Freight Market Faces Decline Amid Weak Demand
The Baltic Dirty Tanker Index (BDTI) has seen a significant downturn, dropping 15% over the past month, effectively reversing the gains made in the previous 30 days. This decline is primarily attributed to a slump in the Atlantic market, where suezmax rates plummeted by 45%. Despite these disappointing figures, ship owners can still achieve a reasonable operating profit at current levels, raising questions about the future of the freight market as the driving season approaches.
Shifting Trade Dynamics and Earnings Trends
As of late May, the average daily earnings for Very Large Crude Carriers (VLCCs) stood at $42,489, slightly down from $44,877 in the first five months of 2024. This period included a particularly strong January, where earnings exceeded $57,500 daily. The earnings for voyages from the Middle East Gulf (MEG) to China have also seen a decline, with the Time Charter Equivalent (TCE) dropping to $41,782, a 21% decrease from the previous month. Similarly, the TCE for voyages from the U.S. Gulf to China fell by 9%, now assessed at $40,738 per day.
In a notable shift, Canada’s seaborne oil exports to China surpassed those to the U.S. for the first time in May, with shipments reaching 290,000 barrels per day (bpd) compared to 286,000 bpd to the U.S. This change is driven by increased exports from Canada’s west coast, bolstered by the trans-Mountain pipeline, which has ramped up to nearly 900,000 bpd. The U.S. continues to receive around 4 million bpd from Canada, benefiting from a halt in Venezuelan oil supplies. Additionally, a 10% tariff imposed by China on U.S. oil has made Canadian oil more competitively priced.
Challenges in the Suezmax and Aframax Markets
The suezmax sector has faced significant challenges, particularly on the Guyana to ARA route, which recorded a 43% drop in freight rates, falling to $28,826 per day—the lowest since January. Rates for suezmax vessels traveling from West Africa to Europe also plummeted by 44%, now averaging $29,752. Despite falling crude oil prices supporting refinery throughput, European refiners have been hesitant to build inventory, further impacting the market.
VLCC Tonne days growth from AG to China has decreased to the lowest level since the end of 2022
The aframax market has not fared better, with daily earnings from the North Sea to the UK declining by 45% to $36,807 and from the North Sea to Germany down by 29% to $38,759. In the Caribbean, aframax earnings fell by 56% to $22,803, while the U.S. Gulf to ARA route saw a 47% drop to $25,429. Although these figures are disappointing for ship owners, the prospect of falling crude oil prices and the upcoming driving season may provide a glimmer of hope for recovery.
In contrast, the oil products tanker freight market experienced a rebound in mid-May, with the Baltic Clean Tanker Index (BTCI) rising to 724 points, an 8% increase from April. Chinese refiners are reportedly responding positively to lower crude prices, which are enhancing margins and production levels. With the month nearing its end, Chinese clean product imports are already matching April’s total, indicating a potential shift in market dynamics.
As the freight market navigates these turbulent waters, the ongoing trade tensions and fluctuating demand continue to create uncertainty for ship owners and charterers alike.
