03-01-2017

Arbs eyed in clean Americas tanker recovery

Tankerss

Slowing deliveries of Medium Range (MR) tankers and strong import demand into Latin America will support the Americas clean tanker market in 1H2017, and may allow for rates to climb from current levels if longer-haul arbitrage-driven trade opens up.

Low fleet growth starting toward the end of next year would lend substantial upside to the MR market in the event that there is a positive demand shock, or if longer voyage trade resumes on declining inventories and more arbitrage opportunities, said Noah Parquette of JP Morgan.

The number of active MRs will rise 3.7pc by the end of next year to about 1,610 vessels, a lower percentage increase than in the previous two years.

Demand for gasoline and diesel in many Latin American countries, most prominently Mexico, Venezuela, Brazil, and Chile, has far outstripped growth in refining capacity, a dynamic that has ensured nearby US refiners on both coasts a market for their excess products.

The global glut of oil products that has inhibited trade and clean tanker demand along some routes may begin to ease as refiners process less crude amid tighter refining margins.

High inventory levels are stopping arbitrage moves, said MJLF tanker analyst Court Smith. However, product inventories at Rotterdam have already begun to draw down, he noted.

But even as European volumes draw down, USGC refiners may not be able to reclaim their role as the region’s dominant diesel suppliers. Higher diesel flows from the Middle East, where refining capacity is expanding, to Europe may put more pressure on US-originated cargoes, said Smith.

From the start of July to 13 December, the USGC-Europe rate has averaged $14.09/t, down 26pc from the average of that period in the previous two years. The cost of freight for USGC-Pozos moves, a heavily traded Latin American route, has averaged $12.25/t so far in the second half of this year, 18pc lower than the average of the same period in the previous two years.

Source: Argus

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