Asia tanker rates hit multi-month high as vessels divert to US, Mexico

[SINGAPORE] Freight rates for oil product tankers in Asia hit a multi-month high this week on reduced availability as vessels were diverted to ship fuel to the US and Mexico in the wake of Hurricane Harvey.

Some bigger tankers are also being used as temporary storage for gasoil as traders hold fuel on expectations of tighter supply and improved demand in the fourth quarter. This has compounded the shortage of vessels.

Oil trader Winson Oil, for instance, has been aggressively buying in Singapore, snapping up millions of gasoil barrels.

Rates for Long-Range 1 (LR1) tankers, which carry about 55,000 tonnes, climbed to a near nine-month high for the Middle East to Japan route CFRT-ME-JAP2 on the World Scale (WS), a shipping index benchmark, at 143 WS on Sept 18.

Rates for LR2 tankers, which carry around 75,000 tonnes, were near a one-month high for the same route CFRT-ME-JAP at 119 WS point on Sept 18.

LRs are used to ship mainly naphtha from the Middle East to Japan, but they are also used by the Middle East, India, Singapore and South Korea among others, to ship gasoil and jet fuel to various countries.

However, there has been a recent rush to use LR tankers and smaller medium-range tankers to ship middle distillates to the US and Latin America.

Although US demand has waned as refineries have gradually come back on line since Hurricane Harvey struck late last month, several vessels are still in Europe, which had been shipping fuel to the US.

The WS points for medium-range (MR) tankers from Singapore to Japan, for example hit 203 on Sept 18, a 38 per cent jump from 147 on Aug 1, data from a shipping brokerage showed.

The rate for MRs serving the Singapore-Australia route at 260 WS points was nearly 20 per cent higher than 217 WS points on Aug 1.

"Hurricane Harvey, Irma and the earthquake in Mexico have given support to tanker demand and increased the shipping flows from Far East/Singapore to US West Coast/Mexico as well as the Middle East/West Coast India to US East Coast," said a source who monitors shipping fixtures.

The same source estimated that some 15 to 20 middle-range tankers and some 10 to 15 LR1s were fixed to ship product between Asia, US West Coast and Mexico.

Even before storms and earthquake had struck the US and Mexico, prompting refineries there to shut, freight rates for MRs were trending up because of Middle Eastern demand for fuel.

"I think the rates will remain high until mid-October at least. It usually takes about one month for the ships to turn around from the US back to North Asia," said a second source who tracks tankers.

REUTERS