Slowing growth in the global product tanker fleet will likely meet strong demand for gasoline and diesel movements in the Atlantic basin, especially to buyers in Latin America, but elevated refined product inventories on land could put a ceiling on rate gains in the second half of this year in the Americas.
"The supply side looks great for Medium Range (MR) tankers in the second half of this year. Fleet growth is very manageable. But unless refined product inventories come down you will not see a major bump in rates", said a bank equity analyst.
The fleet of MR ships, the type of tanker that dominates the Atlantic basin product trade, is expected to expand only 4pc this year, according to shipping data compiled by Argus, down from around 6pc in the previous two years.
But the lack of significant arbitrage opportunities, such as shipping diesel from the US to Europe or gasoline from Europe to the US, due to elevated stocks may mean that even the modest addition of new tonnage to the fleet could pressure the market downward.
US gasoline inventories remain elevated, averaging 245mn in the first half of the year, slightly higher than the same period in 2016 and about 6pc above the five-year seasonal average, according to data from the US Energy Information Administration (EIA).
But rising gasoline and diesel import demand in Brazil, Mexico, and Venezuela, countries where financial and political constraints have hindered refinery maintenance and expansion, could partially offset the impact of elevated global inventories. The trend of steady growth in southbound gasoline and diesel shipments from the US Gulf coast, where refinery utilization will remain strong, is likely to continue.
A recovery in activity for shipments to the west coast of Latin America from the US west coast, where a regional lack of gasoline supply weighed on export volume in the first half of 2017, will depend on refinery utilization levels and the successful completion of refinery maintenance along the US west coast.
Despite increases of over 50pc in shipments of petroleum products from the US to some Latin American countries year-on-year through June, freight rates from the US Gulf coast to the region have, on average, been flat. The cost of freight for a US Gulf coast-Pozos, Colombia movement, a barometer for Latin American rates, averaged roughly $450,000 from January to June, flat from the previous year, as available ship supply was sufficient to cover the additional demand.
