Product tanker rates (CPP) in global markets have risen significantly, especially in the Middle East, where CPP flows from the Yanbu field have been affected by Houthi threats. However, clean exports from the Gulf and the Sea of Oman increased to about 2.4 million barrels per day (mbd) in September, showing a remarkable growth compared to 1.4 mbd in August. This increase is part of the full recovery of the Ruwais refinery with a capacity of 922,000 barrels per day, alongside increased traffic in the Strait of Hormuz, particularly by the fleets of regional producers.
Increased Demand and Supply Constraints
High demand for LR shipments due to the large volume of cargoes and ongoing activities in the market, with at least 100 LR2 units engaged in dirty services, has led to a limitation in LR inventory. LR2 rates (WCI-UKC) have reached over $120,000 per day, showing a significant increase from about $50,000 per day in August. Additionally, MR revenues (TC12) have also risen to around $40,000 per day, up from about $10,000 per day during the same period. Meanwhile, the volume of eastern cargoes has decreased due to changes in trade flows, and clean product exports to the east from the Middle East have dropped to about 500,000 barrels per day in September.
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Developments in the East and Global Price Pressures
Activities in the Far East remain high, with strong exports from northern China, reaching 1.08 mbd in September, the highest level since March 2024. Meanwhile, high tanker margins have kept refiners at elevated rates. However, the recent rise in crude oil prices has put pressure on these margins. Preliminary AIS data indicates that while regional LRs, which typically position themselves for long journeys to East Africa and Europe after discharging naphtha cargoes in the Asia-Pacific, are increasingly being diverted, this has negatively impacted LR supply in the Middle East.
Nevertheless, the market outlook remains uncertain. Geopolitical risks continue to be a major factor in global CPP supply. Any changes in prices, refining margins, and product spreads could alter trade flows, and export policies at any point could quickly impact cargo volumes and exert downward pressure on rates. Rate volatility in the crude sector could also spill over into the clean sector, where continued strength in crude prices may put LR2 inventory under pressure due to more attractive revenues.
In the East, rumors suggest that Beijing may significantly limit product export quotas in October, which could negatively impact the available cargo volumes in the LR and MR markets. In the West, the potential ban on diesel exports by the United States, currently under feasibility review, could pose a negative factor. Additionally, recovery in Russian refining rates could reshape flows and reduce dependence on U.S. supply. At the same time, winter heating demand and weather disruptions could be supportive factors that keep rates elevated.
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