The high compliance cost of US environmental regulations are shifting product tanker demand from northwest Europe to the US Gulf, a senior tanker analyst has argued.
Each year, the US Environmental Protection Agency issues Renewable Volume Obligations (RVOs) setting the level of biofuels needed in domestic sales of road fuels.
To meet this requirement, US oil companies need to blend biofuel into their supply or purchase renewable credits from peers that exceed the blending requirements.
The price of such credits has risen to all-time highs in recent weeks due to regulatory uncertainty and expensive biofuel, according to some market reports.
Anoop Singh, Braemar ACM Shipbroking’s regional tanker research head, said the development has incentivised US fuel exports and curbed imports.
“At play is the rising cost of renewable fuel credits,” Singh said in a note. “Pricey credits, we believe, are likely to keep product exports from the US Gulf elevated.”
Kpler data showed the US Gulf exported 15.9m barrels of refined products in the week beginning on 10 May, the highest since early February.
Exports for the week from Monday are forecast to reach 16.4m barrels.
The development came as the 2.5m-barrel-per-day Colonial Pipeline was shut for five days following a cyber attack on 7 May.
Singh said freight earnings could find support from healthy vessel demand in the US Gulf, where tonnage supply is increasing as shipowners deploy their vessels to the region.
“Refiners and blenders must purchase RVOs to sell gasoline and diesel domestically. Exporting these fuels helps them escape these costs,” said Singh, adding that the renewable credit’s price hit $10 per barrel recently.
“Given an opportunity — by which we mean relatively cheap freight and an accessible export market — product exports from the US Gulf are very likely to remain punchy.”
The Baltic Exchange assessed spot MR earnings for the US Gulf-Brazil trade at $9,578 per day on Monday, down from the recent peak of $20,246 last Tuesday but still higher than $7,030 on 7 May.
MR earnings for shipping refined products from the US Gulf to north-west Europe were $2,800 per day, down from $10,267 last Tuesday but better than -$65 on 7 May.
On the other hand, Singh warned of potential downside for tanker rates in the European market.
Despite rising US gasoline demand entering summer and lower stocks after the pipeline outage, high RVO prices have reduced arbitrage opportunities for shipping European cargoes to the Atlantic coast.
“It is in Europe and on the transatlantic MR gasoline route that we are starting to grow more cautious on account of rising RVO prices,” Singh said. “The RVO adjusted gasoline price does not currently support arbitrage flows.”
