Clean tanker market participants expect to see rates in the Americas begin a long-awaited rally in the second half of October, rather than at the onset of the fourth quarter, they said.
Such expectations are based upon the projected return of US Gulf Coast refining capacity around October 15 and exports of ULSD and marine gasoil increasing ton-mile demand ahead of the implementation of the global bunker fuel sulfur reduction to 0.5% on January 1 from 3.5%.
Trades in the paper market for the Medium Range 38,000 mt USGC-trans-Atlantic run show the Americas market rising around 40% from October to November and around 15% from November to December, with the October contract having traded at Worldscale 96.24 Monday, compared with w94 a week earlier. The November contract traded at w135.58, and the December contract at w157, according to a shipbroker.
"Just gotta chop the front-end tonnage. I have faith in H2 October," a second shipbroker said.
REFINERY MAINTENANCE, IMO 2020 PREP DELAY SHIFT TO UPSIDE
The third quarter saw returns for owners at lower-than-expected levels on most routes out of the US Gulf Coast due in part to an excess of tonnage in the area and the decrease in petroleum product exports typical for the summer months.
In the heart of the summer trough, market participants expected freight rates would begin to climb from mid-September onward.
However, due to seasonal refinery maintenance and continued oversupply, rates remained weak at the end of September and beginning of October, with the MR USGC-trans-Atlantic run averaging $13.96/mt in September, a decrease of 14% from August's average of $16.26/mt. September rates fell around 7% year on year, with the trans-Atlantic run averaging $15.09/mt in September 2018.
On the trans-Atlantic route, MR owners were seeing negative time charter equivalent earnings of about $350/day, based on bunker prices for mid-September of $460/mt, based on a high sulfur fuel oil six-port global average.
With significant refining capacity scheduled to come back online after maintenance in mid-October, market participants expect activity could pick up out of the USGC around the second decade of the month.
"October started off with a bit more activity, with some [refineries] coming back online. So hopefully, we clear out the front of the [position] list and get a good wave of cargoes, and then I think our rally starts in earnest," a shipowner said.
Refinery utilization in the US averaged 86.4% of capacity in the week that ended September 27, according to the US Energy Information Administration, and 88.3% on the USGC in the same week, both figures having steadily decreased week by week in September.
Major refineries currently on turnaround for seasonal maintenance are scheduled to return in the second half of October, and should increase the refined products exports shipowners have been anticipating.
On the USGC, around 1,646,000 b/d of refinery capacity is scheduled to return from maintenance October 15, according to market sources, and around 260,000 b/d is scheduled to return in mid-November and around 418,000 b/d is scheduled to be back online December 1.
S&P Global Platts Analytics expects a monthly average for US refinery outages of 2.515 million b/d in October, declining to 1.185 million b/d for November and 520,000 b/d for December, up 12.5%, 6.6%, and 106% compared with the same months in 2018, respectively.
BUNKERING SHIFT
Market participants expect tankers will not switch to IMO 2020 compliant fuels until closer to the January 1 implementation date, despite earlier announcements that owners were looking to start cleaning their tanks and segregation infrastructure on board their ships at the beginning of October and a recent global HSFO supply decrease.
"I don't think [owners] have moved over 100%, but I think some owners are getting their tanks ready one tank at a time. I think they have to test the fuel on the engines before January to make sure there aren't any issues. I would imagine there are some liftings [of very low sulfur fuel oil] but not full stems yet," a second shipowner said.
Shipowners pointed to increasing bunker prices as one of the largest contributing factors to the anticipated Q4 clean tanker boom, with VLSFO more expensive than HSFO, with Houston 0.5% ex-wharf assessed Monday at $576/mt and IFO 380 ex-wharf assessed at $405/mt. Houston ex-wharf 0.1% marine gasoil was assessed Monday at $594/mt.
Owners and charterers alike must factor the more expensive 0.5% or MGO bunkers into spot market pricing, assuming market fundamentals lend themselves to capturing additional operational expenses amid increased ton-mile demand from distributing these low-sulfur bunker fuels globally.
A charterer said clean tanker rates would likely increase out of the USGC in Q4, due largely to the increase in bunker prices for the 0.5% sulfur blends, forecasting that greater demand for distillates going into 2020 would boost freight for tankers carrying those blending components.
The Worldscale Association announced October 4 that 2020 flat freight rates will be based on the September 2019 average price of VLSFO 0.5% sulfur fuel, according to which bunker prices in non-emission control areas will increase by close to 31.8%. Inside the ECA, Worldscale will base marine gasoil bunkers on a September 2019 MGO average.
Despite expectations of increased activity, the summer months saw tanker bookings at a slow trickle out of the Americas, with freight bottoming out and arbitrages to Asia and Europe closed.
"I can't say that I've seen the diesel moving for [VLSFO]. Not sure if that's because the traders or suppliers are maybe doing [everything] on their own tonnage to keep it all under the radar or not," the second shipowner said.
