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The USG market shifts from Aframax to VLCC

This article examines recent progress and initiatives by the shipping industry to meet new IMO targets and provides Signal Ocean Platform data on emissions developments and trends.

The Signal Group
February 28, 2024

Signal Maritime examines current trends in freight and oil flows for the Aframax USG market using Signal Ocean Data

The first quarter of the year ended, and in April there was a sudden drop in rates in the Aframax USG market, which drew attention to the reasons for this trend, as we can already observe the new pattern of oil flows from the Russian Pacific to Asian countries. We are already seeing a general increase in dirty tonne-miles as the U.S. is in the process of replacing Russian oil supplies for European countries. Back in October 2022, we saw an upswing in VLCC rates as the monthly volume of crude shipments from the U.S. to China and India increased significantly and rates shot up in line with demand growth (in tonne-days and miles). Not only did this trend not lose momentum, but it continued to strengthen with the role of the U.S. oil market in European energy demand. However, Aframax tankers appeared to lose their share of this change in the pattern of oil flows from the U.S. to Europe, while VLCC size gained ground, leading to a greater increase in tonne-days and miles.

In the following sections, we will use Signal Ocean data to show the evolution of rates, supply and demand in the U.S. market and make some comparisons between VLCC and Aframax tankers to show the possibilities for the future as we are in a period of complete oil supply transition, with global news highlighting the role of the U.S. oil market in Europe.

  1. Market Rates - Aframax market USG

Looking at the trend in Aframax market rates USG/Med, we can see (image 1) the significant drop from the end of the first quarter to today, with the decline accelerating in the last three weeks. Signal assessments have shown a monthly decline of about 54% as of April 26, 2023, while the decline since the November peak is 73%. It remains to be seen whether today's slowdown will continue to the same extent as the increased supply of ships puts pressure on prices.

Image 1: Market Prices - Aframax USG/ Med, Signal Assessments https://app.signalocean.com/tanker/dynamic/market-prices-tankers

II. Supply Market Trends

Over the past three months, the supply trend for the Aframax USG market has shown strong volatility, with an average increase of more than 70 vessels from mid-April, leading to a decline in market prices over several weeks through April 20. However, the trend of the last few days seemed to have halted the sharp acceleration in the number of vessels, resulting in a flat dynamic of rates at levels above 100 WS, but still well below the highs of 270 WS after mid-March. (Image 2).

Image 2: Supply Trends - Aframax USG Gulf Med RatesLoading port: Loop, U.S., Commercial Status: Available, Max ETA: 10 days forward, last 90 daysPushed Status: Pushed information (if available from the emails in your account). Latest AIS since: Maximum number of days from latest AIS received. Trade: This selection includes all vessels competing for cargoes in the selected trade: i. Vessels that are currently in this trade. ii. Vessels that are willing to compete for this trade (as advertised in tonnage lists). Market deployment: Market deployment based on Signal Ocean information. Market Rates: Market rates for the relevant route. Commercial Status: Commercial status of the vessel at each point in time. Max ETA: ETA window for available vessels to reach the loading port. Last X days: Number of days back (from today) to start the chart. https://app.signalocean.com/tanker/reports/historicaltl

III. Crude Oil Flows - USG to Europe

Recent developments in the supply of vessels in the Aframax USG market have led to uncertainties regarding the share of Aframax tankers in the oil trade to Europe, since in the past most Aframax cargoes loaded in the USG have gone to Europe. However, it must be said that there has been a shift from Aframax size to VLCC. Looking at the evolution of oil flows from the USG market to Europe, it is clear that VLCC vessels are now more involved in the oil trading from the USG market to Europe (image 3). March recorded the highest peak seen over the last three years for the US crude oil exports to Europe with the VLCC size topping on the other crude tanker vessel size categories.

Image 3: Crude Oil Flows - USG to Europe, 2020-2023 https://app.signalocean.com/tanker/dynamic/oilflows

As can be seen in Figure 4, the first quarter of this year ended with VLCC tanker size accounting for 39% of oil traded from the USG market to Europe compared to a 7% share in the same period last year, while Aframax tanker share declined to 31% from 65% in the first quarter of 2022. There appears to be limited potential for this ratio to change in Q2, with VLCC size continuing to take oil trade business from Aframax size and Aframax size share declining even further.

Image 4: Crude Oil Flows - USG to Europe, by tanker size https://app.signalocean.com/tanker/dynamic/oilflows

IV. Demand Ton Miles 

The increase in trade of VLCC oil from the United States has resulted in a tremendous increase in dirty ton-miles to historic highs. This trend is clearly evident for all destinations and for Europe as the global economy appears to need more crude oil imports (image 5). This upturn is expected to continue as global oil demand is in a strong recovery phase. According to the latest IEA report of March, global oil demand growth, after declining by 80 kb/d in 4Q22, is projected to accelerate significantly during 2023, from 710 kb/d in 1Q23 to 2.6 mb/d in 4Q23, while average annual growth is projected to slow from 2.3 mb/d in 2022 to 2 mb/d, with global oil demand reaching a record 102 mb/d.

Image 5: VLCC TonMiles USG to All Destinations and to Europe https://app.signalocean.com/tanker/reports/toncharts-trade

The picture of VLCC ton-miles growth in the USG market is at odds with the case of Aframax ton-miles, where a sharp slowdown has been observed in all countries and in Europe, with limited expectations for an imminent change as VLCC tankers gained a dynamic presence.

Image 6: Aframax TonMiles USG to All Destinations and to Europe https://app.signalocean.com/tanker/reports/toncharts-trade

Looking ahead, we can say that it seems to be a year for VLCC tankers as global energy demand recovers and it seems to be more affordable to transport the larger volumes of European oil with VLCC tankers instead of Aframax tankers. Meanwhile, Asian countries also need larger quantities of oil more quickly, and VLCC tankers are more ready for immediate deployment, while Aframax tankers are also used in the Black Sea and Mediterranean oil trades. In the longer term, the need for U.S. oil to fully replace Russian oil losses is more likely to shift to a VLCC market for the USG crude oil transportation, while Aframax tankers are likely to retain their lion's share of the Black Sea and Mediterranean trade.

It is interesting to underline the issue that the expectations for higher oil demand this year are mainly driven by the Chinese economy, and it seems to be more difficult to meet the trade demand with the VLCC tankers already deployed on the USG route, while in the past they were more on the AG to China route. The fierce competition among the crude tanker sizes in the USG to Europe route with Russian oil destined to China, creates challenges for the future in oil trade flows as Europe has already implemented a shift away from the Russian oil with the U.S. market on the pathway for gaining the top ranking in the replacement market. However, the increased oil demand of Chinese needs also to be served from the AG market, where vessels supply is already at significantly lower levels than a year ago. (image 7)

Image 7: VLCC Supply Trend, 2022-2023 https://app.signalocean.com/tanker/reports/historicaltl

As we are already in the trade flow restructuring phase, it is foreseeable that more oil will need to be transported for AG and it is likely that Aframax and Suezmax tankers will take some significant shares of the VLCC size business. In addition, global demand for dirty ton-miles is expected to remain elevated due to recently estimated higher oil demand from the eastern and western regions. Therefore, we continue to look forward to the next trends in oil flows from the USG market with the existing increasing competition between VLCC and Aframax tankers to Europe and all other destinations.

-Republishing is allowed with an active link to the source
Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert
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Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert

Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

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