Freight race to the West

With the AG still paralyzed, freight action is WoS, Atlantic crude & product flows are driving firmer rates and enticing owners to position West.

With AG fixtures still not possible, Yanbu (Red Sea) being the main regional exception; the tradeable freight market continues to be West of Suez. The Atlantic basin is where charterers and traders can find firm itineraries and executable levels, and that’s increasingly where both crude and product supply is being sourced to meet global demand.

Crude flows are increasingly Atlantic led, with USGC, ECLATAM and WAF barrels loading for delivery into global destinations. WAF crude economics look somewhat surprisingly undervalued versus the USGC right now: WAF grades are pricing into NWE more competitively than USGC grades, a stark reversal versus last week, and WAF is particularly competitive into the Far East. This reversal looks to be driving implied VLCC demand out of WAF, and the tonnage list is reflecting this. WAF VLCC availability has tightened materially with 7 open ships in the 14-day window versus 15 at the start of last week. ECSAM should also see incremental enquiry as importers widen their sourcing options, with the key question being whether Asian buyers pay up for supply certainty (high FOBs plus freight) or attempt to bridge near-term needs through SPRs.

On DPP, reported loadings out of the USGC and WAF are moving into Europe, China and Thailand to name a few at ever higher freight rates. Tonnage remains workable in both regions, but the tighter segments are becoming clearer. In the USGC 14-day window there are 11 open Afras versus 10 average (with Afra enquiry and fixtures strong), 5 Suezmaxes versus 6 average, and 5 VLCCs versus 3 average. In WAF, Suezmaxes are the tightest segment at 5 open ships versus 8 average, while VLCCs sit at 7 open in line with the average.

The longer the Iran conflict takes to de-escalate, the more activity USGC and WAF should see as importers extend beyond contingency timelines and move to firm up crude supply. In general, DPP tonnage has tightened, but not as quickly as the market could justify if attention fully rotates to West of Suez crude supply.

Yanbu remains the clear outlier and ultimate fixture opportunity for owners with record $TCE earnings at hand. Reports suggest Saudi is working to maximize crude flow on the E/W pipeline into Yanbu, and at least one fixture is confirmed to load from Yanbu. There are six open Suezmaxes basis Yanbu in the prompt 14-day window. If you can lock a Yanbu cargo & fixture, of course take it. Otherwise, the near-term best action is likely still to ballast into the Atlantic.

CPP continues to reinforce the same overall message. The Atlantic is the region with cargoes and firm itineraries. Enquiry out of the USGC and NWE continues for far-flung and uncommon destinations such as SAF, EAF, Australia and the Far East as importers lock diversified product supply (mostly distillate) outside of the AG. There continues to be steady demand for WAF and Brazil voyages as well.

USGC MR counts have tightened marginally to 11 open ships in the prompt 7-day window versus an average of 13, while NWE MR counts remain in line with average levels at around 16 open ships. Rates in both regions continue to price higher, but the earnings incentive remains heavily skewed toward the USGC. Owners loading USGC should be increasingly willing to lock long hauls at close to ~$150k/day on many routes for certainty in earnings and employment in uncertain times. So, expect owners to keep trying to connect voyages in a way that positions them back in the USGC.

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