Clean Tankers: Higher Rates in Store?

In its latest weekly report, shipbroker Gibson said that “with the Middle East crisis at the forefront of everyone’s minds, a second, more slowly building supply shock has flown somewhat under the radar. However, when on the 8th of July Russia banned diesel exports for the rest of the month, a significant share of the world’s seaborne diesel supply was suddenly removed, tightening a market already stretched thin. Some supply will still flow to the market, as supplies under pre-existing government agreements will be exempt from the restrictions. The result has been record high diesel refining margins in the US and Europe, whilst in the East, refining margins rose but are yet to return to the highs seen in March”.  According to Gibson, “Ukrainian “long-range sanctions” have achieved remarkable success in recent months. Drone strikes have reportedly disabled over 40% of Russia’s refining capacity, with all eleven of its largest refineries hit at least once. In a striking reversal for a major exporter, Moscow will now import fuel to supply its own market, having reportedly secured cargoes from neighbouring countries as well as from further afield. The export ban is likely to accelerate a decline already visible in trade flows. In June, CPP exports stood at around 750 kbd against an average of 1250 kbd for the whole of 2025. Most of this decline was in diesel exports, which ran at around 800kbd in 2025, and only 400 kbd in June. Trade data show a gradual decline in CPP exports to the main destinations, namely Turkey, Brazil, and northern Africa”.   The shipbroker added that “these lost barrels cannot easily be replaced. Renewed escalation in the Middle East and fresh attacks around the Strait of Hormuz have pushed back any recovery in Middle East Gulf CPP exports. Further, recent Iranian threats to “other export corridors” and renewed Houthi involvement in the conflict have increased the risk of potential disruption to Bab-El-Mandeb transits as well as refining and export operations in Yanbu, a key alternative source of diesel and jet fuel. Restrictions to China’s product export adds to the uncertainty. Reports of additional quota volumes coming to market for the month of July were followed by a rollback, leaving the market hoping for reprieve in August. The US, which was the main source of additional CPP volume in Q2, looks less capable of filling the gap this time around. Refinery utilisation has run at seasonal highs, but lower inventories, firmer domestic demand and refinery maintenance season later this year all point to reduced availability for export in the near term. The possibility of product export restrictions if domestic prices become too elevated may also need consideration. Relief may require further SPR releases from countries in Europe, as well as Japan and Korea, to put more refined products, especially diesel, back into domestic markets. That said, any releases are likely to be smaller and more targeted this time, given concerns over depleted inventories”.

Gibson concluded that “for now, the ban is only in place for a month. Domestic diesel demand for harvesting rises seasonally in late summer and early autumn, which increases the risk of the ban being extended beyond July. If it lasts longer, the most exposed buyers, i.e. Turkey, Brazil, and countries in North Africa, may struggle to source replacement barrels. A further consideration for the clean tanker market is that vessels currently involved in Russian CPP trade may attempt to return to the mainstream market. On the positive side, product pricing volatility could widen arbs and leave room for freight rates to rise, as was seen in Q2. Additional uncertainty comes from reduced crude flows through Hormuz due to the recent escalation, and whether especially Asian refiners are able to secure enough feedstock for August and beyond. Overall, global seaborne CPP flows are expected to remain under pressure with two of the top three diesel exporters facing export restrictions, and government’s ability to make up the shortfall with SPR barrels diminished compared to the beginning of the War”.