean freight rates increased by WS42 points compared to last month and
Mediterranean to NWE increased by WS35 points. Support for spot freight rates from the enforcement of regulations concerning sulfur content of bunker fuel led to a drastic decrease of ship supply in the Mediterranean basin and spike of spot freight rates. As vessels moved away from the Mediterranean, this put pressure on other routes.
Accordingly, the Caribbean to US East Coast route observed a decline of WS15 points or 10% compared to last month to stand at WS129 points. In contrast, Indonesia to East routes posted a gain of WS14 points backed by heavy Indonesia area enquiries which bolstered owner"s sentiments.