Product tanker owners could be set for a boost as diesel stockpiles run low in Europe, Clarksons Securities believes.
Analysts Frode Morkedal and Even Kolsgaard argue the European market is currently witnessing a “confluence” of factors that strongly indicate a positive rate trajectory.
“A slim supply cushion for diesel, paired with increasing diesel prices, is the immediate indicator of potential supply-chain tightness,” they said.
“Historically, such scenarios have led to increased demand for transportation of the product across regions, pushing freight rates upwards,” the analysts added.
Product tanker earnings continued to firm over the last week, rising 16% for LR2s to reach $41,000 per day for modern eco-vessels.
LR1s and MRs are both earning around $36,000 per day.
Further adding to the bullish sentiment for tanker rates are the cyclical and seasonal pressure points, Clarksons Securities said.
With low fleet growth, the available tanker capacity remains relatively steady, the investment bank explained.
“However, the onset of winter traditionally sees an uptick in oil demand, particularly for heating purposes. This seasonal demand spike combined with restrained fleet growth, should provide substantial support for freight rates,” Morkedal and Kolsgaard said.
Aside from the immediate seasonal factors, inventory cycles have an impact.
Stockpiling lower than usual
According to Argus, Europe’s summer stockpiling has been lower than usual due to unexpected refinery outages and a tighter Asian market, disrupted by the European Union’s ban on Russian oil imports. Middle distillate inventories in Europe are currently 18% lower than pre-2021 levels.
Singapore owner Hafnia reported a 3.4% year-on-year increase in product tanker tonne-miles for July, while shipments increased 4.4%.
“This implies a 1% decrease in average hauls year-over-year, a trend we expect to reverse,” the analysts said.
Europe’s diesel imports are likely to come from distant regions such as the Middle East, India, or the US Gulf.
“We believe product tankers are well-positioned to benefit from a potential winter rally, given the positive seasonal trends and the need to replenish inventories,” the analysts added.