Freight rates for clean Long Range-2 (LR-2) tankers from the Mideast Gulf to Japan rose because of increased demand, as market participants cleared their requirements ahead of the Eid al-Fitr holiday in the Middle East and Asia.
LR2 freight rates for 75,000t shipments from the Mideast Gulf to Japan increased by from WS160 on 14 April to WS175 on 21 April, as a result of a slew of LR2 fixtures and cargoes for May-loading windows, which emerged last week for the Mideast Gulf to Japan route, for UK Continent (UKC) and west of Suez-bound shipments.
Time charter equivalent (TCE) rates saw a larger jump on the back of lower bunker costs. Argus TCE rates for LR2s from the Mideast Gulf to Japan rose by about 19pc from 14 April to $43,447/d on 21 April. The price for very-low sulphur bunkers with 0.5pc sulphur content in Fujairah fell by $40/t from 13 April to $570/t on 20 April.
Argus recorded 11 LR2 fixtures bound to east Asia for the May-loading window during 17-21 April, more than a five-fold increase from just two fixtures a week earlier.
There were also at least 11 LR2 fixtures bound to the west of Suez for early-to-mid May loading from the Mideast Gulf during 19-21 April.
Cargo volumes for LR2 shipments from the Mideast Gulf also rose to about seven on 19 April from only one on 18 April.
Freight rates could move higher, as oil traders are optimistic that Europe will eventually need to draw more diesel again from the east of Suez, with several pointing out that countries such as France will need to replenish their stocks, after depleting them during the country's month-long strikes that affected production and imports. The backlog of seaborne deliveries in France is already clearing, so trading firms will likely look to restock their diesel inventories once waiting ships have discharged.
Increased demand from India also reduced tonnage supplies last week, freight market participants said.
Spot LR2 vessel availabilities from southeast Asia for the next 10 days fell to about three on 21 April from 10 on 18 April, a shipbroker said.
At least three fixtures emerged during 19-20 April for 90,000t gasoil shipments booked on LR2s from India's Sikka to the UKC, or towards the west of Suez for 1-10 May loading, while one fixture emerged for a similar-sized shipment to Indonesia for the 1-6 May loading window.
Demand for shipments has increased after India scrapped its export tax on diesel and reimposed a windfall tax on crude production from 19 April. The government revises the export duties and windfall tax rates every fortnight. This is the first time that the diesel export duties have been scrapped since the tax scheme was introduced in July 2022. Duties were scrapped on the back of weakening Asian gasoil margins.
Weak naphtha demand persists
But a continued rise in freight rates might not be sustainable, as traders had previously emerged with their May monthly naphtha requirements just to keep crackers running, a freight market participant said.
Demand for naphtha for the Mideast Gulf to Japan and east Asia routes remained weak as Asia is entering the spring cracker turnaround season with production losses estimated to peak at 13.6pc in May from around 11pc in April.
Two South Korean crackers are starting their turnarounds from late April, while four Chinese crackers are scheduled for turnarounds in May. Taiwan's Formosa Petrochemical also plans to shut its No.1 cracker in May after restarting its No.2 cracker in late April. Japan's Mitsubishi Chemical has scheduled a major turnaround at its Mizushima cracker in late May.
Narrowing naphtha cracker margins, which fell to a six-week low of -$153/t last week after briefly touching breakeven in late March, would result in continued reduced run rates at cracker operators.
