Another key tanker flow that traditionally relies on Suez transit is the crude trade from the MEG into Europe, which averaged 865kbd in January, down modestly from 910kbd in 2023 (but surprisingly up compared to shipments in Nov/Dec 2023). Out of 15 Suezmaxes and 8 VLCCs that loaded crude in the MEG in January for delivery into Europe, 10 Suezmaxes and 6 VLCCs opted for a COGH routing. In addition, circa 445kbd was exported from the MEG into Ain Sukhna on average last year, with the vast majority of these barrels destined for the European market. This trade collapsed to just 30kbd in January; however, it is too early to draw conclusions as monthly exports are often volatile, whilst there also was an increase in shipments into Ain Sukhna from West Coast Saudi Arabia in the Red Sea.
With most crude tankers avoiding the Red Sea, it is perhaps surprising that we haven’t seen the same response as in the clean market. This is particularly the case for Suezmaxes that dominate the MEG to Europe trade. There are several reasons for this. Firstly, although the affected volumes are broadly similar, bigger cargo sizes mean less tankers. Secondly, fleet size also matters. Whilst the Suezmax and VLCC fleet is over 660 and 900 units each, there are currently circa 250 LR2s and 260 LR1s trading clean, with the rest operating in the dirty segment. In addition, there is also a clear shift away from Suezmaxes, which accounted for 80% of all crude moved from the MEG to Europe last year but just 55% in January.
MEG-Europe Crude Flows by Vessel Size (%)
Yet, despite the muted response in the crude tanker market so far, if the current situation continues for any significant period of time, the impact of COGH routing will accumulate, offering support to tanker rates. Also, it will be interesting to see how many Mediterranean and CPC Kazakhstan barrels will continue flowing East, with shipments (mainly consisting of CPC and Libyan barrels) averaging 560kbd last year. Unless there is a dramatic decline in these volumes, GOGH routing will offer another boost to crude tanker tonne miles.
A report from Gibsons posted on February 15, 2024.
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