Clean tanker freight rates are poised to rise further in the battle for prompt naphtha supplies from the Mideast Gulf, as Asia-Pacific remains temporarily cut off from arbitrage supplies because of mounting Red Sea tensions.
Oil product flows through the Bab el-Mandeb strait, at the southern end of the Red Sea, have been disrupted for more than a month following attacks on vessels by Yemen's Houthi militant group. Asia-bound shipments loaded from Europe, particularly from the Mediterranean, are forced to take a longer route around the Cape of Good Hope with the continuing conflict in the Red Sea region, effectively adding about 2-4 weeks to voyage times.
Others have opted to wait out the tensions. Three Long Range (LR) 2 tankers carrying a combined 200,000t (1.78mn bl) of naphtha and 90,000t (580,000 bl) of fuel oil stopped for several days in the Red Sea having passed through the Suez Canal.
Asia-Pacific naphtha buyers have been scrambling since last week to secure alternative February-arrival cargoes, such as from the Mideast Gulf, in anticipation of the expected shipment delays. A couple of South Korean cracker operators have been seeking prompt cargoes through private negotiations in the past few days, said market participants.
Rising spot premiums in deals for fob Mideast Gulf naphtha cargoes also reflect the increasing urgency of regional buyers, with Kuwait's state-owned KPC concluding a tender earlier this week to sell a LR1 full-range naphtha cargo for February loading at around a $46/t premium to the average of Mideast Gulf spot naphtha assessments. This was about $10/t higher than the mid-$30s/t premium done for its last cargo sold for January loading. Qatar's state-owned refiner QatarEnergy also sold two cargoes, one LR1 and one LR2, for February loading at around a mid-$50s/t premium to the same pricing basis.
The higher fob Mideast Gulf spot premiums have prompted Indian state-controlled refiners Bharat Petroleum and Hindustan Petroleum and private-sector firm Nayara Energy to emerge for the first time in a few months to sell spot naphtha cargoes. Indian refiners typically sell on the pricing basis of Mideast Gulf spot assessments. The three refiners offered a combined 100,000t of naphtha for late January and February loading.
Firmer demand
Freight rates for vessels loading in the Mideast Gulf and headed for Japan increased as a result of firmer demand for cargoes from the region.
Argus-assessed LR2 and LR1 rates for 75,000t and 55,000t shipments from the Mideast Gulf to Japan extended their increases by 38pc and by 26pc to Worldscale (WS) 235 and WS265 respectively on 22 January from WS170 and WS210 on 18 January. The surge in rates follows escalating tensions in the Red Sea and higher insurance costs. Tonne-mile-demand has increased as voyages from the Mideast Gulf-India region to Europe and to the US redirected around the Cape of Good Hope will typically take 2-3 weeks longer than through the Suez Canal, depending on the discharge port.
Several trading firms and oil firms, including BP, Saudi Aramco and Trafigura, emerged on 23 January to seek vessels to ship at least five LR2 and one LR1 naphtha cargoes from the Mideast Gulf to Japan. Indian private-sector refiner Reliance Industries also sought a vessel to ship an LR1 naphtha cargo from west India's Sikka port to east Asia.
Clean tanker rates from the Mideast Gulf to Japan are likely to rise further this week with the halting of refined product exports from Russian firm Novatek's condensate fractionater plant at the Baltic port of Ust-Luga [after a fire. Petrochemical producers in China, which get their feedstock naphtha from Russia, might turn towards the Mideast Gulf as an alternative source of supplies, said a China-based trader.
