TC14 USGC MR Market Report

USGC MR vessel supply in the seven-day ahead window is neutral at 16 ships in line with the 90-day moving average. The list that, at times, looked daunting last week has continued to be kept in check each day this week. Over two dozen vessels have reportedly gone on subs this week so far. What was a charterer-friendly overhang has become an objectively tight prompt list in under 48 hours, and owners have responded accordingly, moving from WS 305 levels to WS 330 offers.

Incremental arb demand is bearish vessel demand, but arb margins are not what is driving the current market strength. The Freight Supply and Demand (FSD) model forecasts rates to soften from WS 292 to WS 276 into the 3 to 12 August load window, but the model is on the basis of tonnage supply and arb margins.

The rally in TC14 rates and general USGC MR strength is driven by product supply scarcity fear and the resulting longer haul voyages and higher tonne-mile. The paper softness in the August TC14 contract yesterday from WS 280 to WS 270 reflects the deteriorating WTI to NWE arb economics rather than any near-term weakness in physical demand, which has been anything but weak.

The arb picture remains challenging for the transatlantic diesel trade. Houston to Barcelona diesel is shut by -$28.75/mt in August, widening sharply in September. Houston to Rotterdam diesel is shut by -$5/mt in August and by -$15/mt in September. The diesel arb into Rotterdam was briefly open to start this week for prompt dates before higher TC14 rates closed it again. Houston to Rotterdam naphtha is deeply negative at -$54.25/mt in August.

The constructive signals are confined to Latin America and the gasoline complex. Houston to Santos diesel is open in August and Houston to Buenos Aires diesel sits at +$6.75 cpg in August, widening through November. Houston to San Jose gasoline is firmly open at +$11.00 cpg in August.

The fixing window is, as of yesterday, holding around 4 August. Panama Canal transit costs are adding a further structural consideration, with auction slot prices reportedly approaching $1.5m, a level that is forcing a meaningful recalculation of voyage economics for any USGC to Pacific Coast routing. This rising cost uncertainty should redirect some enquiry away from canal transit routes and create more competition for Atlantic discharge voyages.

Fixture activity over the past three days has been busy. A few fixtures describe the general market this week: Vendome Street went on subjects USGC to UKCM at WS 305 for a 2 to 4 August laycan. Nord Vulcan went on subjects USGC to Caribs at $1,050K for a 1 to 3 August laycan. Nakhal Silver fully fixed USGC to West Coast Central America at $2,500K for 3 August and Hafnia Swift went on subjects on the same routing and rate for 3 to 4 August. Even with the rising Panama Canal transit costs and uncertainty, there continue to be fixtures to WCAmericas.

Looking ahead, ballasters will start to arrive in the first decade of August window and the second decade of August will bring the main wave back onto the list. Enquiry and fixing pace will need to continue at the recent elevated levels to keep rates supported in the face of rising ballaster counts and options for charterers. Lengthening voyages will support higher tonne-mile as the USGC once again reasserts itself as the global supplier of products. So tonnage list replenishment, outside of the near-term ballasters, will help to keep vessel supply in check.

Owners should not push too far above last done levels, around WS 310, for prompt dates or risk charterers working to fix forward as the first of the ballaster wave arrives. TC14 and USGC MR freight rates should remain supported as long as the conflict continues and the US runs at max refinery rates.