USGC MR Market Report

USGC Aframax vessel supply in the 14-day ahead window stands at 15 ships against a 90-day moving average of 18 and has tightened noticeably since 8 July. The WTI crude RBI sits at +$2.86/bbl, indicating WTI is mildly overvalued into NWE, a slightly bearish cargo demand signal on crude economics alone. However, the negative freight RBI confirms TD25 rates are materially undervalued relative to global competition, a medium-term bullish freight signal, even after the recent rally.

The fixture programme over the past seven days tells the story of a market that has repriced materially higher in a short period post heavier Iran/Hormuz fighting. Eagle Brasilia and Yokosuka Spirit both fixed USGC to UKC at WS 185 on 10 July, establishing the base of the recent range. Seatribute followed at WS 210 on the same routing, Metro Aegean fixed USGC to UKC at WS 225, and Fezzan fixed USGC to UKC at WS 227.5, all within the same week.

By 14 July, Torm Kiara fixed USGC to UKC at WS 227.5, and by 16 to 17 July Eagle Barcelona went on subs at WS 250 and Dubai Angel on subs at WS 260. The progression from WS 185 to WS 260 in just a week reflects a market that has absorbed its front-end length and is now repricing on the basis of a tighter list and increased demand.

August TD25 paper trading yesterday further supports the case for higher physical spot rates, having traded at WS 290 before firming progressively through WS 295, WS 300, WS 305, and WS 310, before settling back to WS 307.5. The intraday range and the direction of travel are both supportive. USGC August TD25 paper rates are approaching parity with Suezmaxes on the transatlantic route. Expect the spot to August spread to narrow through the balance of July trading, and therefore narrow the physical spread to Suezmaxes.

The re-intensification of the Iran conflict is adding a structural demand tailwind. The suspension of US waivers on Russian and Iranian oil means countries such as India will increasingly source crude from alternative origins, including the USGC, which is a direct incremental demand driver for regional freight.

With the list tightening, paper firming, and the geopolitical backdrop shifting in favour of higher WTI export demand, the near-term direction is higher. Owners should push above last done rates with eyes on current August paper levels as an upper threshold indicator.

USGC Suezmax vessel supply in the 14-day ahead window is broadly neutral with 5 open ships against a 90-day moving average of 6, consistent with the recent sideways price action in this segment. The WTI crude RBI for the Suezmax NWE route sits at +$2.98/bbl, a very similar level to that of the WTI TD25 reading, but the freight RBI at +$7.41/mt indicates USGC Suezmax rates are overvalued, suggesting limited further near-term rate upside.

Rates have been treading water sideways over the past week and fixture activity has been sparse, with Amalia M fully fixed loading Corpus Christi for Korea at $12,500K for a 3 August laycan, the sole confirmed fixture of the past week.

The increased East enquiry emanating from the USGC is adding an additional demand layer beyond the traditional transatlantic and Med discharge routes. Eastern ballasters to WAF have been going on subjects materially earlier than in recent weeks, which points to growing WAF to East activity drawing tonnage away from the Atlantic and supporting the vessel supply tightness in the USGC Suezmax segment.

USGC VLCC vessel supply in the 14-day ahead window has been stable at 5 ships against a 90-day moving average of 6, for the last week or so. The WTI crude RBI for the VLCC Far East route sits at +$4.15/bbl, indicating WTI is expensive into Far East destinations on a relative basis, a bearish cargo demand signal for the East route specifically.

The TD22 freight RBI at -$0.71/mt is near-neutral, confirming USGC VLCC rates are broadly at fair value relative to global competition. Spot TD22 paper sits at $63.54/mt and has been trading sideways for the whole month of July.

Fixture activity over the past week has been more active though and confirms growing Eastern demand. Agios Nikolas fully fixed USGC for Taiwan at $17,400K for a 5 to 10 August laycan, Himalayasan fully fixed USGC to East for a 10 August load, Union Peace went on subs USGC for Thailand at $16,300K for a 10 August load, and Menapii went on subs USGC for UKC at $8,000K for a 20 to 25 August laycan.

TD3c balmo paper traded at WS 495 and August at WS 310 yesterday. The forward curve prices in steep backwardation through September to WS 291. This reflects the uncertainty around the pace of Hormuz normalisation (or lack thereof) and the degree to which Atlantic-origin crude can structurally replace AG barrels for Asian buyers over the medium term.

The suspension of US waivers on Russian and Iranian oil redirects crude demand toward the Atlantic basin at a time when the USGC tonnage lists across all vessel classes are at or below average. For Aframaxes, the impact is immediate, and the rate move higher this week has already begun to reflect it. For Suezmaxes and VLCCs, the demand pull is building through Eastern enquiry and the early WAF to East fixing is drawing Atlantic Suezmax tonnage away from the region.

The outlook is neutral to bullish across all three segments: tighter lists, firming rates, and a geopolitical backdrop that is structurally supportive of USGC crude export demand into the second half of summer. The counterpoint is that the US continues to draw down crude supply, which will put increasing pressure on WTI arb econs, eroding some regional freight demand. So, continue to watch TI/BR and the WTI RBIs in Sparta for further signs of margin compression.