18 tankers switched from LR2 to Aframax market since Nov 2014 on freight rates rise, returns

Rising freight rates and lucrative returns in the East of Suez Aframax tanker market are attracting clean Long Range II vessels into the dirty market, according to shipping sources.

Peak earnings in the Aframax tanker market have ranged at $70,000-$71,000/day levels this year for an Indonesia to North Asia voyage, while 18 LR2 vessels have switched from the clean tanker to dirty tanker segment since November 2014.

“In the last couple years, late-June and early-July is when the Aframax market really shoots up. This year it started earlier, in May. So the switch really started in early May, and May and June the dirty market was going crazy and strong,” said a Singapore-based Aframax broker.

An LR2 tanker currently earns about $40,000/day on the PG-Japan voyage, while an Aframax earns about $60,000/day on the Indonesia-North Asia route, said market sources.

In May LR2 tankers were hearing an average of $25,000/day, while Aframax tankers were seeing earnings of $35,000/day, said a broker.

The market has largely seen Aframax tankers cleaning up to trade in the LR2 market due to higher earnings in the LR2 segment since they move clean products.

Typically there is a premium for tanker moving clean products over dirty products.

Long Range II tankers typically carry 75,000-90,000 mt cargoes of clean petroleum product. Aframax tankers with epoxy-coated tanks can switch between trading in the clean and dirty tanker markets.

Sources said that Aframax tankers are now built with coated tanks so they can also trade in the clean tanker market, and there are currently 250-300 such Aframax vessels trading in the tanker markets.

A factor boosting the Aframax market was demand to store fuel oil cargoes for a 30-90 day time charter in May and June, however this demand had eased, said market sources.

According to broker estimates, at least 28 Aframaxes have been taken on time charter with storage option since early May and some could be redelivered to owners in the next two months, thereby easing supply in the spot market.

Shipowners said there was no set date when these LR2 tankers would switch back to trading in the clean tanker market.

List of Aframax-sized vessels which have moved from the clean to dirty tanker markets since November, according to market sources:

November 2014: Ocean Unicorn Saetta

December 2014: Sarasota

January 2015: Galway Spirit Ohio

February 2015: Kanata Spirit Seletar Spirit

March 2015: Leyte Spirit Botofogo Sebarok Spirit

April 2015: Donegal Spirit Ocean Crown Pacific Singapore

May 2015: Luzon Spirit Ocean Odyssey

June 2015: Troviken FPMC P Hero Propontis
Source: Platts