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Against the backdrop of war in Ukraine and Gaza, ship operators have so far this year benefited from rising freight rates, though disruption and uncertainty also bring an enhanced element of volatility to the markets. Despite punitive responses from the US and allied navies, Houthi groups in Yemen say they will continue to attack international shipping to demonstrate support for Palestinians in Gaza. Increasing numbers of ship operators have decided to avoid the area, with Suez Canal transits reported to be down to “about 40% below those seen during the first half of December last year” according to Anastasios Margaronis, president of Diana Shipping, on a February 23 analyst call. In the last few days, oil has spilled from the stricken bulker Rubymar after it was hit twice. As environmental risks rise along with financial risks and the risk to life, operators willing to risk the Bab el Mendeb route will think twice if the risk of oil spills adds to insurance costs. Oil prices continue to edge up from their December 13 low of $69 for WTI. On February, 25 WTI was quoted at $76.49, $5.13 cheaper than Brent but more importantly $6.41 cheaper than the OPEC basket price. At that difference, shipping oil from the US to East Asia is comparatively free of charge. US oil production is reaching record heights. Crude oil inventories and exports have risen, with exports reaching 4.81m barrels per day in the first three weeks of February. OPEC can no longer cut output to support prices because this tactic clearly hands market share to non-OPEC competitors, particularly the US. OPEC’s production cuts are likely however to extend beyond Q1 this year, making the shift in crude oil trades indefinite. Tighter sanctions on Russia plus also some Chinese and Indian buyers of Russian oil and more ship operators carrying Russian oil have not pushed up prices but may reduce Russia’s ability to export. That would further support the US, Latin American and other non-OPEC+ exporters. Consequently, crude oil operators have enjoyed the first two months of 2024. VLCC earnings averaged $41,500 in January and $49,000 in February to date. A year earlier they were $15,100 and $25,500. The last time the year started so well was 2015 and 2016 as China was building its Strategic Petroleum Reserve and oil prices were falling to lows of around $40 per barrel. On the Middle East to China route, rates peaked at over $74,700 a day on February 16 before subsiding to $44,600 on February 22, a fall brokers ascribed to profit taking in oil market and sparser fixing of ballasters heading back to load ports. On the US Gulf to East Asia route, rates peaked at over $53,400 on February 19 before falling back to around $47,500 a few days later. Suezmax earnings averaged a healthy $57,600 in January and $46,900 so far in February, though these numbers are below the $78,600 and $68,600 from a year earlier. Cross-Med suezmax daily hire stood above $50,000 a day from January 17 to February 13 before falling to level off around $46,500 later in the month. Aframaxes were again the stand out performers, earning an average of $63,000 a day in January and $48,700 a day in February to date. A year ago those averages were $63,800 for January and $52,900 for February. While some brokers were reporting Caribs activity at over $104,000 a day in mid-January, excitement waned in February taking rates back to a more usual $47,500 a day. On the US Gulf to ARA voyage, rates had peaked at over $85,000 a day in early January but were hovering around $50,200 a day by late February. The Baltic Dirty Tanker Index has begun the year tracking 2023. The remainder of Q1 this year will be a play-off between oil demand growth and geopolitical disruption. There remains plenty of freight market upside to embolden owners and operators. In the oil products tanker freight market, February has been stronger than January and 2024 to date has been the strongest start to a year this century. LR2s have averaged $44,500 a day so far this year, compared to $22,400 a day a year ago which was the previous best start to the year. LR1s average $53,500 a day so far in 2024 compared to $36,400 a year ago. MR tankers average $37,600 for the first 53 days of 2024 compared to $34,900 a year earlier. Rates on the benchmark Baltic Exchange route TC1 from the Mid East to East Asia soared to over $100,100 a day as we went to press a month ago. February has been a post-party hangover so far as rates have steadily slid to a still remarkable $44,850 as of the 22nd. On the mirror route from the Mid East to North Europe, rates peaked at an even prouder $125,600 at the end of January and have also slid but to a more than acceptable $55,000 a day. LR1s on the Mid East to East Asia route enjoyed a rate spike to $76,700 in late January and though rates halved by February 22 to $33,700 they remain well above previous levels for the time of the year barring last year’s strong performance. MR earnings in the Atlantic, basis Baltic Exchange data, have risen in fits and starts from their early January low of around $20,000 a day to over $42,000 a day in late January before falling to a low of around $28,000 in the first week of February. They have since recovered to around $36,000 a day as competitive WTI and US refined products prices force open the transatlantic gasoil arb window. Pacific MR tanker rates peaked at nearly $60,000 a day as January ended, then bottomed out at a still heady $39,700 a day on February 20, before rising to over $42,500 a day since with South Korean exports leading the charge. The Baltic Clean Tanker Index shows that 2024 has begun at higher levels than any of the eight previous years while the index in February to date is the highest ever for this time of year.

Tankers: What goes up can still go up

Tanker earnings are remarkably solid. Where’s the ceiling?

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