Rhys: Hello, and welcome to another episode of the Argus Weight of Freight podcast. I'm Rhys van Dinther, the dirty freight market reporter at Argus.
Erika: Hello, Rhys, thank you for having me. I'm Erika, the clean freight market reporter at Argus.
Rhys: Thank you for coming along today. We're mainly going to be talking about the clean market in today's episode. I'm going to start off by talking about the transatlantic route between Europe and the U.S. Recently, we've seen a huge wave of tariffs from the U.S. taking effect in the market. As crude and oil products were exempt from the tariffs, I'm just wondering, are we seeing any changes in the transatlantic route between Europe and the U.S.?
Erika: So the clean tanker market has been weak overall, mainly because the export destinations of Europe are facing a structural change. As for the transatlantic route, which is one of the key routes in the European market, it has been particularly slow before the tariffs were imposed. The U.S. and Europe have been trading partners of gasoline and diesel for a long time. These products get transported on medium-range tankers, namely tankers of around 37,000 deadweight tons. The route has been slow mainly because of the Olmeca refinery in Mexico starting operations and covering a big part of U.S. domestic demand for gasoline. European gasoline prices being high and particularly higher than U.S. domestic prices, which has closed the arbitrage window between U.S. and Europe and has made European imports into the U.S. uneconomical for U.S. buyers. Also, Europe is stocked on diesel, so there has not been as much demand for diesel loadings from the U.S. as it used to be before.
Rhys: Interesting. Do you think Europe is going to be more reliant on clean imports from different places, for example, the Mid East Gulf? If they do become more reliant, is this going to affect regional freight rates?
Erika: So as we've seen, the recent U.S. tariffs have exempted clean petroleum products, so we have not seen a direct effect on the European tanker market. But we are seeing that the EU is becoming increasingly reliant on Mid East Gulf clean petroleum product imports. It mainly imports jet fuel and diesel from the Mid East Gulf. And if the tariffs expand to include clean after all, this is going to become more intense. So Europe will rely more and more on imports from the Mid East Gulf.
We are seeing that in March and April, Europe's jet fuel demand has picked up a lot, which has boosted long-range tanker rates, mainly tankers of approximately 60,000 deadweight tons to 110 deadweight tons. LRHs have also been boosted by a rise in Asian demand for Naphtha. This has been mainly because of new petrochemical crackers in China and Indonesia starting up, and several refinery maintenance procedures in the region, which have boosted demand for Naphtha. Also, regional buyers are looking to replace Russian products because of the recent sanctions on Russia. So this has given an overall boost in the regional demand. And also, the recent sanctions on China have pushed Chinese participants to secure non-U.S. supplies of LPG. So this is expected to boost LRHs even more in the future.
Rhys: Interesting. Thanks. We've seen a lot of owners that own dirty tankers switch over to carry clean cargoes. How would you explain that? And do you think it's going to become a trend? Because in the dirty market, we're seeing spot rates quite high at the moment. And I would be curious to find out if you think this is going to become a trend, are owners going to keep doing this, stop doing this?
Erika: So dirty tanker owners have seen an opportunity in the clean tanker market because of the recent fairness of LRHs. This is particularly interesting because in order for a dirty tanker to switch to clean product trade, tank cleaning procedures are required, and they involve high costs for the owners. Many owners have been engaging new-build vessels when they are ready for delivery in China in the clean product trade. So basically, these vessels move from China on their maiden voyage to the Mid East Gulf. They load a clean cargo and they discharge it in the UK continent, and then they switch back to dirty trade. But afterwards, after having taken a clean cargo, they do not need to undergo any procedures. So it makes much more economical sense for the owners to do clean first and then switch back to dirty.
Rhys: And with the higher vessel kind of supply there, do you see them going to, is there any kind of markets that have recently been opened? I think the Dangote refinery started operations back in 2024. Has that affected kind of northern Europe to West Africa trade in the clean market?
Erika: Well, we think another key route of the European clean tanker market taking a major hit, again, it is the MR market. So Europe used to export clean products to West Africa, especially to Nigeria, because they were lacking refining capacity in the region. But the Dangote refinery starting operations in 2024, has slashed Nigerian demand for clean petroleum products. Also, we have seen several economic disruptions in the region. Nigeria removed its long-standing gasoline subsidy in 2023, and we have seen the deregulation of the local currency, which have both created credit issues and they have slashed local demand.
Also, there have been several regulations imposed on fuel quality in Europe. So the exports from for ARA need to abide by stricter standards. And this has also pushed Nigerian demand downwards. So we are seeing this route declining, and not many vessels moving from the UK continent to West Africa anymore.
Rhys: Okay, thanks. And I'm going to end it off with a broad question for you here. What are your ideas of the European clean tanker whole landscape going forward in the rest of 2025?
Erika: The MR market is expected to remain weak overall, especially if U.S. tariffs expand to clean petroleum products. The transatlantic route will remain weak because of increasing refining capacity in the Atlantic basin. And the Dangote refinery starting to have full capacity in 2025, it will put more pressure on European refiners, which have faced weaker margins because of the drop in transatlantic flows recently.
The rising European domestic demand will likely boost the cross-UK continent [inaudible 00:08:17] rate and the Mediterranean rate. So we will see the transatlantic route getting weaker and weaker, but cross-European flows becoming stronger.
And in the LR market, the rates are expected to firm and potentially rise. This is because of the rising demand in China for Naphtha. Local participants trying to replace Russian Naphtha with other suppliers. And also because of the effect of the recent tariffs on China, pushing local participants to secure non-U.S. LPG supplies.
Rhys: Okay, thank you. Thanks for that. I'm going to have to stop us there because that is all we've got time for. But thank you very much for joining.
Erika: Thank you for having me.
Rhys: And I'll see you next time. So thank you for listening.
Erika: Bye.
