Tankers Navigate a Two-Tier Market

US fuel oil stocks in the first quarter of 2023 reached their highest levels since April 2020. Traders have had to alleviate their oversupply by exporting, though high freight rates have made profits more difficult to find. In this Oil Markets episode, Americas fuel oil experts Beth Brown and Patrick Burns sit down with Americas shipping experts Catherine Rogers and Catherine Kellogg to discuss how traders have had to shift routes and export heavier material to find an open arbitrage. Prices in this episode: PUAFZ00 (USGC HSFO) TDUCG00 (Dirty USG-UKC Aframax) No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

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With the European Union's ban on Russian oil products coming into effect, the spotlight is now on Asia as the market tries to find answers to the extent to which the region can absorb Russian products displaced from Europe and how Asian refiners can take advantage of the product vacuum in other regions of Europe. In a wide-ranging discussion with Asia Energy Editor Sambit Mohanty, S&P Global Commodity Insights senior experts Jonathan Nonis, Wendy Cheong and Zhuwei Wang discuss the outlook for potential changes in product flows, such as diesel, naphtha and LPG, that Asia could see, as well as the pricing, shipping and logistics challenges that could arise with long-distance product shipments. More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

From OPEC's market share in India's imports falling to a decade low to China's appetite for Russian crude posting double-digit growth, one year of conflict between Russia and Ukraine has dramatically altered Asia's oil flow map. As Moscow witnessed sanctions and restrictions, plentiful availability of discounted Russian crudes whetted the appetite of import-dependent Asia, which saw it as an opportunity to bring in as many cargoes as possible to cushion the impact of sky-high global energy prices. The trend is expected to continue in 2023. The first sign of that was visible in January numbers. According to data from S&P Global Commodities at Sea, Russian seaborne crude exports hit an eight-month high in January, with exports to China and India hitting record highs of 1.12 million b/d and 1.3 million b/d, respectively. And in 2023, the overall volume of oil shipments from Russia to Asia is expected to rise since more Russian oil products are expected to flow, in addition to the robust volumes of crude, as the EU ban on Russian products came into effect on Feb. 5. Trade flows India ended 2022 with a sevenfold increase in Russian crude imports from a year earlier. The import volume from Russia in 2022 was 700,000 b/d, up from 100,000 b/d in 2021. That boosted the Russian crude market share in India's overall crude import basket to around 15% in 2022, from just 2.2% in 2021 In 2023, S&P Global Commodity Insights expects the share of Russian crude to be around 1.2 million-1.5 million b/d, or about 25%-30% of India's total crude imports. Russia taking a much bigger market share in India in 2022 has dragged down OPEC's share to the lowest in more than a decade. OPEC saw its share of India's crude imports shrink to 64.5% in 2022, from a peak of 87% in 2008. Higher intake of Russian oil reduced India's appetite for African grades, whose share in 2022 imports declined to a 17-year low while that of Latin America plunged to the lowest in 15 years. China's crude imports from Russia in 2022 increased 10.2% year on year to 1.75 million b/d, customs data showed. The independent refiners' Russian feedstock imports increased by 14% on the year to reach a record high of 616,526 b/d in 2022. Feedstock imports from Russia accounted for 18% of China's independent sector's feedstock imports in 2022, up by three percentage points from a year earlier. Russia's ESPO crude flows into China's independent refining sector surged to record monthly high of 3.3 million mt (780,000 b/d) in January. As Russian inflows posted a double-digit growth, inflows from Latin America fell 17% in 2022 to 37.32 million mt, or 749,000 b/d, while shipments from Africa to China dropped 24.5% year on year to 1.02 million b/d, according to China's customs data. Major South Korean and Japanese refiners said they would remain hesitant about purchasing Russian crude in 2023. South Korea's Russian crude imports tumbled 59.7% in 2022 to 21.68 million barrels, data from Korea National Oil Corp. showed. Japan's crude imports from Russia plunged 60.2% in 2022 to 35,548 b/d, data from the Ministry of Economy, Trade