USGC DPP Market Report

USGC Aframax vessel supply in the 14-day ahead window stands at just 5 ships against a 90-day moving average of 18, 13 below average and the tightest count since the end of March. The WTI crude RBI into NWE is now overvalued by +$4.36/bbl, indicating WTI is expensive into European destinations, a bearish signal for the transatlantic crude trade. The freight RBI at +$31.26/mt confirms TD25 rates have moved into materially overvalued territory, driven by the speed of the rally off the back of elevated enquiry.

The USGC Afra market is being driven by crude supply scarcity fear and the resulting lack of vessel availability, not arb econs. The escalating fighting between the Houthis and Saudi Arabia endangering crude supply and routes out of the Red Sea is driving market sentiment and activity in the physical freight markets.

Enquiry over the past week illustrates the sheer number and pace of fixtures. Aifanourios fixed USGC to UKC at WS 302.5 for a 30 to 31 July laycan at the start of last week, before rates started to move sharply higher. Orange Stars fixed USGC to UKC at WS 340, Pacific Garnet at WS 370, and Cape Tainaron at WS 370 for a 31 July to 1 August laycan.

By 22 July, Atlantic Emerald fixed at WS 437.5, Hai Shang and Searunner both fixed USGC to UKC at WS 440 for 7 and 8 August laycans respectively. Fixture levels to close out last week began to stabilise in the WS 430 to WS 440 range.

August TD25 paper reflected this move but also began pricing the deteriorating WTI arb economics into NWE. August traded at WS 395 before softening progressively to WS 360, with brief bounces to WS 375 before easing back to WS 360.

September followed a similar path, trading from WS 305 down through WS 300, WS 295, WS 290, and settling around WS 280. The paper market is beginning to price the ceiling on physical rates: with WTI increasingly overvalued into NWE and freight RBI now deeply overvalued, the current cargo economics do not support last Friday’s spot levels over a sustained period.

USGC VLCC vessel supply in the 14-day ahead window is broadly neutral at 6 ships against a 90-day moving average of 7. The WTI crude RBI into the Far East sits at +$0.62/bbl, near-flat and significantly more attractive than the WTI NWE RBI reading of +$4.36/bbl. WTI econs are better into the Far East on a VLCC than into NWE on an Aframax right now. NWE is better served by WAF crudes at current price differentials and freight rates.

USGC VLCC fixing activity has been muted relative to the Aframax surge, with Red Nova the sole confirmed fixture of the past week. However, increased VLCC East enquiry is expected this week as Eastern buyers will look to secure USGC crudes. The TD22 freight RBI at -$10.05/mt confirms USGC VLCC rates remain undervalued relative to global competition.

An atypical VLCC demand signal is emerging from the Red Sea security situation. A second VLCC Sidi Kerir to East via COGH routing is now being quoted due to Bab-el-Mandeb strait concerns, a tonne-mile positive development for the VLCC segment that adds further support to the forward demand outlook. If Red Sea transits remain restricted, the Cape routing multiplies effective VLCC employment days materially and draws additional tonnage away from the Atlantic list.

With USGC Aframax spot rates at WS 440 and paper beginning to price a ceiling driven by worsening WTI to NWE economics, and demand likely now broadly covered for the current window, crude demand should shift toward the VLCC USGC to East trade.

The combination of near-neutral VLCC supply, undervalued freight RBI, more attractive WTI to Far East economics, and growing Red Sea related demand and tonne-mile improvement makes TD22 the more compelling freight trade heading into August. Expect VLCC enquiry to accelerate this week. Owners hold firm and push above last done levels.