MR product tankers earning more than VLCCs

Even though MR product tankers cost three times less than VLCCs, the smaller vessels have been earning more than the supertankers in western markets, and there are fundamental factors driving product tanker rates higher and VLCC rates lower.

There has been a significant dip in cargoes for VLCCs and other types of crude carriers on the back of OPEC cuts in their crude output.“OPEC is supposedly trying its best to cut 4.2 million barrels per day (bpd) from the market. Full compliance is equivalent to at least two VLCCs out of a job every day,” said one broker to Tankerworld.“However, the same downturn in trade is not necessarily the case for products, where the interaction between regional refinery throughput and oil demand can lead to substantial arbitrage trades taking place,” said Gibson.According to Gibson, the Atlantic basin gasoline market is a good example of this, “with European exports pressurizing US refinery margins to such as extent that US refiners have had to cut throughput.”“However, US gasoline demand has started to pick up seasonally with the driving season now under-way. These factors, along with recent refinery outages, have led to US gasoline stocks falling sharply to levels lower than a year ago, which in turn has supported the market and given rise to increases in gasoline trade from NW Europe to the US.“Add to this more gasoline trade to West Africa and Mexico, along with congestion in NW Europe and there has been enough activity to push the MR market much higher over the past 4-5 weeks,” Gibson said.

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