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The world's oil refineries are unable to produce enough diesel

The world's oil refineries are unable to produce enough diesel, denying from economies the fuel they rely on to run their industries and transports and triggering a new round of inflation. Oil prices have soared during the past month, around 15% up, touching levels not seen since November 2022, with the WTI closing the week at roughly USD 90/barrel and the Brent at around USD 94/barrel, also affecting oil’s derivatives prices such as diesel. For instance, US diesel’s sales price rose to its highest level ever for this time of year to around USD 195, while in Europe, the equivalent has risen by 60% since the summer. No one could dispute that the situation may get worse, given the tight supply of crude oil.

Earlier in September, both Saudi Arabia and Russia announced their extension of crude oil supply cuts until the end of current year, when the demand for oil increases depending on the duration and the temperatures of winter. On top of that, Russia earlier this week, imposed a temporary ban on gasoline and diesel exports to stabilize the domestic market and control domestic prices, following complaints from drivers and farmers about the impact of rising fuel prices. According to the statement, the ban does not apply to fuel supplied under intergovernmental agreements to members of the Moscow-led Eurasian Economic Union, which includes Belarus, Kazakhstan, Armenia, and Kyrgyzstan. Within September 2023, Russia has already reduced its seaborne diesel and gasoil exports by nearly 30% to around 1.7 million metric tons compared to August 2023 exports. Refineries in Russia typically produce twice as much diesel as is needed to meet domestic demand and export half of their production each year. According to IEA data, Russian refineries processed 5.6 million barrels of crude oil and exported 2.8 million barrels of oil products in 2021. Russia’s decision to ban gasoline and diesel exports temporary may create more disturbance to the tanker market trade. However, the significancy of the impact on the market depends on how “temporary” this decision will be. With global demand of product oil remaining stable or having slightly upward trend and supply of Russian product oil decreasing, vessels utilized to transport Russian products may be released to the spot market of non-sanctioned trade, increasing the supply of vessels and having a negative effect on the freight rates.

September is a month of joy for bulker trade. The Baltic Dry Index has climbed to 1,569 points, a point not seen since 12 of May 2023. The market on Thursday 21 September 2023 was at four months highs at 1,584 points,70% higher than the 919 points of 2nd June 2023. Despite the awareness about the Chinese real estate sector weaknesses and the problems at the Panama Canal, the market seems to be quite optimistic about the future. Chinese imports and exports of iron ore, steel and coal are moving in higher grounds compared to one year before (as we have mentioned in a previous report) even if China’s real estate sector is facing many problems. This increase, along with the recent package of measures taken by the Chinese government to boost growth and support the real estate market and the yuan, has created many prospects for the future of the market. Especially the average freight rates for Handysizes 7 T/C routes are moving to higher grounds continuously since 8th of August 2023, reaching at USD 12,068/ day, while the 10 T/C routes for Supramaxes is at USD 14,907/day having seen only one negative closing since the 8th of August. The 5 T/C route for Capesize is at USD 17,274 /day and the 5 T/C routes for Panamaxes is at USD 15,164/day making all the vessels sizes profitable for their owners and investors. These rates are probably the evidence that China’s dry bulk demand is not driven mainly by its property sector and that dry bulk seaborne trade can keep its “head up high” even with China’s growth not at full speed.

The profitable dry bulk market is leaving space to owners and investors to look at the next day of shipping, and more specific, the ways to achieve the zero emission targets. Pherousa Green Shipping after announcing its newbuilding plan for six Ultramaxes with onboard ammonia crackers which will allow the vessels to run on hydrogen fuel, made an agreement with Norway’s Teco 2030 for fuel cells. It is believed that bunkering ammonia and cracking to hydrogen on board the vessel might be the solution for storage and infrastructure challenges of hydrogen as marine fuel. If they are right is yet to be seen, as the first vessel is expected to be delivered within 2026.

Sale and Purchase:

It was another active week for the dry bulk market, with shipowners being “in rush” to buy before the current rise in freight rates drives the vessels’ value higher, with buying interest across all segments. On the Kamsarmax sector, Greek buyers acquired the “Nord Sun” - 82K/2013 Tsuneishi Cebu for region USD 22 mills, while the Scrubber fitted Panamax “Sanko Fortune”- 75K/2012 Sasebo was sold also to Greek buyers for USD 20 mills basis delivery “as is”, since one of the generators was out of order. Moving down the sizes, the OHBS Japanese built Handysize “Copacabana”- 37K/2011 Saiki found new owners for low/ mid USD 15 mills, while the same age Chinese built “Purple Sea”- 35K/2011 Nantong Changqingsha changed hands for USD 11 mills.

On the other hand, tanker S&P activity was low, with only a handful of sales to report. Greek buyers acquired the LR2 “PS Venezia” - 109K/2010 Hudong Zhonghua for low USD 37 mills, while the five-year older Scrubber fitted Aframax “Wonder Vega” - 106K/2005 HHI found new owners for USD 31.5 mills. Finally, the MR2 “Pyxis Epsilon” - 50K/2015 SPP was sold for USD 40.75 mills to U.S buyers.

Xclusiv Shipbrokers Inc.