24-01-2018

Mediterranean crude oil flows to East muted for February despite cheap Suezmax freight rates

The flow of Mediterranean crude to the Far East in February is currently expected to be relatively light, with a wide Brent/Dubai EFS currently cancelling out cheap Suezmax freight rates from the Black Sea.

While lower Suezmax freight rates from the Black Sea could be viewed as supportive of the arbitrage of CPC Blend and Urals to the Far East, Mediterranean crude traders have said the wide Brent/Dubai Exchange of Futures for Swaps and the backwardated Brent paper structure were weighing on arbitrage economics to Asia.

The front-month EFS was seen trading at around $3.47/b Tuesday, having traded at below $2/b as recently as October 4.

“Suezmax rates are indeed cheap although VLCCs from the Persian Gulf for Murban [crude] and the likes are cheap as well,” said a crude trader. “Brent/Dubai is stubbornly wide so while freight remains reasonable and we have six days of delays each way in the Straits I think the main argument is [the wide] Brent/Dubai.”

A wide Brent/Dubai EFS generally makes Brent-linked crudes like Urals and CPC Blend more expensive to Asian refiners than Dubai-linked crudes. The Black Sea to Mediterranean Suezmax route, basis 135,000 mt, was assessed at $5.40/mt January 23, the lowest level since July 20 last year when the route was assessed at $5.38/mt.

While crude loading programs in the Black Sea have been relatively busy, Suezmax rates are very weak in the Atlantic generally because the main loading area, West Africa, has seen limited demand. VLCCs took out a very large chunk of the available WAF January cargoes and the tonnage list has grown very long as a result, with 117 ships available in the next 30 days, against a three-month average of approximately 99 ships, according to a shipbroking sources.

Delays in the Turkish straits are also seasonally low with Northbound delays at six days, while they can be 10 days or higher at this time of year, sources said. Longer delays in the Straits during the winter months usually serve to keep ships off position lists for greater periods of time, and allow the remaining available tonnage to command higher freight rates.

The lower Black Sea freight rates are indicative of a drop in demand for Suezmaxes in areas like West Africa and the Persian Gulf, as Black Sea loading programs continue to provide healthy volumes each month.

The February CPC Blend loading program was the longest on record at 1.359 million b/d, demonstrating the impact the rise in output from the new fields in the Caspian Sea — Kashagan and Filanovski — has had on the program.

Source: Platts 

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