Low USGC refinery utilization weighs on MR rates

Market: Freight, Oil products
26/01/24

A heavier-than-normal seasonal turnaround period for many US Gulf coast refineries and a cold snap in the region reduced refinery utilization rates to their lowest level since December 2022, dropping demand for medium range (MR) tanker shipments loading in the US Gulf coast.

Average refinery utilization on the Gulf coast hit 84pc in the week ended 19 January, the lowest level since December 2022 when severe storms also curtailed throughputs in the region, according to US Energy Information Administration (EIA) data released this week.

The rate for an MR tanker on a US Gulf coast-Chile voyage has remained rangebound between $2.65mn and $2.8mn lumpsum since 29 December after hitting an all-time high at $4.6mn on 27 November, when Gulf coast utilization rates were about 91pc, according to EIA data, and elevated Panama Canal congestion reduced available MR tanker supply. Rates for US Gulf coast-loading voyages to north Brazil and the Caribbean have dropped by 44pc to $36.72/t and by 63pc to $700,000 since 27 November, respectively.

A winter storm in Texas in the week beginning 15 January which caused a high number of refinery outages and operational issues for major US Gulf coast refineries contributed to the lower output from the region. This helped to shift demand towards European refineries instead, spiking rates for US east coast-bound MR voyages from the region by 23 January.

MR tanker supply in the US Gulf coast may be poised to expand further. The $/d rate for a Rotterdam-New York voyage still held a $10,000/d premium to a US Gulf coast-Caribbean voyage for shipowners on 25 January, but this was down from a $23,000/d premium to the route on 23 January.

The narrowing of this arbitrage opportunity for shipowners within the Atlantic basin will likely push more vessels back towards the US Gulf coast, where tonnage is already seeing steadier replenishment through the Panama Canal.

Looming diesel shortfall in Europe

Meanwhile, the premium for 30,000t European diesel cargoes against North Sea Dated crude on 25 January reached its highest point in seven weeks, as critical import flows through the Bab el-Mandeb strait remain heavily disrupted by the risk of attack by Yemen's Houthi militants.

This surge in demand for diesel could start to draw increasing volumes of US diesel eastwards as refinery utilization rises, but the rush of tonnage scheduled to arrive in the US Atlantic coast in February and March — as a result of the current Europe-US freight rally — might limit the impact on the US-Europe MR rate.

By Ross Griffith and John Ollett

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