Atlantic MRs to face market challenges this summer season?

Clean tanker rates are having a stellar performance in 2024, hovering above 2023 averages across all vessel classes. This support is driven by the longer sailing distances on the LRs in the aftermath of the Red Sea attacks, but altogether it is linked with robust global CPP exports over the first 4 months, which kept clean tanker voyage count above seasonal levels.

Clean tanker voyages vs Vortexa Clean Tanker Basket

As we approach the summer driving season however, the demand of the Atlantic MRs seems muted as reflected from the TC2 gasoline transatlantic freight rates, which have been on a downward trajectory since mid-March, currently down by 10% m-o-m. 

There are a few factors at play for this development. Zooming into regional short-term fluctuations, gasoline imports to PADD 1 have come off to a slow start alongside seasonal averages - but below y-o-y values - despite stocks hovering at the bottom of the 5 year range according to the EIA, which ultimately does not help in absorbing the current levels of MR tanker supply in the Basin. Supply is also increasing on the back of favourable weather conditions in the Panama Canal, which has pushed transits upwards, although they have not yet recovered to historical levels. In turn this has facilitated MR tonnage fluidity between Basins, from the Pacific to the Atlantic as of late.

MR fleet distribution by basin (no. of vessels)

Apart from the vessels supply-demand dynamics unfolding in Europe and the US respectively there has been a more structural shift in the cargo availability in the Atlantic. Traditional net-importers of products are attempting energy self-sufficiency in the Basin either by increasing refinery utilisations or via start-up of new refineries (Mexico, Nigeria). In addition, the introduction of a new CPP outlet in this market (Russia) which is gradually satisfied by more vessels belonging to the “dark/grey” fleet has limited trade demand for the mainstream fleet.

Moreover, competition for cargoes also could arise from the MRs’ larger counterparts. Since the Red Sea attacks, MR Atlantic and Pacific earnings have become more sensitive to the LR ballaster dynamics between the two basins. As LRs are predominantly used via Cape of Good Hope (COGH) for East-to-West middle distillate flows, operators are incentivised to stay in the West as the backhaul ballast to reposition has become considerably longer.

However, the demand for “traditional” LR cargoes (gasoline to West Africa, and naphtha to East Asia) is softer, meaning that the LRs heading to the Atlantic will increasingly compete for Atlantic Basin cargoes with MRs. 

According to our data, there are currently a record-number of LRs heading to the Atlantic, which could keep the pressure firm on Atlantic Basin MR earnings at the onset of the summer driving season.