A spike in freight rates for tankers hauling oil has prompted a wave of vessels to join the lucrative trade, with dozens of ships switching their focus from hauling products to carrying crude across the world’s oceans.
In the first four days of this month, nine so-called long range-2, or LR2 tankers – the largest crude oil vessels that carry products such as jet fuel and diesel – switched to carrying crude oil instead, according to data from ship-tracking platform Signal Ocean. That brings the year-to-date tally of so-called clean-to-dirty switches to 35.
The pivot unfolding in parts of the world’s tanker fleet offers fresh evidence of the impact from oil-producing nations boosting output, as well as the knock-on effects of tighter Western sanctions against Russia and Iran. OPEC+ has ramped up supply this year, as have drillers outside the alliance, meaning that there are greater volumes of crude that need shipping to customers.
“Dirtying-up was bound to happen,” said Georgios Sakellariou, a chartering analyst at Signal Maritime, a vessel-pool management company under the same group as Signal Ocean. “What used to be more of an operational consideration for shipowners is now a broader market trend.”
Sakellariou pointed to earnings prospects as driving the shift, with increased fees for hauling oil.
Benchmark earnings for very-large crude carriers recently hit the highest in years. In turn, that spike enabled smaller-sized tankers – including Aframaxes, which are the crude-focused equivalent of LR2s – to command far higher rates. And an LR2 that dirties up can charge Aframax rates.
In early September, LR2 tankers briefly enjoiyed slightly higher fees than Aframaxes. But two months later, Aframaxes are commanding $65,500 a day as of Tuesday, according to Jefferies LLC. That’s nearly a 70 per cent premium over comparable LR2 daily rates.
Flipping tankers between the dirty-crude and clean-product trades may be a feature of the industry, but the transition is not cost-free. Going from dirty to clean means owners have to pay fees for new coatings so that they’re ready for the products trade. And for those making the reverse transition, owners need to factor in the sunk costs of having the existing coatings compromised.
