Global commodities trader Trafigura has taken advantage of lower freight rates for crude tankers to charter a supertanker and load it with diesel in the Middle East. The shipment marks the first Very Large Crude Carrier (VLCC) to move diesel in bulk from the Middle East to the West in nearly a year.
The VLCC Plata Glory loaded mainly gasoil from Abu Dhabi National Oil Co’s (ADNOC) Ruwais refinery and in a ship-to-ship transfer off Fujairah port this week, according to data estimates from Vortexa and two shipping sources. The vessel has the option to load more fuel before setting off for Africa, possibly Europe after.
The move comes as the costs of shipping fuel from Asia to the West have jumped, forcing vessels to take a longer route via the Cape of Good Hope due to attacks by Yemeni Houthis on ships in the Red Sea. This has tightened the supply of vessels used to ship clean products such as gasoline and diesel.
Traders have been cleaning up Suezmaxes and VLCCs to load gasoil and jet fuel mainly from the Middle East and India’s west coast, taking advantage of the lower freight rates for crude tankers. It costs about $70 per ton to ship gasoil from the Middle East or India to Europe on a long-range 2 (LR2) vessel, compared to $15 per ton on a VLCC.
The option for sellers to discharge some gasoil at African destinations such as Togo and Tanzania on the way to Europe is an added benefit, according to a Singapore-based trade source. This move could alleviate Asia’s supply glut and support refiners’ margins and prices, but may also cap recent diesel price gains in northwest Europe.
Some traders expect more crude tankers to be converted to carry clean products in the next two months as VLCC rates are expected to stay low amid lackluster crude demand in Asia. However, the trend is likely to moderate in August if clean tanker rates show signs of cooling, according to Vortexa’s freight analyst Ioannis Papadimitrou.