and Industry showed. Chinese and Indian refiners' strong focus on relatively cheaper Russian crude allowed some room for other Asian nations to take more Middle Eastern supplies. South Korea secured 354 million barrels from Saudi Arabia in 2022, up 21.8% from 2021. Japan's crude imports from the UAE in 2022 rose 19% to 1.04 million b/d. China's LPG imports from Russia soared to 159,600 mt in 2022 from around 14,000 mt in 2021. Singapore's Russian naphtha imports have risen from 277,937 mt in 2022 to 361,848 mt year to date, as of the week ended Feb. 15, 2023, Enterprise Singapore data showed, as Russian origin barrels wait in Southeast Asia before finding final alternative outlets following the EU ban. Prices Far East Russian grades continue to trade at steep discounts in Asia. Platts assessed second-month ESPO Blend crude at front-month Dubai minus $11.55/b on an FOB Kozmino basis Feb. 22. Sokol was assessed at a discount of $8.35/b to Platts front-month Dubai crude assessments Feb. 22, on a CFR North Asia basis, while Sakhalin Blend crude was assessed at a discount of $10.30/b CFR North Asia. The Dubai market structure has been trending lower since the third quarter of 2022 as Indian and Chinese traders shift focus to cheap and attractive Russian barrels. The spread between front-month Platts cash Dubai and same-month Dubai swap has averaged $1.53/b to date in the first quarter 2023, down from the $2.98/b average in Q4 2022 and $6.47/b in Q3 last year. Middle Eastern sour crude official selling prices have also been trending lower as Chinese and Indian refiners heavily favor Russian barrels. Saudi Aramco set the OSP for its Arab Light crude for loading in March at a premium of $2/b to the Platts Dubai/Oman average. In comparison, the OSP for the medium sour Saudi grade commanded a premium of $9.80/b for cargoes loaded in September 2022. On Feb. 14, Platts decided to no longer include Russia as part of the open origin basis of its gasoline assessments in Asia and the Middle East amid concerns of the impact on trading operations around Singapore following EU sanctions on Russian oil products and the price cap mechanism by G7 member countries. Platts assessments of Asian naphtha no longer reflect Russia-origin product, as material of Russian origin was no longer deemed merchantable for a significant portion of the Asia naphtha spot market on the same basis as other production regions, S&P Global wrote in a clarification note on April 8, 2022. The respective cash differentials for spot paraffinic naphtha in the Middle East and Northeast Asia against the benchmark Mean of Platts Arab Gulf and Mean of Platts Japan naphtha assessments surged to 11-month highs in the week of Feb. 19, as less cargoes from the Mediterranean head East amid tight supply in Europe, while South Korean petrochemical companies stopped importing naphtha from Russia but were buying more from Qatar. Platts assessed the FOB Arab Gulf naphtha differential at $51/mt on Feb. 22, up 126% on the month, while the CFR Korea naphtha differential surged 443% on the month to $19/mt at the Feb. 22 Asian close. Europe's need to diversify middle distillate supply sources in 2023 may present an opportunity for Asian refiners to assess the profitability of shifting some of their export volumes to the West, but the recent arbitrage window is rather narrow, while logistics costs for oil product shipments from the Far East to Europe are high, according to refinery and trading sources in Seoul and Singapore. Reflecting the unattractive East-West arbitrage economics, the front-month gasoil Exchange of Futures for Swaps spread was assessed by Platts at minus $32.85/mt at the 0830 GMT Asian close Feb. 22, narrowing from minus $74.04/mt at the start of the year, S&P Global data showed. Infrastructure Sakhalinskaya Energia, the new operator of the Sakhalin 2 LNG project where Sakhalin Blend crude is produced, said the company has been implementing a rational field development scenario to ensure stable production. In June 2022, Russian President Vladimir Putin issued a decree transferring all rights and obligations held by Sakhalin Energy to the new company Sakhalinskaya Energia. Gazprom now holds a 50% shareholding plus one share in the new company. Sakhalinskaya Energia plans to regularly offer the light sweet crude in the market. China-based traders and Indian oil companies often move Far East Russian barrels to leased storage facilities in South Korea's southern coastal city of Yeosu, before taking the cargoes to their customers in China and India.

