Crude tankers cleaning up to trade products lopped off approximately $17,000 per day from LR2 spot rates in the third quarter, according to Clarksons.
The shipbroking giant said LR2s were estimated to have earned an average of $38,000 per day in the quarter ending at the end of this month in a market where 4m dwt of crude tankers made their way into the market to cope with the annual crude tanker summer dip.
Without that extra competition LR2s would earn $55,000 per day, analyst Frode Morkedal and his team said in a note published on Monday.
The shift was helped along by low refinery margins, matched with rising oil product inventories, and declining crude inventories, together taking a chunk out of crude tanker demand.
While it is not uncommon to see LR2 and aframaxes dip into each others’ trades, major owners and operators like Frontline, Okeanis Eco Tankers and Trafigura have cleaned up suezmaxes and even VLCCs to move product cargoes.
On a late August conference call, Frontline chief executive Lars Barstad acknowledged moving suezmaxes into clean trades was “cannibalising” the company’s LR2 fleet.
Trafigura’s global head of wet freight Andrea Olivi said last week at a conference in Singapore that cleaning up suezmaxes and VLCCs was a move to improve efficiency in the market, as product tankers are skipping the Suez Canal for the longer Cape of Good Hope route.
On Monday, Morkedal did not think the trend would persist much longer.
“We believe that rising crude oil overproduction in 2025 could help improve refinery margins, offering upside potential for volume growth,” he said.
Morkedal said trading distances might decline if the disruptions in the Red Sea — the impetus for opting for the Cape of Good Hope — are resolved but that speed reductions due to carbon regulations could provide some relief.
Scrapping, though, is expected to remain limited if rates are high.
“The supply-demand balance for product tankers appears to be stable through 2025, with market weakness not expected until at least 2026,” he said.
