Freight rates for Medium Range (MR) tankers have been under pressure since the end of May, because persistently weak US gasoline demand is overriding the workable economics of moving product across the Atlantic.
UK continent to US Atlantic coast MR rates reached reached an eight-month low of Worldscale (WS)102.5, or $15.68/t, on 22 May, rebounded briefly and then slid back down to $18.36/t on the last final day of last week. Rates are poised to fall further today.
The US, which is structurally short of gasoline, imports a lot of the product from European, Russian and north African refiners. MRs are the main tankers used on the route, so European rates are highly dependent on transatlantic gasoline traffic. Rates would typically rise when the arbitrage between the regions is wide, as it has been since the end of April.
For finished product, the differential between New York harbour conventional 87 Ron gasoline to Eurobob oxy barge, minus transatlantic freight, was $45.01/t on 5 June. It reached a more than two year high of $78.97/t on 7 May.
This differential is being supported by gasoline oversupply in Europe, but US gasoline demand is lower than last year. Google Mobility data show that US workplace commutes and other car trips are still far below the same time last year.
The rising cost of US carbon credits is also likely to be capping economics for importers. The Argus Renewable Volume Obligation (RVO), the estimated cost of compliance per gallon of gasoline under the US Environmental Protection Agency's Renewable Fuel Standard (RFS) program, reached a two-year high of 6.63¢/USG at the start of June.
As a result, gasoline departures on MR tankers from northwest Europe, the Mediterranean, the Baltic Sea and the Black Sea to the US Atlantic coast were just 468,000t in April and 865,000t in May according to oil analytics firm Vortexa, down from 1.25mn t and 1.27mn t in in April and May 2019, respectively. EIA data show that overall US gasoline imports were down by 29pc year on year for the week ending 29 May.
MR rates have also been capped by a significant year on year fall in European gasoline departures to non-US destinations in May. But shipowners have benefited from lower bunker fuel costs, meaning earnings were higher on a per vessel basis in May than in the same month in either of the previous two years.
