Russia-Ukraine war and sanctions on Russia’s refined products have created a
void in the European market, which is counterbalanced largely by South Asia.
The product tanker sector has been
gaining from the ongoing geopolitical tensions as a sudden rise in the long-haul
trade has boosted freight rates.
Drewry expects the shift in trade – from
short-haul to long-haul – to become the ‘new normal’ of refined products
shipping with Europe sourcing cargoes from South Asia, the Middle East, and
North America in 2022-23. Russia’s 2 mbpd of spare capacity and 0.8 mbpd YoY
drop in refinery throughput in 2022 as a result of sanctions supports this
dependent on Russian refined products as the latter contributed 15.9%,
aggregating 21.6 million tonnes, to the total European seaborne imports in
2021, with gasoil/diesel comprising 95.4% of the traded volume. On 24 February,
the Russia-Ukraine conflict turned into a full-fledged war after which Europe
has been reducing its reliance on Russia. Although there were no clear
sanctions immediately, CPP exports from the FSU to Europe weakened by about 1.1
million tonnes during March-April, with almost all the deficit created by
Europe counterbalanced Russia’s share
by importing around 2.9 million tonnes of CPP from the Middle East the US and
the gasoil/diesel trade shifted significantly as Russia lost a 15.2% YoY in
European gasoil imports during March-April. Although the US has emerged as the
prime supplier of gasoil/diesel to Europe after Russia in 2021, South Asia
(mainly India) captured the largest share (5.7%) by supplying maximum
replacement cargoes to Europe. South Asia was followed by North America (the
US) and Southeast Asia (Singapore). The Middle East stands at the fourth
position with only a 2.5% increase in share.
result, European buyers have shifted from the short-haul trade (between Russia
and Europe) to the long-haul trade by sourcing refined products from South
Asia, the Middle East, and North America.
We expect this long-haul trade to be
the ‘new normal’ for product tanker shipping.
the product tanker shipping market to enjoy strong rates throughout 2022 on the
back of increased tonne-mile demand. Although LR and MR tankers are the true
beneficiaries of the rise in rates, smaller tankers will also fetch high rates
due to the robust demand.