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Mediterranean Crude Moves East

Sept. 19, 2017

The Mediterranean region continues to grow as a demand center for dirty tankers from a load perspective as the run up in regional crude supply has pressured pricing and increased arbitrage opportunities in a lower freight rate environment.  Mediterranean crude supply is on track to rise by 460,000 b/d this year amid a recovery in Libyan and Kazakhstan production as well as redirected Russian barrels into the Black Sea.  The majority of this supply is sent into the European refining system, supporting intra-Mediterranean tanker demand; however, we have observed an increasing amount of additional crude making its way to the East as importers seek to take advantage of lower crude costs over traditional sources in the Middle East, where crude pricing has remained buoyed by OPEC production cuts. 

Ton-mile demand generated by the the Mediterranean has expanded by about 15.5% year-on-year over the first six months of 2017 amid higher trading with India, the Far East and South East Asia.  The figure below illustrates that the expansion of tanker demand is not only a result of higher volume transported, but also increased trading along long-haul routes.  We expect this region to be a major growth market for tankers this year as VLCC demand loading in this region is on track to expand by 4.0%, while Suezmax and Aframax demand is forecast to rise by 31% and 27%, respectively.  In our view, significant growth will be witnessed to the East; however, strong crude demand along the US Atlantic Coast has also drawn in more volumes from this region, which will likely continue over the remainder of the year.  

 


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The Mid-Year Tanker Market Outlook Update provides an outlook for spot market freight rates and TCE revenues for 19 major tanker trades, including two triangulated trades, across eight vessel classes for the second half of 2017 and the remaining four years of the forecast period to 2021.  We revisit our forecasting process at the mid-year point, distilling data from the first half of the year to better understand recent market developments and expectations for the future.  In our view, this process allows us to accurately adjust our forecasts and provide additional value to our clients.