Clarksons Research calculates that June was the best month ever for resurgent product tankers.
The UK company’s shipping research analyst Rachel Ibbetson said the sector had strengthened significantly so far this year, with a clear impetus from shifting trade patterns, mainly as a result of the conflict in Ukraine.
Average clean carrier earnings stood at $49,685 per day in June, up from an average of around $7,000 across 2021, representing the strongest month on record, she added.
The past few decades have seen multiple periods of strong product tanker earnings, the analyst explained, including spikes seen several times through the “boom” years of the 2000s.
Average clean product tanker earnings rose to over $40,000 per day on a number of occasions in 2004 and 2005 on the back of strong products trade growth — 10% in both years.
And smaller spikes were seen in 2007 due to knock-on impacts from an oil spill from a single-hulled crude tanker, and in 2015 due to lower oil prices.
Earnings in both cases briefly exceeded $30,000 per day.
Clarksons Research also logged earnings surged to a whopping $94,523 per day in late April 2020, almost double the prior record.
“This extraordinary spike came on the back of rapidly building oil stocks as the Covid-19 pandemic led to lockdowns in key regions, driving a sharp rise in product tankers engaged in floating storage (10% of fleet capacity in early May 2020, versus more than 1% at the start of the year),” Ibbetson said.
Against this backdrop, the current period of market strength has been notable for two reasons, she argues.
Firstly, average clean product tanker earnings have risen to some of the strongest levels on record, with earnings in late June of $57,112 only previously exceeded by a handful of weeks in April and May 2020.
Secondly, strong rates have been apparent for a sustained period of time.
In the second quarter of 2020, earnings stood at more than $30,000 for just four weeks, and had dropped back to $12,000 seven weeks after the peak.
“By contrast, product tanker earnings this year have now remained above $40,000 per day for 12 consecutive weeks, the longest stretch on record,” Ibbetson said.
“Strength has been seen across the size segments, with LR2, LR1, MR and handy earnings all averaging over $35,000 per day in the last three months,” she added.
Market tightness has reflected a range of drivers, the analyst argues.
Demand on the up
Fleet growth is projected at just 1% this year, while demand has been growing firmly, with products tonne-mile trade forecast to expand by over 8% this year, to stand 7% above the 2019 level.
Shifts to longer-haul routes have been driven by the Ukraine war.
Europe is sourcing more cargoes from the US, Middle East and Asia.
The pattern of refinery start-ups and closures in recent years has also contributed to tonne-miles, as well as increased inter-regional arbitrage opportunities, with stocks depleted in key regions and product pricing and refinery margins at very strong levels historically, Ibbetson added.
“With a range of supportive drivers at play, as 2022 has developed the product tanker market has clearly moved into a very positive phase,” the analyst concluded.