The devastating tropical storm in Texas is pushing up demand for loading gasoline and gasoil from Asia and is likely to support the overall freight rates, market participants said Wednesday.
Cutting across the vessel sizes, there will be incremental demand for all types of ships — Long Range 1, Long Range 2 and Medium Range — as traders snap up ships to meet the European and American hunger for refined products, they said.
LR2, LR1 and MR tankers typically carry up to 90,000 mt, 65,000 mt and 40,000 mt of cargoes respectively.
Trading companies are keeping their options open to deliver jet fuel or gasoline cargoes into the US or South America and are already making changes to their fixtures, said a source with a clean oil tankers’ owner.
“Lots of last week’s fixtures are now being changed to have additional [destination] options such as Brazil and US West Coast,” the source said. With port operations shut in the US Gulf Coast, it makes sense to deliver cargoes elsewhere in the Americas.
Tropical Storm Harvey made landfall last Friday in Texas and is resulting in the shutdown of refineries. This will delay shipments of cargoes from the US Gulf Coast, both for domestic requirement and exports. These requirements will now need to met from elsewhere.
Additional demand may accrue to move gasoil cargoes from India and the Middle East to Europe and gasoline and jet fuel cargoes to the US. However, uncertainty remains on the extent to which this new or incremental demand can be met from the alternative origins and is likely to push up prices of refined products, sources said.
Roughly 2.33 million b/d of Texas refining capacity remained down due to shutdowns. But with refiners also cutting rates that figure is likely much higher, creating a large, though temporary gap in output of refined products. To make matters worse, the storm has threatened another landfall further east, potentially imperilling Louisiana.
“In addition to the routine cargoes, we are now expecting that there will be more than usual demand,” said a broker in Singapore.
BP has chartered an MR tanker at $1.25 million for September 8 loading of refined products on the Singapore-US West Coast route, sources said. There is also an option to take the cargo to the US Gulf Coast by paying an additional $250,000, they said. The rate is significantly higher than the last done levels, they added.
“The could be the first of [many] more inquiries due to the [US] storm,” said an MR broker in Singapore.
“There are a decent amount of inquiries today,” said a Singapore-based chartering executive with a global oil refining and trading company.
Reliance has an LR2 cargo for September 15 gasoil loading in Sikka with multiple options, said a Tokyo-based chartering executive with a global commodities trading company. Kuwait has an LR1 refined products cargo for September 11 loading in the Persian Gulf, again with multiple options.
Traders want to keep their destination options open, a senior executive with a major oil tanker company said.
“Traders won’t mind paying an extra amount to change the destination because they may get a higher price for the cargo itself,” the executive said.
Commercial ships have a deviation point or place on sea, prior to reaching which they finalize the destination for loading or discharge. The ships with multiple options of destination, have a common route or passage until they reach the deviation point,
If the ship has already crossed the deviation point and changes the destination, it will entail additional voyage distance, duration, costs which will also have a bearing on the rates.