The European Union’s implementation of a Carbon Border Adjustment Mechanism (CBAM) to support its industry’s efforts to decarbonize and prevent carbon leakage is likely to have far-reaching effects on global trade and the wider energy transition. S&P Global Commodity Insights' experts Eklavya Gupte, Coralie Laurencin, Michael Evans and Paula VanLaningham take a deep dive on CBAM, examining its potential impact on a range of industries, political alliances and its influence on carbon pricing and regulation. NOTE: CBAM CO2 emissions data referenced in this podcast relate to emissions modelling totals between 2026-2040. Click here to access prices, news and analytics relating to carbon markets on Platts Dimensions Pro More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

Dave Ernsberger in Conversation with Capt. Salem AlHmoudi, Jasmin Fichte and Martjin Heijboer. With the Fujairah Bunkering & Fuel Oil Forum (FUJCON 2023) less than a month away, get a preview into the topics covered in the one of world’s leading conferences across the global bunkering and shipping industry. Uncover how the maritime industry is gearing up for its first in-person event since the pandemic, as the keynote speakers share their anecdotes on the theme for FUJCON 2023 - "The Maritime Energy Transition & Future Fuels", leading developments on the Fujairah port and more.

Platts, part of S&P Global Commodity Insights, will launch daily carbon-accounted container freight assessments on five key routes in Europe, effective March 1, to provide further transparency into this developing market. The new assessments will reflect the additional cost required to offset 100% of the CO2 emissions created through the combustion and exhaust of a ship's marine fuel through the EU's Emissions Trading System (ETS). Platts first proposed launching these assessments in a subscriber note published Jan. 11: https://www.spglobal.com/commodityinsights/en/our-methodology/subscriber-notes/011123-platts-proposes-to-launch-carbon-accounted-container-freight-assessments-on-10-routes The assessments will add to the suite of daily carbon accounted tanker freight assessments Platts has been publishing since H2 2022. Platts has also been publishing freight carbon intensity values and freight carbon intensity premiums since October 2021, which measure the impact of greenhouse gas emissions to transport various crude grades from production storage terminals to typical refinery locations around the world. The new carbon-accounted container freight assessments will be published in dollars/FEU. The new assessments are: Assessment Name Daily Code Monthly Average Code PCEC1 North Asia to North Continent CEF1000 CEF1003 PCEC2 North Continent to North Asia CEF0200 CEF0203 PCEC15 North Continent to East Coast South America CEF1500 CEF1503 PCEC16 East Coast South America-North Continent CEF1600 CEF1603 PCEC17 Indian Subcontinent to North Continent CEF1700 CEF1703 PCEC18 North Continent to Indian Subcontinent CEF1800 CEF1803 PCEC35 North Continent to West Africa CEF3500 CEF3503 PCEC36 West Africa to North Continent CEF3600 CEF3603 PCEC9 North Continent to East Coast North America CEF0900 CEF0903 PCEC10 East Coast North America to North Continent CEF1000 CEF1003 The EU's legislative bodies reached a preliminary agreement at the end of 2022 agreeing on including shipping in its Emission Trading System (EU ETS). Subject to final adaption, ships above 5000 GT will have to acquire and surrender emission allowances for their CO2 emissions from 2024. According to the latest proposal, 100% of emissions on voyages and port calls made within the EU/EEA and 50% of emissions on voyages into or out of the EU/EEA will be subject to EU ETS. The vessel speed and bunker fuel consumption used in the calculations of the new carbon-accounted freight assessments were arrived at by extensive market survey and reflect market practice. The calculations will use the daily EU Emission Allowance Nearest-December price (EADLP00) as published by Platts. The tank-to-wake carbon emissions based on the fuel consumption will be calculated using the carbon conversion factors published in Annex 1 of Regulation (EU) 2015/757 of the European Parliament and of the Council on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport. These carbon conversion factors, which have been published by Platts since Aug. 1, 2022, are: Assessment Name Value Daily Code Carbon Conversion Factor 0.5% VLSFO 3.151 t-CO2/t-fuel ASFOA00 Carbon Conversion Factor 0.1% MGO 3.206 t-CO2/t-fuel AMGOA00 Platts will publish the values defined in the relevant European legislation and will reflect any updates accordingly. The new assessments will be published in Platts Dry Freight Wire; on Platts Shipping Alert (SHP) page 0520 and Platts Bunker Add-on (PBG), 3960; as well as in the Platts price database under the codes above. Please send any further comments or questions to shipping@spglobal.com and pricegroup@spglobal.com. For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available to the public upon request.

