Poten: Aframax Dirty Rates May Sway Clean Operators to Change Ranks

With the earnings for an Aframax trading crude from the Arabian Gulf to South East Asia at USD 33,400/day for a ‘dirty’ voyage versus USD 24,500/day for a ‘clean’ trip, a portion of the LR2 Aframax product carrier fleet will switch from ‘clean’ to ‘dirty’ to take advantage of market discrepancies, according to Poten & Partners’ latest  Tanker Opinion.

These tend to be modern vessels with new or well-maintained coatings. Most of these vessels are controlled by oil traders looking to take advantage of the arbitrage opportunities between markets and cherish the flexibility of these LR2 vessels, says Poten.

Most oil traders also have the advantage of having access to both clean and dirty cargoes and knowing how to optimize the use of such vessels. While large integrated oil companies also move both clean and dirty products, Poten says that the segregation between the upstream and downstream operations of these large organizations makes it much more difficult to switch these vessels back and forth.

For shipowners that operate their LR2s in the spot market, several factors will impact their decision on how, and where, to trade the vessel. First of all, Poten says that moving back and forth between clean and dirty cargoes is not as easy as it sounds, in particular, switching from dirty to clean. After a vessel has carried dirty petroleum products like crude or fuel oil, a charterer will typically require several “clean-up” cargoes, before it will accept the same vessel to carry clean petroleum products. Since this clean-up process complicates and delays the switching between markets, there are only a handful of owners that do this on a regular basis.

Poten also identifies economic drivers as a critical factor in an owners’ decision. One market does not consistently outperform the other and, for a switch to make sense, the owner needs to have a view that one market will provide consistently higher returns than the other for a period of at least 6 months.

This means that if an owner is evaluating whether to move a vessel into the dirty market, he will probably only choose to do this when the market is markedly higher; he expects that the rate discrepancy will last for a while (at least 6 months or so); and  he has the commercial experience and contacts to trade in the crude markets.

Poten says that a significant group of clean trading Aframaxes are currently owned/operated by companies, including commercial pools that are committed to the growing clean product market. Tanker pools which tend to be highly structured commercial vehicles with specific pool point systems and long- term cargo contracts are less likely to switch in and out of markets than independent shipowners, who can be more opportunistic, according to the Tanker Opinion.

As of now, Poten sees only a relatively small group of LR2 operators having both the ability, and inclination, to switch their vessels between markets and even they may think twice given the ever changing rate differentials.

Source: Poten & Partners