Mideast Gulf Suezmax rates have been under pressure since the start of 2022 and have yet to react to Opec+'s decision to further increase its crude supplies, as tonnage supplies remain in surplus.
Freight rates for 130,000t Suezmax shipments from the Mideast Gulf to east Asia and to the west coast of India fell to WS61 and WS68.5, respectively, on 9 February from WS64 and WS70 at the start of the year.
Expectations of higher freight rates have been subdued despite the Opec+ March hike, as the group fell further short of its January target. Countries participating in the Opec+ deal raised output by 260,000 b/d to 37.94mn b/d in January, which was 800,000 b/d below the target for the month, according to Argus' survey. The group is finding it increasingly difficult to keep pace with its monthly 400,000 b/d hike in quotas as spare capacity tightens.
"Declines in Chinese buying, and high tonnage supplies have [also] weighed on the freight rates," a Delhi-based market expert said.
Demand in Asia-Pacific was initially weak at the start of January, partly because of China's uncompromising zero Covid-19 approach. Chinese imports are also likely to have shrunk as a result of lower oil consumption to meet clean air requirements ahead of the Beijing Winter Olympics this month, which limited industrial and manufacturing activity in north China. Beijing cut the first batch of crude import quotas to non-state-owned firms for 2022 by 11pc compared with 2021.
Rising crude prices and a fall in the "weight of freight" (WoF) - the freight cost as a percentage of the delivered price of the commodity - have yet to boost spot demand. Front-month Oman crude prices rose by 37.4pc to $90.01/bl on 9 February from a low of $65.50/bl on 19 August 2021. The WoF for Oman crude into Singapore fell to 2pc from 2.5pc on 19 August.
But there is limited potential for a further fall in freight rates, as increased bunker fuel prices since the start of the year have pressured time charter equivalent (TCE) rates - the $/d earnings for non-scrubber fitted vessels - into negative territory.
Argus TCE rates on shipments from Ras Tanura to Singapore and to Qingdao fell to negative $2,276/d and negative $1,137/d on February 9, respectively, from $2,520/d and $3,950/d on 3 January.
Prices for very low-sulphur bunker fuel oil with a 0.5pc sulphur content in Singapore rose by $79.24/t to $708.24/t on 9 February from $629/t on 3 January.
Chinese refining margins have strengthened in recent days, and there have been signs of independent refiners joining state-owned firms in the market to replenish low inventories. [Demand for west African crude has been steady, including from Asia-Pacific buyers. But the shipping market remains fundamentally oversupplied and an instant reaction for Suezmax rates seems unlikely, unless driven by higher bunker fuel costs.
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Argus Media Limited published this content on 10 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 February 2022 14:42:03 UTC.
