INSIGHTS
LR2s Dirty Up
Posted on 28 Apr 2022
By Claire Grierson
Senior Director SSY Consultancy & Research
Several LR2 owners decided to switch their vessels from trading clean to dirty in April to capitalise on the comparatively firmer Aframax earnings. According to SSY tracking, 13 vessels have dirtied up already in 2Q22, which is up from 7 in 1Q22 and the highest quarterly number since 17 vessels switched to trading dirty during 1Q20.
Source: SSY
In the month to date, average Aframax earnings (Cross-UKC, USG-TA, Indo-Aus) rose to their highest level since May 2020 to $27,200/day, up from $16,900/day in March. With trade flows being disrupted as oil companies self-sanctioned and shunned Russian volumes, there has been an uptick in demand for more short-haul crude barrels to be shipped to Europe as buyers shifted to more immediate suppliers. In particular, Atlantic Basin Aframax rates have been bolstered by elevated demand for US crude in Europe, while returns for voyages from the Baltic, Black Sea and Russian Far East have been boosted by reduced vessel options as a number of shipowners were unwilling to load from Russian ports.
Conversely, average LR2 earnings (MEG-Japan, MEG-UKC) peaked at $18,100/day in March, their highest since May 2020, and eased to an average of $12,700/day so far in April. The east-west naphtha spread has been unsupportive of eastbound arbitrage flows since February and petchem naphtha demand in Asia has fallen due to weaker margins and cheaper alternative feedstocks. This earnings differential to Aframaxes incentivised some LR2 owners to look toward the DPP market.
This increase in LR2 vessels trading dirty was expected to lend support to the clean market and at the start of this week MEG LR2 earnings have soared. This is being driven by demand for middle distillates, especially diesel, in the Atlantic which is offsetting the fall in Asian naphtha import demand and is now squeezing vessel supply. With a reduced number of tankers being fixed for west-east voyages, SSY brokers have reported that some LRs have been ballasting from the Mediterranean into the Red Sea or to the Middle East Gulf to pick up westbound cargoes, creating fleet inefficiency, and now MRs are doing the same. LR2 MEG-Japan earnings on April 26 jumped to the highest since May 2020 at $36,400/day.
By SSY Tanker Research
April 2022
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