USGC-TA freight rate reaches record high on cargo demand

Freight rates for clean Medium Range tankers on the US Gulf Coast-UK Continent route rose to the highest level on record Friday as several major arbitrages opened, at least for a short term.

The USGC-UKC route basis 38,000 mt was assessed at Worldscale 170, which translates to $37.62/mt.

Platts began assessing the route on April 2, 2012. The previous high was $35.91/mt on November 7, 2013.

Shipping sources pointed to open naphtha and ULSD arbitrages in Europe.

“Markets are ripping,” one shipper said. “There are no Long Range tankers, and both arbs are open. Naphtha is wide open and diesel is open even at these freight levels.”

The rise in freight rates was dramatic. The charge for a Medium Range tanker for the so-called TC14 route sat at w130 for 21 days until Tuesday. The freight rate then rose w40 to w170 in a span of four days ending Friday.

The rush to put ships on subjects also affected Long Range tankers. There are no LR1-class vessels scheduled to be naturally positioned in the Gulf of Mexico before the end of the year.

“Guys are even looking at the LR2s now just to lock in ships for their traders since there are no LR1s left,” a broker said.

The salad days for shippers may be at an end, however, as the Gulf Coast ULSD arbitrage to Europe has closed again for most ULSD traders.

“So depending on what kind of freight you were able to secure, it might be open or not,” he said. “But on the increment, it doesn’t work.”

Platts assessed FOB USGC Export ULSD at $605.757/mt Friday, which reflects EN590 quality diesel loading basis Houston with a typical standard clip size of 300,000 barrels loading seven to 21 days forward from the date of publication.

Outright prices for Northwest European CIF delivered cargoes were assessed at $632.75/mt, a closed arbitrage with the $37.62/mt freight cost. But the arbitrage was open by $10.45/mt on Wednesday, Platts data showed.

The opening was enough to boost trans-Atlantic fixtures this week, which had averaged just a few heard reported each day for several months. But 14 were listed from the Gulf Coast to Europe over the last two days of the week — seven each on Thursday and Friday.

US distillate exports tracked by Platts to arrive in Europe rose sharply to around 660,000 mt for December arrival, the highest weekly level tracked by Platts since late August, as US refiners returned from maintenance and looked to reduce inventories ahead of the end of the year.

The US is a major exporter of ULSD to Europe, with some clean product vessels carrying distillates such as gasoil or jet fuel, depending on the economics of the arbitrage.

Latin America has been soaking up much of the extra barrels, with 14 new fixtures reported Thursday and 16 Friday. Not all were likely diesel, but that is the top product supplied to Latin America from the Gulf Coast.

“It seems like they send it south no matter what,” one trader said.
Source: Platts