For most of this year, crude ton-miles tracked within the bottom half of the five-year range, but since June, growth has accelerated. In September, ton-miles rose above the five-year average, with the jump coming primarily from the surge in VLCC flows from July onwards. VLCCs account for around 70% of all crude ton-miles, so have an outsized impact on overall demand. For Suezmaxes, it has been a fairly ordinary year, with ton-miles toward the bottom of the five-year average, while Aframaxes have been trending above it since June.
VLCC ton-miles began the year only slightly above 2021 levels, the weakest of the prior five years. Demand had been plagued by weak import demand from Asia since the end of 2020 and unlike Aframaxes and Suezmaxes, saw no immediate uplift following Russia’s invasion of Ukraine. As Russian barrels were increasingly shunned by European buyers, long-haul exports increased on Aframaxes and Suezmaxes to India and China. No Russian port can accommodate a VLCC, so volumes shipped from Russia on the 2 Mbbl carriers were comparatively limited. VLCC demand began to rise in the second half of the year as Middle East exports picked up amid greater demand from China. But one of the main drivers was flows from the Atlantic into Asia, US and Brazil in particular.
VLCC ton-miles could exceed the October high in November or December as US exports hit new record highs. But, moving into next year growth will likely slow. Exports may slow from OPEC+ countries in-line with the production cuts and new refinery capacity coming online.
Total Suezmax crude ton-miles have been fairly unimpressive this year, trending well within the five-year average. But looking deeper, there have been significant shifts as a result of changes in trade flows. In 3Q22 the highest ton-mile route was Russia – India, at 32 Bn TM, this was up 16 places from 3Q21 due to y/y growth of 27Bn TM. This route alone accounted for 7% of all Suezmax crude ton-miles in 3Q. Perhaps more significantly, third on the list in 3Q was US - UK at 12.7 B TM, up 66 places and 10 Bn TM. Other big gains came from Iraqi exports to Spain and the US and Russia to Italy. With the exception of the latter, which was due to Russian-owned refineries in Italy maxing out Urals throughput and will come to an end after the EU import ban, we expect further increases in ton-miles on all these routes.
On the other side, there were big declines on some of the long-established Suezmax routes. US – China dropped 99% (-10.4 Bn TM) as a result of weak demand in China and the wide Brent-Dubai spread which has made it only really viable to export from the Atlantic to Asia on VLCCs. Russia – US was also understandably lower following the import ban.
Next year, Suezmaxes could benefit further from these changes in flows. There will be greater demand in Europe for US, WAF, South American and Middle Eastern grades, while more Russian crude will likely be shipped on Suezmaxes to India, China and other off-takers in Asia.
For Aframaxes, Q322 was the highest quarter on record as a result of the increase in flows on long-haul voyages from Russia and the main growth route was Russia – India. Ton-miles hit 52.3 Bn in 3Q22, 16% of all Aframax ton-miles. For context, that is the equivalent of the top four routes from 3Q21 combined. Other risers were Russia - Turkey, which could import more Russian barrels after the EU ban next month.
Largely due to flows from Russia to India, crude ton-miles on Aframaxes could set a record high this year. In September, levels rose above the running total from 2020, the previous highest year.
Compared with Suezmaxes, there were fewer other large changes and the segment could lose out to larger vessel sizes after the EU ban, as most of the volume currently imported by EU nations is carried on Aframaxes and will likely be shipped to Asia post 5 December.
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