U.S. Fuel Exports Ease as Tanker Activity Enters Summer Slowdown

Published Aug 7, 2013 7:53 AM by The Maritime Executive

Oil tanker bookings to export refined fuel from the U.S. Gulf Coast fell by nearly half last week from the week before, a shipping report showed, as the market cooled from an unexpected surge in summer shipments.

Clean tanker fixtures to Europe, Latin America and elsewhere, dropped to less than 20 from 35 the previous week, according to a report by Charles R. Weber, a Greenwich, Connecticut-based shipbroker. The previous week's figure was close to this year's highest weekly level, which was also hit in July.

Per-day rates for the vessels also fell after climbing through most of July.

Charles R. Weber's data is compiled through a network of sources, and does not reflect all possible fixtures, as many ships are controlled privately and do not report their movements.

Traders cited several factors for the slowdown. A downward correction in ethanol credit prices, or RINs, which had soared earlier this summer to record highs, dampened refiners' incentive to export products. Pricing differentials between refined products in the U.S. Gulf Coast and Europe narrowed, closing the "arb," or the window for arbitrage in which traders profit. These trends led to the traders bowing out of a number of fixtures that had been set up in advance.

"The arb for U.S. light distillate to the U.K. is shut, so barrels are not moving trans-Atlantic," said one trader.

The booming export business has been one of the lesser-known factors driving U.S. refinery run rates to record highs this summer, despite a narrowing of the gap between U.S. WTI crude and European Brent that could have raised refiners' costs had they not hedged.

The slowdown in charters suggests July's exports surge may be easing, at least for the moment. Data last week also showed that U.S. refinery utilization eased 1 percentage point in the week ended July 26, while total U.S. output of distillates such as diesel fell by 171,000 barrels per day (bpd).

A run-up in shipping rates from the U.S. Gulf Coast to Europe through the first three weeks of July spurred traders to book ships a week in advance, in anticipation that rates would rise further. That led to a longer tonnage list, discouraging charterers from booking further fixtures in the last week of July, one charterer said.

Rates from the U.S. Gulf to the United Kingdom or European Continent fell Tuesday to World Scale (WS) 94.64 per day, approximately $12,000 per day, from WS120 or roughly $19,000 per day, last week. Rates averaged WS120.1 throughout July, according to London-based shipbroker Braemar.

In addition to the cancellation of fixtures booked a week in advance, brokers said that potential clients had been cancelling after a 24-hour waiting period that follows once the two parties had agreed to a fixture. That period typically gave shippers a window to get clearances for their cargo. Now, shipping sources said traders use it as a stalling period, and will sometimes cancel if they see a better deal on the horizon.

"Traditionally, that waiting period had been for clearances; now it's become a way of hedging rates," said one shipping source.

At the same time, more ships had been ballasting, or sailing without a cargo, from the U.S. Atlantic Coast to the Gulf Coast, where they loaded low sulphur distillates to carry back to Europe. Adding that extra leg temporarily reduced the tonnage available to go back and forth between Europe and the U.S. East Coast.

By last Friday, that trend reversed as European gasoline exports surged on an expectation of rising U.S. demand and softer prices at the Amsterdam/Rotterdam/Antwerp port (ARA).

Now, vessels are ballasting back towards Europe, which suggests that rates may come down going forward.

Traders said the August slowdown may just be the expected seasonal slowdown, making its appearance this year a month behind schedule.

"Now we are seeing the typical summer doldrums that we should have seen all July," one said.

Reporting by Anna Louie Sussman (C) Reuters 2013.