Clean Cuts

One market that has stood out rate-wise recently is the clean product trade in the East. While freight rates for the Aframaxes in the East trading dirty cargo saw a sharp decline recently, rates for the clean product trade appear to have been unaffected. The chart below shows the relationship on a time charter equivalent (TCE) basis for Aframaxes trading Arabian Gulf to Southeast Asia on 80kt and Long-Range 2 (LR2) product carriers trading Arabian Gulf – Far East on 75kt carrying clean products. In the past 12 months, both markets have tracked each other fairly closely in terms of earnings. Since the beginning of August however, dirty rates have averaged $27,000 per day while clean trading Aframax rates have averaged over $60,000 per day. Far Eastern refinery utilization is likely the root cause of the trend, but limited supply of large clean product carriers has created further upward pressure on rates.