LR2 rates hit levels last seen in Covid storage scramble
Spot rates for LR2 tankers surpass $100,000 per day for second time in history, Jefferies says
Product tanker rates have surged of late, with LR2s pushing past $100,000 per day. The Baltic Clean Tanker Index reached its highest level since the end of 2022 on Wednesday but dips slightly as the week closed
SPOT rates for long range two tankers have surged past $100,000 per day as Red Sea diversions push product tanker fleet utilisation.
It is only the second time in history that LR2s have pushed past the $100,000 threshold, analysts at Jefferies said, with the previous occurrence being the floating storage scramble during the early days of the Covid-19 pandemic.
“LR2s averaged $40,000 per day in each of 2023 and 2022 but appear set to breakout to new highs for 2024,” the analysts said.
“While it remains early in the year, a tight market balance brought on by limited newbuilding deliveries and increasing long-haul trade as ships divert from the Red Sea point to a strong market for some time.”
Strong demand and tightening capacity amid Red Sea diversions have helped LR2s rates more than double from $50,000 per day in two weeks to over $105,000 per day, Jefferies said on Friday.
The Houthis’ attacks in the Red Sea are driving more tankers to take the long route around Africa, increasing tonne-miles and fleet utilisation.
The average number of product tanker passing through the Bab el Mandeb stabilised at 37 during the second and third weeks of 2024, Lloyd’s List Intelligence data shows.
However, that was less than half the weekly average for the week starting November 6, as more vessels began rerouting to avoid the Houthi threat in the Red Sea.
According to Jefferies, product tanker transits of the Suez Canal are down 38% from their 2023 averages.
“As rerouting continues, capacity is expected to become even tighter in the coming weeks and support tanker rates further,” the analysts said.
“We estimate product capacity utilisation has risen from 92% pre-diversions to 95% based on the latest rerouting.”
The surge in product tanker rates has sent the Baltic Exchange’s Clean Tanker Index to its highest levels since December 2022 on Wednesday.
The composite index, which averages earnings on several key routes, closed the week with two consecutive days of small declines, but remains in elevated levels after nearly doubling between January 12 and January 24.
Additional reporting by Bridget Diakun
