| Code: 47274 |

TIN news:    According to Poten, several years ago, the general thought seemed to be that product tankers were the future, while crude tankers were expected to have a hard time for the foreseeable future. The idea was that refinery expansions in India and the Middle East were going to lead to growing product tanker demand while the growing oil production in the US was going to curtail crude tanker demand. As MR rates have improved significantly in the last six months, the question arises if this is due to fundamental changes that are finally falling into place or whether it is the result of a seasonal upturn that could fizzle out over the next months.
 
In order to analyse this Poten looked at the trading patterns of MR tankers in the period of Oct 2014 to Feb 2015 and compared them to the same period in the prior year. As a proxy for the trading patterns we used the reported clean spot market fixtures for MR tankers. In this five month period, we saw a significant increase in clean MR fixtures: 2,259 in the last 5 months vs 1,869 in the same period in 2013/14.
 
Looking at the details, there were three load areas with significant growth: The Middle East, North America and Europe/Med. Indian exports also increased significantly in percentage terms, but this trade is smaller in scale.
 
MR trade growth in the Middle East was mainly driven by intra-regional growth, rather than by long haul exports. The product trade from the Middle East to UKC declined marginally for MRs but increased for larger vessel classes, especially LR2s for an overall increase in trade.
 
U.S. exports to Latin America accounted for an important share of the MR trade growth. Reported MR fixtures from the U.S. to the Caribbean and to EC Mexico almost doubled during the analysis period, compared to the prior year, from 108 to 192 cargoes. Fixtures to the other Latin American countries all increased, especially the relatively long haul trade to Chile, which more than doubled from 9 to 21 fixtures.
 
The most significant growth area for MRs during this period was the intra-regional trade around Europe, both in the UK/Continent (UKC) and in the Mediterranean (Med). Total spot MR fixtures originating in UKC and Med increased by 207 (+30%), of which 145 were regional fixtures, predominantly in the Med.
 
MR Spot Market Rates
Indian exports also contributed to MR demand growth, although LR1s play a more significant role in this market. Trade from India to the Middle East contributed to MR demand growth as reported fixtures in the analysis period increased from 43 to 74.
 
Reported MR Clean Fixture Volumes for selected Load Areas
Additionally, there were seasonal and temporary factors that increased trade flows. The cold winter in North America led to a heating oil price spike which opened up arbitrage opportunities. Additionally, product price declines generally lagged behind crude oil price declines, which boosted refining margins and supported high refinery runs. Higher refinery throughput likely buoyed product trades.
 
In summary, the healthy product rates of the last six months were caused by both short-term and long-term factors. While some of the seasonal factors may be fleeting, it seems that the strong underlying fundamental factors will continue to boost the MR market in the coming years.

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