LR1 rates pressured by slowing US gasoil demand

Lower demand for gasoil in the US meant fewer Long Range 1 (LR1) tankers used from Europe in June, which in turn pressured rates on the important Europe to west Africa route.

Westbound gasoil movements on LR1s from Europe dropped to zero last month from more than 325,000t in May, according to Vortexa, meaning more tankers competing on other routes.

Prior to the Covid-19 pandemic gasoil typically went to Europe from the US, and this averaged 500,000t a month in 2019. Lockdowns limited demand in Europe and the flow reversed to the point that the net movement flipped westwards in November 2020 and remained that way for all but one month until June. Higher European demand has now lifted European prices in relation to those for US supply, closing that trade.

LR tankers were responsible for about half of shipments in the period that gasoil went west. LR1s were used almost exclusively in May because of higher transatlantic rates for the alternative Medium Range (MR) tankers. In June, just one LR2 and one MR headed west across the Atlantic carrying gasoil.

But the lack of gasoil shipments as an outlet for LR1 supply pressured freight rates on the most important route from Europe, shipping clean products to west Africa. The amount moved on this route was roughly the same in June as in May, and the extra tanker availability meant that rates fell to an average $12.94/t from $13.93/t. It is $12.24/t so far in July.

Demand also declined for LR1s to ship to the Mideast Gulf and India, with just 37,000t on those routes in June compared with 183,000t in May. UAE and Iraq took several cargoes of European gasoil and gasoline in May for the first time since January this year and November 2018, respectively, according to Vortexa.

Overall just 1.03mn t of clean products was shipped from Europe on LR1s in June, down from 1.57mn t in May. In tonne miles (tmi) — a measure of how far cargoes departing Europe are travelling and a metric for overall demand for freight — LR1s from Europe managed 5.65bn tmi in June, down from 7.56bn tmi in May, according to Vortexa.

By John Ollett