​MRs reap rewards from ramped-up refining

The past week has been a good one for owners of MR tankers trading in the spot market. The market driver? American refining. 

Since last Thursday, spot rates have advanced on both the all-important UK Continent to US East Coast (TC2_37) and the US Gulf to Continent (TC14) benchmark routes for MRs carrying clean petroleum products (CPP).

The TC2 route’s timecharter equivalent (TCE) rate has rallied by around 29% from $7,729/day on May 25 to $10,003/day on May 31, according to Baltic Exchange assessments. Growth in rates on the route levelled off as the week progressed, but it was a different story for MRs hauling CPP back to Europe.

The TCE spot rate on the TC14 route has grown by 662% over the past week, according to Baltic assessments. On Thursday, the rate was assessed at $4,509/day, compared to $592/day a week earlier.

A short-term pop in the market

This sudden rise in rates, however, isn’t destined to last much longer but the long-term outlook for CPP cargo availability from the US Gulf continues to grow brighter.

CPP exports from refineries on the US Gulf Coast have risen and are expected to rise further due to higher refinery run rates, rising US inventories and weaker import demand from Latin America. Refinery utilisation in the US has hit its highest seasonal level since May 2005 at 95%, according to data from consultancy PJK International.

Since May 25, Gasoil stocks in the Amsterdam-Rotterdam-Antwerp (ARA) port range declined by 2.6%, PJK data says, which has also helped boost imports from the US Gulf (TC14). Key refineries in northwest Europe and the Mediterranean have been undergoing maintenance, which accounts for the stock draw. Diesel demand in northern Europe, however, remains flat.

Meanwhile, US distillate stockpiles, which include diesel and heating oil, rose last week by 394,000 bbl, almost half the expected 755,000-barrel drop, according to latest US EIA data.

Trump and the Saudis: longer term outlook for products

We might have seen a pop in the market, but CPP exports from the US Gulf Coast will increase dramatically over the next 10 years.

Last year, Saudi Aramco moved to purchase the remaining 50% it did not already own in US-based refiner Motiva from its joint-venture partner Shell. The deal was completed in March and included distribution operations across seven US states, among other things.

Motiva's major facility is the 600,000-bpd Port Arthur refinery on the US Gulf Coast, which is America’s largest in terms of capacity.

During his visit to Riyadh, it was announced

Saudi Aramco announced it will invest a further $12bn in the Motiva refinery at Port Arthur during US President Donald Trump’s made his first official overseas visit to Riyadh on May 20.

In addition, Aramco said it will spend $18bn over the next five years on expanding its activities within the Americas, which will include increasing refining capacity, branching into chemicals and expanding its commercial operations. The company said the investments may be made in new sites, not just its current operations, but gave no further details about expansion plans. What is known is that Aramco has looked at buying at least one additional Gulf Coast refinery and certain chemical plants.

This is in line with plans by other US refiners, who are reportedly looking to increase exports of diesel and jet fuel and expand production of petrochemicals. Domestic gasoline demand is expected peak within 20 to 30 years.

Saudi remains one of the US’s largest suppliers of crude oil, with supply estimated at around 1.0m bpd. With Saudi Aramco’s huge investments in US refineries, it wouldn’t be surprising if crude supply were to be increased further – which is good news for VLCCs, as well as MRs.

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