Freight on the US Gulf Coast-trans-Atlantic and Caribbean/East Coast Mexico-Upcoast Aframax routes fell 41% and 47% week on week, respectively, as cargo inquiries dried up amid a closed trans-Atlantic arbitrage and oil company relets, as well as ballasters entering the market, according to S&P Global Platts data.
Softer rates on larger ships, as well as a weaker UK Continent/Mediterranean market, contributed to the steep decline in rates.
The cost of taking an Aframax on a trans-Atlantic voyage from the USGC fell Worldscale 80 week on week to be assessed Monday by S&P Global Platts at w115, after Phillips 66 booked the Seaoath at that rate for a May 10-12 loading. Bids on a BP cargo for the USGC-UK Continent/Mediterranean route loading May 9-10 were heard lower than w115 Tuesday.
Freight for inter-regional routes almost halved week on week, falling w115 from w245 to w130 between April 27 and May 4. On Monday, Phillips 66 booked the Iblea for the East Coast Mexico-USGC route at w125, loading May 10, after Unipec placed the Ionic Artemis on subjects at w135 for the USGC-Caribbean run, which typically holds a w5-10 premium to the upcoast routes.
Freight rates started to slide from the middle of last week as relets entered the market, in spite of tonnage lists remaining tight throughout the week.
“There are a lot of relets out there … every major oil company is showing a relet in the Gulf” of Mexico, a shipbroker said April 29. “Mercuria was out there, fixed a relet, market dropped about 50 points. That was the big move,” a shipowner said. As many as six relets were heard open in the market at the beginning of the week.
OPEN USGC AFRAMAXES
A drop in rates in the UK Continent/Mediterranean market prior to April 20 sent a number of Aframaxes both ballasting and laden to the USGC as owners hoped to make better returns in the latter market, adding to the already ample tonnage list. A total of 50 Aframaxes are expected to be open on the USGC between May 5 and May 24, including eight ships open for prompt dates, while 10 Aframaxes were reported to be on their way from Europe, both laden and ballasting.
The trans-Atlantic arbitrage for West Texas Intermediate and Eagle Ford crude has remained closed, drying up the incentive for charterers to inquire about such voyages. On Tuesday, the arbitrage for WTI MEH from the USGC to Rotterdam versus North Sea Forties crude stood at minus $5.66/b, according to S&P Global Platts Crude Arbflow. With the recent drop in freight, the freight delta has narrowed 44% during the past five days from $5.12/b on April 30 to $2.88/b Tuesday.
Looking forward, a pick-up in activity Monday and Tuesday suggests the current advantageous rates are drawing out charterer inquiry.
“I don’t believe this market is going to stay this low for long. [I] wouldn’t be surprised if rates picked up by the end of this week,” a shipowner said.
Sources suggested freight for the trans-Atlantic route will bottom out at the w90-w100 level.
“All year we have seen resistance on Aframaxes a few ticks above w100, [but] it will depend on what happens with these [crude] output cuts,” a broker said.