USGC MR rates pause as tonnage builds, but wide-open diesel margins should absorb the vessel supply

The start of this week saw USGC MR vessel supply in the seven-day ahead window lengthen from 15 to 22 ships against a 90-day moving average of 11. A slow pace of enquiry last Friday compounded the supply build, and the pause in fixture activity over the past few days has been visible in the weakening freight rates.

What makes this lull in enquiry surprising is the backdrop of diesel demand and open arb economics. Houston to Rotterdam diesel margins are wide open through July at over +$30/mt, with May windows running above +$36/mt and June holding north of +$34/mt. USAC loading economics are even wider. The physical incentive to move transatlantic diesel is as clear as it has been since the start of the conflict, and these margins should ordinarily be driving a steady flow of USG and USAC cargoes into European destinations.

The jet arb to Rotterdam had been open around ten days ago before closing, but margins are now recovering, and if Europe’s well-publicized need for jet fuel materializes into fresh cargo nominations, that arb has the potential to reopen and add further incremental demand to an already supported diesel flow picture. An Iranian drone attack on the Fujairah oil terminal reported yesterday is a further reminder that the structural supply disruption driving Atlantic Basin product demand remains very much active.

Fixture activity over the past week reflects a market still absorbing diverse demand across multiple routes, but at a slower clip. Few examples; Athens C fully fixed loading USG for Trinidad at $1.6m lumpsum for a 6 May laycan, Hafnia Eagle on subs loading USG for ECMEX at lower than last done $775k, Puffin Pacific fixed loading USG for USAC at $1.825m for a 4 May laycan, confirming continued Jones Act demand, STI Donald C Trauscht fully fixed loading USAC for UKCM at 475 WS and Gem Ruby at 465 WS on the same routing for mid-May laycans.

USAC TA rates are still outpricing USGC TA rates. TC14 paper reflects the unease in the market from the lengthening list with June paper now back around 340 WS after pricing up to 365 WS.

The lull in fixing is real but should be short-lived. There has been no change in the macro drivers that have kept TC14 elevated: the Iran conflict continues, European (& global) product balances remain stretched, and diesel economics strongly support transatlantic flows. The tonnage count has lengthened but expect traders and charterers to soon take advantage of the wide arb margins.

About the Author
Michael Ryan, our Freight Commodity Owner at Sparta, brings over a decade of experience with Trafigura in the energy sector managing risk across products and regions before becoming Head of Risk for subsidiary Puma Energy. Michael then joined the Trafigura commercial team trading freight while successfully growing the physical fleet through strategic dealmaking.
Connect: https://www.linkedin.com/in/mgryan/ 

About Sparta

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