Clean tanker ton-miles post another record quarter with even more to come

_{Clean tanker ton-miles posted a record quarter over the first three months of the year, a continuation of the acceleration in clean tanker demand which began in the second half of last year. Russian exports accounted for the bulk of the growth, but unlike in the dirty tanker segment, non-Russian ton-mile demand has also been strong. Another difference to the dirty segment is the still considerable potential upside available which could see rates hit new highs.}

Total clean tanker ton-miles hit 738Bn in 1Q23 (+21% y/y), the highest quarter on record for the third quarter in a row. Russia is certainly the main driving factor here, with exports traveling further than ever. Russian clean tanker ton-miles rose to 86Bn in 1Q, (+60% y/y). Russian clean exports now account for around 15% of global ton-miles, up from 8% a year ago. Most of this growth has taken place this year, with the most rapid increase since the 5 February EU import ban forced Russia to find new buyers.

_{Russian clean ton-miles by main destination (Bn TM)}

*Pre-invasion is the three-month average of Dec 21, Jan 22 and Feb 22

In the last year, with the exception of China and Brazil, the other ten largest destinations from Russia have all changed. France, UK, Netherlands, Germany, Belgium, US are all gone, replaced by Turkey, Saudi Arabia, UAE, Singapore and Nigeria. Even including Turkey, the common theme in the change is they are further from Russia. The fact Turkey accounts for a large share (13% in March compared with 1% pre-invasion) and is geographically so close to Russian Black Sea ports is misleading. It is partly due to an increase in exports to the country but the most important factor has been an increase the average voyage distance. In March, Russian Baltic exports accounted for close to 40% of all Russian clean exports to Turkey. Pre-invasion 100% of exports to Turkey came from Russian Black Sea ports. The journey from the Baltic is around 4,000 nautical miles (ni) longer and takes about two weeks more.

Even after posting 60% growth y/y there is still potential for ton-miles to rise further. In March, 570 kbd or 29% of Russian clean exports were shipped to destinations in the Mediterranean, with 261 kbd of this coming from the Russian Black Sea, a comparatively short route. It is difficult to predict how flows will change from here, with the big post import ban changes already in effect, but the share of exports to the Med will be a key indicator of how clean tanker demand is evolving.

Aside from Russia, clean tanker demand has been in good health in non-Russian markets, up 21% y/y in 1Q23. The biggest gains outside of Russia have been in Asia and the Middle East. Singapore +47%, South Korea +47%, Saudi Arabia +26% and China up 149%. The China figure is impressive but also doesn’t reflect the full picture. Exports from the country jumped sharply in 4Q22 and have since been falling. As ton-miles from China drop back to previous levels, there will be an effect on global ton-miles. This is starting to be seen in the data, with total non-Russian ton-miles/day in March falling slightly.

MRs are the main beneficiary of the increase in Russian ton-miles, up 80% y/y compared with a 28% increase for LRs. Russian export ton-miles on MRs made up 16% of the global total in March, a new record high. Demand from Russia will draw more MRs into the Baltic and Black Sea. Falling exports from China has led to a net shift from East to West again in recent months. Russian demand should be able to absorb the rise in availability.

Elsewhere, MR demand growth has been slower, with a larger increase in LR ton-miles. The Middle East was a major driver, but also Northeast Asia, with South Korea, China and Taiwan all posting increases in demand for LRs in the last year.

In addition to further growth in Russian export ton-miles, we expect increases from the rest of the world too. Most notable will be exports to Europe. EU-27 countries have yet to fully replace imports from Russia and as imports rise, there will likely be a further boost to tanker demand, with LRs expected to see the larger share of this increase.

_{Change in clean ton-miles by tanker type (1Q23 vs 1Q22)}

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