In this episode of the Commodities Focus podcast, our experts delve into the Black Sea wheat trade situation amid the ongoing Russia-Ukraine War, from the impact of the Black Sea Grain Initiative on global food security to the challenges faced by the initiative and the future of wheat exports in the region. Additionally, our experts also discuss the impact of sanctions on Russian fertilizer supplies and how it will shape the global demand in 2023. Related content on Platts Dimensions Pro: Grains news and insights Dry Freight news and insights More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

Downward pressure in seaborne Ukrainian grain flows through the Black Sea persisted during the week Jan. 9-15, with volumes declining 20% on the week to reach 490,825 mt, the lowest weekly level since mid-August, an analysis of UN's Black Sea Grain Initiative Joint Coordination Centre data by S&P Global Commodity Insights showed Jan. 16. "Usually, grain exports come back by the end of January, beginning February," said a chartering broker pointing to the typical period when new contracts are signed, noting, however, that regional players don't expect a significant improvement in grain flows or tonnage requirements due to the damage inflicted by the Russia-Ukraine war. In recent fixtures, Leda C, 2011 built, 81,526 dwt, was heard fixed to open Port Said Jan. 24 via Ukraine, redelivery Far East at $16,250/day or at $17,000/day and a $550,000 ballast bonus. The UN-brokered Black Sea Grain Initiative, signed last July by Russia, Ukraine and Turkey and renewed in November for another four months starting Nov. 19, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal reaching over 17.4 million mt as of Jan. 15, according to JCC data. According to the JCC, the number of inspection teams remains at three, with plans to conduct nine inspections on Jan. 16, four on inbound vessels and five on outbound vessels. "Currently, 30 vessels are waiting for inspection: eight of them waiting to move into Ukrainian ports and 22 loaded with cargo waiting to sail to their global destinations. Seventy-nine applications for participation in the Initiative have been submitted," the JCC said Jan. 15. In addition to the lower volumes observed recently, the average cargo size during the period Jan. 9-15 shrunk 32% on the week to reach 25,833 mt, returning to mid-December levels, JCC data showed. The largest cargo observed during the week Jan. 9-15 was a 70,799 mt shipment of corn headed to China aboard the 83,007 mt dwt, 2006-built Cuma, which departed from the terminals of Yuzhny/Pivdennyi Jan. 13. The share of corn shipments eased to 43% of the total weekly flows during the period Jan. 9-15, in contrast to over 60% the previous week, remaining nevertheless the top grain type exported in terms of volumes, with wheat accounting for less than 20% and sunflower products almost 19%, data from the JCC showed. Barley and soya beans accounted for the rest. According to the JCC data for Jan. 9-15, Europe and Central Asia attracted over 48% of the grain volumes, with 27% of flows destined for East Asia and the Pacific and another 19% on its way to Middle East and North Africa. The remaining volumes were shipped to South Asia among other destinations, JCC data showed. In terms of income, the share of high-income destinations more than doubled on the week to reach above 32% of total grain volumes, according to JCC, with 3% of flows headed to low-income regions, and the majority of the remaining cargoes destined for middle income countries during the week Jan. 9-15. Flows remain subdued According to data from S&P Global Commodities at Sea, Ukrainian grain exports from the three key ports included in the Black Sea Grain Initiative continue to lag their pre-war levels in January, averaging close to 82,000 mt/day for the period Jan. 1-14, some 19% below their five-year January average for the period 2018-22, and almost 37% lower than the average daily levels observed during January 2022. In addition, the age of the vessels operating in the trade has increased significantly, reaching over 17 years during the first half of January 2023, compared with an average age of about 11 years for vessels trading in those ports during the same period over the past five years. Globally, dry bulk freight rates have been suffering on the back of persistent macroeconomic uncertainty and poor expectations for Q1 2023, with the Platts KMAX 9 Index, a weighted average of spot time charter equivalent rates on key Kamsarmax routes across the globe assessed by Platts, last standing at $7,451/d on Jan. 13, having slipped below $10,000/day earlier on Jan. 6 for the first time since November 2020, now trending 62% lower than the $19,684/d average for 2022. Platts is part of S&P Global Commodity Insights

