Product tanker owners may be about to enjoy record rates as the upcoming European Union ban on seaborne Russian oil turbocharges the sector.

Clarksons Securities believes capacity utilisation for clean carriers has reached 92%.

Analysts Frode Morkedal and Even Kolsgaard said: “When the market is so tight, even a small percentage shift has a significant impact.”

They argue that if utilisation changes by 1%, LR2 numbers can fluctuate by $12,000 per day.

Considering that 1% of the market for seaborne trade is only 230,000 barrels per day (bpd), freight rate fluctuations are to be expected, the analysts added.

If the EU ban ends up shifting 1m bpd of oil products to tanker journeys that are twice the usual distance, this might improve product tanker utilisation by 6% or 7%, they estimate.

“Most likely, the difference in diesel prices between Europe and Asia will limit how high rates can go, but if utilisation is increased by 7%, LR2 earnings might theoretically reach $250,000 per day,” Morkedal and Kolsgaard said.

There has been no let-up in the product tanker industry’s volatile freight rates, Clarksons Securities said.

Frode Morkedal: Clarksons Securities’ managing director of equity research says increasing diesel prices are attracting cargoes from the Middle East Gulf, and even Asia, boosting LR2 rates Photo: Clarksons

Margins rising

Last week, earnings for modern LR2s increased by almost 20% to $58,000 per day.

LR1s were up 10% to $46,000 per day, while MRs were slightly lower at $35,000 per day, after falling 28% in the past month.

Diesel refining margins are again rising quickly, explaining last week’s rebound in freight rates.

The analysts explained that because hydrogen derived from natural gas is used to remove sulphur in refinery units, the rising cost of natural gas is having a detrimental influence on European refinery output.

Increasing diesel prices are attracting cargoes from the Middle East Gulf, and even Asia, causing LR2 rates to rise, they said.

And the US government has written to refineries, demanding that US product exports be restricted due to low gasoline and diesel stockpiles ahead of hurricane season.

A total ban is reportedly not being considered, however.

“Despite the fact that just 15% of US product exports of about 6m bpd went to Europe this year, restricted exports would likely have an impact on European diesel pricing and may result in increased arbitrage opportunities,” said Morkedal and Kolsgaard.