Up and away in May for tankers

Saudi Aramco published its Q1 2024 results which showed net income down to $27.3bn from $31.9bn a year earlier. Aramco is investing mostly in gas, renewables and downstream as Saudi Arabia tries to reorientate its national budget away from oil revenues. Despite Saudi Arabia’s efforts to reduce OPEC output to support oil prices, the rise in non-OPEC output, particularly in the Americas, is holding prices down even as geopolitical tension rises. Aramco can produce about 12m barrels per day but its long-term average production rate is 8.5m barrels per day. Aramco’s average realised oil price in Q1 was $83, only $2 up on a year earlier despite OPEC+ cutting over 2m barrels per day of production in that time. According to Simon Watkins, an oil analyst and author, Saudi Arabia has a fiscal breakeven price closer to $96. Adding barrels of output would be good for tanker demand but disastrous for Saudi Arabia’s modernisation plans. The OPEC basket price remains synthetic (in other words fixed by producers as much as by the market) and this plays into the hands of non-OPEC competitors particularly in the US. WTI was around $80 per barrel on May 18, up from lows of closer to $78. Meanwhile, Russian crude and products exports are being dented by the Ukrainian drone offensive on oil installations. Oil traders are not exactly scrambling for barrels but it is notable, for instance, that Venezuelan and Iranian sour crudes are in strong demand while sanctions are lifted. In the oil freight markets, the outturn is good for crude oil tankers and even better for products tankers. The BDTI averages 1,234 points so far this year compared to 1,150 for calendar 2023, and the second half of the year is usually seasonally stronger than the first. The BCTI averaged 802 points in 2023 and 1,033 so far this year, with a similarly stronger second half to anticipate. During May, average daily hire for VLCCs basis the Baltic Exchange rose to an average of $48,000 a day with the trend exceeding $52,000 by May 18. That makes this the best May since 2020 as traders stocked up on VLCCs to store oil during the pandemic. Under normal circumstances this is the best May since 2015 when rates averaged $51,000 a day while China was filling its newly completed strategic petroleum reserve. According to the Baltic Exchange, VLCC day rates from the Middle East to China were $52,477 on May 18, while rates from the US Gulf to China were $52,268 on the same day – but the voyage from the US Gulf takes up to an extra 10 days, soaking up tonnage and providing a larger lumpsum to owners. The optimism is palpable as owners pay up to acquire secondhand VLCCs, with the latest deal said to be Bahri buying four Korea Line VLCCs of four to five years old for something above $110m each, well above their probable newbuilding prices. Average suezmax earnings in May to the 18th were $40,346 after $41,926 in April. Rates on West Africa to Europe have varied in a range $3,000 either side of $40,000 per day while Mediterranean suezmax rates have been lower, in a narrower range of $37,000 to $38,000 per day. Average aframax daily hire has fared better, being $42,536 for the first 18 days of May compared to $42,165 for April. Rates from Singapore to Australia improved by 16% from $34,689 at the end of April to $40,184 on May 18. On the cross-Med route, following Libya’s recent agreement with the US, rates picked up by a quarter from $51,216 to $63,494 over the same dates. From Kuwait to Singapore, rates were up 13% from $40,701 to $16,150. However, in the North Sea rates were barely changed during May at around $42,600 for UK discharge and $44,900 for Germany discharge. And on the US Gulf-Rotterdam voyage, rates slipped 10% in May to $37,310 as refiners switched to heavier crudes from other suppliers leaving India and China as the key buyers of US output. In the oil products freight market, the BCTI was up 12% over the first 18 days of May to 1,036 points, though average daily hire across LR2 routes was up 25% to 43,620 a day. For LR1 routes the average daily hire was up 24% to $52,863 per day while for MRs it was up 18% at $36,526 per day. The benchmark TC1 route for LR2 voyages from the Middle East to Japan regained some of the 41% lost in the 30 days to April 19, when it sat at $52,100, recovering to $66,109 by May 18. On the mirror route from the Middle East to the UK/Continent, April’s fall was smaller at 25% to a hardly disappointing $80,175 per day but this was followed by a 23% improvement in May to date to a dazzling $95,309 per day as more attacks on tankers in the Middle East sent more ships the long way around Africa. LR1 earnings followed suit with day rates from the Middle East to East Asia up 33% so far in May to $50,481 while rates for voyages from the Mid East to Rotterdam were up 39% to a storming $81,035 per day. In the Atlantic MR market, April showers were followed by May sunshine with the Atlantic basket rising 32% over 18 days to $29,986 as US buyers stock up in advance of driving season. Day rates from the US Gulf to the Caribbean have leapt 57% from a low $9,691 at the end of April to a more comforting $15,740 on May 18. As ARA refineries returned to full operations following maintenance, exports to West Africa increased driving up day rates for MRs by 31% to $26,298 per day. In the Pacific average MR daily hire rose 10% to a tidy $43,066 per day. In Asia, rates from Singapore to Australia added 9% to reach $39,032 and from South Korea to Australia, rates were up 3% at $39,965, as Aussie drivers and households prepared for winter. The products tanker market lost its mojo in April but is in more confident mood in May. From here until September is usually a flat period for clean tanker earnings; this year there is more activity as traders take account of disruptive conflicts in key geographies.

Up and away in May for tankers

Splash Extra assesses why the sector has had such a great month, and what this could mean for the rest of the year.

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