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Q1 Tanker Outlook: Crude exports to drive Americas dirty freight despite expected seasonal lull

The Americas dirty tanker market is expected to see a slight weakening in rates in the first quarter of 2019 after reaching historic highs in the fourth quarter of 2018, adhering to the seasonal trend, sources say.

Although market participants expect rates to fall in the coming months, robust demand for US crude exports is expected to lend support to freight across all ship classes, while the possible re-entry of Chinese buyers to the US market could boost activity in the Suezmax and VLCC sectors.

We "expect a slight softening in rates, but sustained activity with the rise in US exports to China following the trade war stall," a shipbroker said.

The fundamentally positive outlook for Americas dirty tanker freight is supported by low global net fleet growth numbers in 2018 that have been unrivaled since 2014, Alphatanker data shows.

In 2018, dirty tanker tonnage grew at 1.2% for Aframaxes and Panamaxes, 1.7% for Suezmaxes and 0.7% for VLCCs, taking into account the aggregate number of demolitions and newbuild deliveries.

In the Americas, all eyes have been on the VLCC market, which saw rates for the Caribbean-Singapore 270,000 mt route reach their highest level since S&P Global Platts first assessed them in November 2013, touching lump sum $8.6 million on December 4.

Seasonally, Q4 tends to show an uptick in rates, as charterers work to cover cargoes ahead of the end of the year, with Q1 levels dropping subsequently. On the Caribbean-Singapore VLCC route, freight in Q1 2018 was 18% lower than in Q4 2017.

The cost of taking a VLCC on a US Gulf Coast-China run also reached an all-time high on December 4, hitting a lump sum $9.4 million. Rates averaged $8.11 million in Q4 2018, 69% higher than in Q3 2018.

On the USGC-China VLCC route, a shipbroker indicated rates for forward freight agreements were averaging a lump sum of $6.73 million in Q1 2019, suggesting a 17% drop.

A second shipbroker also expected rates to come off into Q1, despite an uptick in US exports, following the typical decline, forecasting the rate for VLCCs making USGC-China runs will average around $7.0 million.

This weakness was exemplified by events on Tuesday. USGC-China freight slumped $800,000 in a single day as 2019 kicked off, diving to $6.5 million.

Shipping sources also expect a drop in rates for Aframax vessels, albeit amid high volatility.

Market participants have been expecting a bearish shift in rates in Q1, with the freight futures market a harbinger of this, where 140,000 lots have traded in the USGC-UK Continent 70,000 mt futures contract for Q1 2019 at an average of Worldscale 138.6 or $21.46/mt.

A second shipbroker indicated rates for Aframaxes making USGC-UKC runs to average w130-140, reflecting 2018 Worldscale flat rates or $20.12/mt-$21.67/mt. Freight forward agreements for the USGC-UKC route are expected to hold an average of w124.67 or $23.23/mt in Q1 2019, according to a third shipbroker.

In Q4 of 2018, freight for Aframaxes making USGC-UK Continent runs averaged Worldscale 152.13 or $23.55/mt, a 67% increase from the previous quarter amid high volatility, which saw rates as low as w90 and as high as w220.

Q4's volatility in the Aframax segment was largely due to USGC weather delays and as port infrastructure put a strain on already tight tonnage availability.

And that might continue, in Q1 2017 for instance, the Houston Ship Channel was closed due to fog for almost 282 hours, or the equivalent of 14 days, or 15% of the first quarter, according to Platts data.


US crude exports averaged 2.368 million b/d in Q4 through the week that ended December 28, up 18.3% compared with Q3 2018 and 48.5% from Q4 2017, US Census data shows.

The rise in crude exports is expected to continue into the coming quarter as US crude grades remain economically favorable for charterers looking to move cargoes to Europe and Asia despite high freight costs.

"US exports are expected to ramp up," the second shipbroker said. "The fact that rates have snapped back after dropping has charterers concerned, so people moving crude look to lock in arbitrage opportunities."

The advantage of moving WTI crude into Europe over Forties crude averaged $1.05/b in Q4, averaging as high as $1.99/b in October, according to S&P Global Platts Analytics data.

The arbitrage opportunity to move US crude into Singapore versus Tapis crude has remained open since July, averaging $1.32/b in Q4, and grew as the end of the year approached.

Source: Platts

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