Freight rates in the Primorsk to UK Continent Aframax market reached $8.65/t yesterday, the highest since March, but the short-term outlook may not provide the basis for these levels to be sustained.
Demand on the route picked up in the second half of last week, driven particularly by more fuel oil cargoes. Independently-held fuel oil stocks in the Amsterdam-Rotterdam-Antwerp (ARA) hub fell to their lowest since March 2020 last week, and buyers may have a price incentive to increase their purchases. High-sulphur fuel oil prices in northern Europe hitting their widest discount to Ice Brent crude futures since January 2020 in late October.
With winter weather now becoming an issue in the Baltic and northwest European tanker market, rates could be underpinned. But there is at this stage no ice in the region and it remains to be seen if the stronger market will be sustained.
Higher crude throughput at refineries and maintenance at some Baltic fuel-oil consuming downstream units are likely to boost exports of fuel oil. But this may be offset by a seasonal reduction in exports to the US Gulf, which are typically carried on 80,000-100,00t Aframaxes.
The amount that moves on this route tends to wane in November and early December, when US refiners reduce inventories for year-end accounting purposes. Fewer transatlantic shipments could counteract the effect of higher intra-Europe trade, because the distance to the US Gulf takes tankers out of Europe for longer periods, tightening supply. A laden voyage from Primorsk to Corpus Christi at 13 knots takes around 20 days, according to Vortexa.
Another factor that could suppress rates is a lower outlook for Russian Baltic crude exports. Seaborne movements of Russian Urals crude from Baltic ports served by the Transneft system are scheduled to fall by 5pc on the month to around 1.318mn b/d in November.
Aframax rates have struggled to break free of pressure in the dirty tanker market as a whole this year, with crude and fuel oil flows from the Baltic to the UK Continent above pre-Covid levels in the past full six months but with rates not responding in kind. Russia's state-controlled Gazprom and Saudi state-controlled Aramco's trading arm ATC booked Suezmaxes to load 100,000t cargoes from the Baltic today, showing this pressure in action. Competition for Aframaxes from the larger Suezmaxes has been more common in the Mediterranean region and in the Black Sea, but it instantly widens the available tanker pool and imposes an effective ceiling on rates.
Tanker owner Euronav said the dirty tanker market will recover this northern hemisphere winter as a result of fuel-switching and rising Opec+ production, but cautioned that Covid-19 continues to cloud the outlook and restrictions may be reimposed, and said the current oil prices may weigh on consumption if alternative energy sources become more economical.
