Scorpio Tankers is optimistic about product tanker prospects as crude vessels move back out of clean trades.
Rates had come under pressure from the summer as dirty vessels cleaned up their tanks to capitalise on better earnings for product cargoes.
But Scorpio now notes “rates improving as maintenance eases and crude vessels move back to dirty”.
The US-listed product tanker owner cited data from consultancy Vortexa showing two VLCCs and 15 suezmaxes have exited the clean market.
Vortexa also lists three more VLCCs and four suezmaxes as likely to make the switch back, with one of each size converted to floating storage and offloading units.
One VLCC and four suezmaxes remain in the clean market for now, but are not seen as likely to stay in these trades long-term, according to a presentation related to investors.
The move back to crude trades has been prompted by increased refinery feedstock demand and a narrowing spread in rates between VLCCs, suezmaxes and LR2s, Scorpio said.
It referred to data from shipbroker Clarksons showing LR2s were as much as $50,000 per day ahead at the beginning of 2023, but are now about $5,000 above crude vessel earnings.
Scorpio said there had been a significant increase in product tanker rates overall since the Russian invasion of Ukraine in 2022.
It noted robust product demand and low inventories leading to record levels of seaborne exports.
“Refinery closures and additions continue to reshape global trade flows and increase tonne-miles,” Scorpio said.
Tonne-miles still rising
Distances are also rising due to refining capacity being further away from consumers, as well as a change in flows caused by the Ukraine war, and rerouting of ships around South Africa to avoid Houthi attacks in the Red Sea.
Clarksons Securities said this week that clean tanker rates are set for a rebound as crude tankers are lured back to their own markets by rising earnings this winter.
The investment bank believes these “crude cannibals” account for 3% of clean capacity, up from 1% in September.
However, in tonne-mile terms, these vessels represent close to 6%, as many are operating on long-haul routes around South Africa, analysts led by Frode Morkedal calculate.
They believe LR2 rates could hit $60,000 next year, from $25,600 now.
Scorpio Tankers also said it has cut debt by $2.2bn since the end of 2021.
In addition, from the beginning of 2023, it has bought back $774m of its own shares and paid $101m in dividends.
