Crude flat prices continued declining w-o-w as the market turned its attention to surging shale production and the US withdrawal from the landmark Paris climate agreement. As reported by Reuters, expanding output from Nigeria and Libya also offset some of the production cuts from other OPEC members in May. News of sharp draws in US crude and gasoline inventories failed to lift the market. ICE Brent front-month futures were down by $0.83/bbl on the week while Dubai swaps fell by $0.97/bbl.

Naphtha cracks in Asia grew on the week, largely boosted by the strength in the gasoline market. Naphtha cracks remain around 20% below the monthly average in April. Spot demand from petchem end-users is holding steady but face plunging ethylene prices.

Asian gasoline cracks surged to a five-week high, supported by demand from the UAE and Indonesia as well as large draws in US and Singapore light distillate stocks. According to EIA data, US gasoline stocks plunged by 2.9 mmb over the week while IE Singapore data indicated that onshore light distillate inventories fell by 6% w-o-w to 11.9 mmb.

Diesel cracks in Asia fell from last week as the beginning of monsoon season in India is expected to weigh on the country’s import demand, which has been supporting 10ppm cash differentials. Fuel oil cracks in Asia dipped w-o-w on the back of ample supplies stored on vessels in Singapore and lower cargo demand. Prompt-month timespreads grew from last week on the shut East-West arbitrage spread which may lower Western arrivals into Singapore. Ex-wharf premiums fell by $0.13/T on the week but were fairly robust at $4.24/T.

VLCC rates in Asia remained heavily pressured as the discount for older and handicapped vessels widened significantly. A couple of fixtures for older units were concluded at sub w40 levels for an AG/Korea voyage. As such, rates for the key AG/Japan route slid by w3 points w-o-w to w47.

An uptick in activity in WAF at the end of the week helped to stymie the decline in VLCC rates, which held steady at w53 over the week. Two VLCCs were fixed for a WAF/Atlantic Basin run, with one heading to the USWC and another to the UKC as the arb to the US remains open.

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Suezmax rates for the key AG/East route were stable at w75 for the second consecutive week as excess tonnage and a dearth of fresh activity erased any gains from the previously firm WAF market.

The WAF Suezmax market eased from last week as charterers took advantage of the long weekend and managed to push rates down. Rates for TD20 fell by w10 points w-o-w to w85. Looking ahead, we expect the open arb to the US, impending start-up of the Dakota Access Pipeline and return of Forcados exports to lend support to WAF Suezmax rates.

The Asian Aframax market remained subdued over the week as rates held at w100 for an AG/East run and w95 for the Indo/Japan route. Activity remained sparse in the AG region while an oversupply of prompt tonnage in Asia kept a lid on rates. W102.5 was repeated for Indo/Aus voyages, which still hold a considerable premium over Indo/Japan due to limited backhaul opportunities.

The LR tanker market in Asia bottomed out this week, with many market participants expecting rates to firm further in the coming weeks. Both TC1 and TC5 rates grew by $0.37/T and $1.84/T w-o-w respectively. The LR1 segment strengthened as charterers were looking for replacement vessels for ships that did not meet technical requirements amidst a shorter position list. Whether the gain in rates can be sustained is another question as quite a few LR1s were previously taken on short-haul voyages. These vessels will return to the market quickly and lengthen tonnage list once more. For now, stiff owner resistance seems to have paid off.

MR rates for the AG/Japan route inched up by $0.41/T w-o-w, buoyed by the bullish sentiment in the LR market. Higher naphtha cargo volumes ex-WCI also lent support to the MR market.