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February 17, 2018

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Markets

Clean Tankers Commentary

New York (Platts)--06Dec17/0745 pm EST/ 0045 GMT

The East of Suez Long Range I, or LR1 tanker, market was strong Wednesday as demand exceeded the supply of ships, supporting the rates, market participants said. There are still several outstanding cargoes in the market that are yet to be covered. The spread between the LR1s and LR2s on the Persian Gulf-Japan route was around w23, one of the highest so far this year. "The LR1 market seems to be active, though [our company] doesn't have any ship to offer in the east," a source with a clean oil tankers owner said. The LR2 market is a bit slower, the source added. Among the LR1 fixtures, the Meltemi was placed on subjects by BP at w147.5 for December 8 naphtha loading on the Persian Gulf-Japan route, sources said. In another fixture, the STI Excellence was placed on subjects by Reliance at w140 for December 18 gasoline loading on the Sikka-Singapore route, basis 60,000 mt cargoes, sources said. The BP fixture is too prompt and is therefore done at higher rate, a Tokyo-based chartering executive with a global commodities trading company said. Both LR1s and LR2s are stable but rates will fall, unless more cargoes come into the market, the executive said. At the current discount to the LR1s, charterers may use more LR2s but owners were skeptical of this happening. Though LR2s are now significantly cheaper than LR1s, owners argue that this may not necessarily result in a shift in demand. They are quick to point out that Socar had worked on these lines of replacing an LR1 with an LR2 for naphtha loading but wasn't successful. "They tried but it didn't work," a source familiar with the deal said. Socar executives couldn't be immediately reached for comment. "The LR1s are going stronger while the LR2s are moving sideways," a source with an owner said. Earlier, LR1s were eating into the demand for MRs by loading partial cargoes for Cross-PG voyages. Now, LR1s are busier on the long-voyage route and this has dampened the interest of owners to do short voyages with the Middle East. MRs are now trading at a premium of almost 40 Worldscale points to LR1s and over 60 points to LR2s. The cost of moving 75,000 mt and 55,000 mt cargoes on the PG-Japan route is $16.73/mt and $20.31/mt, respectively, according to the S&P Global Platts data. The cost is $25.86/mt for MR tankers.


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