Singapore—Aframax tanker earnings have been under significant pressure in Asia as China's private-sector refiners put the brakes on Far East Russian ESPO Blend crude procurement amid maintenance and high inventories, but a surprise surge in demand for the medium sweet crude from trading firms and end-users in the US West Coast could lend much-needed support to the tanker rates.
China's independent refining sector's overall crude imports in April tumbled to a four-month low at 3.64 million b/d, or 14.92 million mt, due to heavy refinery maintenance and high feedstock inventories at ports, data collected by S&P Global Platts showed.Far East Russian ESPO Blend crude is the top feedstock grade that serves the independent refineries, but the private refining sector's ESPO crude imports tumbled 37.2% month on month to 9.52 million barrels in April, Kpler data showed
Expected crude cargo arrivals in May are likely to remain low as maintenance at refineries will continue, industry and refinery sources told Platts.
As a result, Aframax tanker rates have fallen sharply since late March. The Kozmino-North China Aframax rate fell to $4/mt May 4, down 24% from the year-to-date peak of $5.25/mt on March 30, Platts data showed.
At present, Aframaxes are barely earning $2,500-$4,000/day on some of the key routes in the East of Suez region, according to shipping sources with direct knowledge of the matter.
US buyers emergeHowever, it isn't all doom and gloom for Aframax tanker owners as crude buyers in the US West Coast have emerged in the Far East Russian spot market and started to arrange multiple long-haul charters to carry the medium sweet Russian grade that typically loads in 100,000 mt stems from Kozmino port.
The volume of ESPO crude loaded in Kozmino bound for the US surged 62% month on month to 2.08 million barrels in April from 1.28 million barrels in March, according to Kpler. Similar trade flow from Kozmino to the US West Coast has not been seen since July 2019, when 770,000 barrels of ESPO was transported to the US.
"A number of factors have come together to drive this development, including low freight costs, a fall in China's demand for ESPO, a weak price of Dubai against other benchmarks, the decline of Alaskan and Californian crude output, and ESPO's comparable specifications to Alaska North Slope crude," said Alex Yap, senior oil analyst at Platts Analytics.
There are 27 EPSO crude stems set for loading from Kozmino in May with a total volume of 2,740 mt, according to the loading program seen by Platts.
Valero, Marathon, BP, Vitol and Mercuria are among the charterers actively seeking Aframaxes on the Kozmino-USWC route, with nine cargoes booked on the route since March, according to fixtures compiled by Platts.
"The Kozmino-USWC crude flows are expected to continue throughout the second quarter as US demand for such grades that are especially rich in middle distillates will rise for gasoline production as summer driving season approaches, while the latest pipeline crisis in the US calls for rapid fuel supply replenishment," a low sulfur crude trader at a Western trading house based in Singapore said.
Long haul voyage, better earningsKozmino-USWC voyages add to ton mile demand as they keep Aframaxes occupied for longer durations, and enable them to reposition their tonnage in the Americas.
The Kozmino-USWC voyage on an Aframax will typically take around 16 days sailing at a speed of 12 knots, whereas the Kozmino-North China voyage takes around three days.
Such longer-haul voyages keeps tonnage occupied at a time when freight rates have declined significantly since H2 last year and ships have frequently clocked daily losses at a negative daily time charterer equivalent.
Brokers estimate it currently costs around $13.20/mt to move a 100,000 mt ESPO crude cargo from Kozmino to the USWC. In comparison, Platts assessed the Aframax rate for the Kozmino-North China route at $4.75/mt May 11.
However, not all owners are keen on the longer voyage, as the possibility of securing a backhaul cargo from the USWC to East Asia is typically low.
"After delivering cargo in the USWC, the ship cannot be deployed for anything else unless it is a new Panamax, and can then trade in the US Gulf," an Aframax broker said.
Echoing similar sentiment, a source with an owner said that unless an operator wanted to position a ship in the US, owners that were not regular players in the Americas were better off keeping the vessel in Asia as the likelihood of securing a backhaul USWC-East cargo was low.
