Long Range 2 tanker freight rates on the naphtha route from the Mediterranean to the East have dropped to a fresh 18-month low after an extended period of muted activity on the route. The lower freight cost in combination with a higher east/west naphtha spread might lead to increased trade on the route, according to oil traders.
The Mediterranean to Japan route is a primary trade flow for European naphtha suppliers who rely on buyers in Asian to clear their marginal excess of product.
The Mediterranean-Japan route for 80,000 mt cargoes was assessed at lump sum $1.4 million Tuesday, down $100,000 from Monday. It is the lowest level assessed since November 2016 and below the previous 2018 low of $1.5 million the route first hit on February 14. The route didn’t drop below $1.5 million throughout all of last year.
The equivalent LR1 Med-Japan route also dropped by $100,000 to lump sum $1.3 million Tuesday.
“Rates are super low — $1.6 million was done out of the Black Sea,” one shipbroker said Wednesday. “There are too many vessels in the west basically, with fewer cargoes recently.”
The LR2 Seastar was heard fixed Tuesday to carry 80,000 mt of naphtha from Tuapse in the Black Sea to Japan at lump sum $1.6 million. Black Sea cargoes usually cost around $150,000 more than the equivalent Mediterranean loadings. Also, the Pacific Sky was heard on subs for a May 24 loading of 80,000 mt of condensate on the Melittah-Singapore route at $1.1 million. Japan options usually come at a $300,000 premium over Singapore rates.
According to naphtha sources in Europe, lower east/west spreads — the premium of CFR Japan naphtha cargo swaps over the CIF NWE naphtha cargo swap — which have fallen steadily since the beginning of the year are now being offset by the cheaper clean tanker freight costs to ship product from Europe to Asia.
“We haven’t seen demand come off, [cash] differentials between the regions have come up and the cheaper freight and strong backwardation in Europe helps to move barrels east,” said a source.
Naphtha cargoes in the Mediterranean are also said to be clearing efficiently on strong local petrochemical demand, with the market edging towards tighter supply.