The EU's ban on Russian oil product exports on Feb. 5 will transform markets and change trade flows in a manner more complex than the impact of the sanctions on seaborne Russian crude that came into force on Dec. 5, chief energy economist at the International Energy Agency said Jan. 11. "We need to be very watchful because the reconfiguration in global trade implicit in that oil product ban is going to be significantly more complex than what we have seen already on the crude side," Tim Gould said at the 13th Global UAE Energy Forum organized online by Dubai-based Gulf Intelligence. "When it comes to products, it's a more complex situation because as we are all aware, China and India are both oil product exporters, so you are not going to have the same, in a sense, safety valve for oil products as you do for crude." The G7 slapped a $60/b price cap on Russian crude alongside EU's own embargo on seaborne Russian crude exports on Dec. 5 in response to the invasion of Ukraine. "We are going to need to have a very complex reconfiguration of flows also in the Atlantic Basin with Europe taking more from Middle Eastern suppliers and from North America, and then potentially Russian oil product exports finding a home in parts of Latin America or in Africa," Gould said. "None of that is simple, there are quality specification issues. There are all sorts of tankers and storage issues that would make that very complicated." More resilient European refiners turned to crude grades from Norway, the US, Saudi Arabia, Guyana and Azerbaijan in 2022 to plug the growing gap left by Russian imports sidelined by Western sanctions on Moscow, according to tanker tracking data. Russian seaborne crude imports into the EU, Norway and the UK shrank by 80%, or 1.36 million b/d, in November and December compared to pre-war levels of 1.71 million b/d, according to data from S&P Global Commodities at Sea. The IEA is forecasting Russian output will fall by 1.4 million b/d in 2023 due to the impact of EU sanctions and the G7 price cap. "When we look at oil markets, it is undoubtedly true that Russian production and exports have been more resilient than we initially expected, but of course there are big changes afoot," Gould said. "It feels unlikely that we will get back to the way things were before in terms of Russia's relationship or position in the international energy world." G7 price cap Analysts at S&P Global Commodity Insights expect only minimal impact from the West's seaborne crude sanctions on Russian output. Russian supply losses could peak at 930,000 b/d below pre-war levels in March due to pending sanctions on fuel exports before production rebounds 400,000 b/d by the fourth quarter of 2023. Russia estimates that its oil output may fall 5%-7% in 2023 as a result of the sanctions. The G7 price cap is another factor that will impact Russian exports in 2023, Gould said. "We are watching very closely to see the extent to which traders and shippers are incorporating that (G7 price cap) into their decisions already for crude in December," Gould said. "There is a large degree of uncertainty how this plays out, but I think certainly it is going to be a big factor in the markets in 2023." Other wild cards in 2023 are the oil demand outlook as a result of China's lifting of COVID-19 restrictions despite a resurgence of the virus and the shape of the global economy, he added. The IEA expects global oil demand to grow 1.7 million b/d to 101.6 million b/d in 2023, with nearly half of that increment coming from China. Most of the 820,000 b/d oil demand growth in China in 2023 is expected to come in the second half of the year. IEA's SPR arsenal The IEA is also keeping the release of oil from strategic stocks as an option in 2023, Gould said. In 2022, the US initiated the largest drawdown in the history of its Strategic Petroleum Reserves, injecting 905,000 b/d into the market from mid-April through October, with additional drawdowns by other IEA nations raising global SPR flows to about 1.4 million b/d over the same period, according to S&P Global. The Joe Biden administration announced the SPR drawdown as it sought to shore up global oil supplies, help Europe curb its dependence on Russian oil imports, and ease domestic energy prices contributing to the highest US inflation in 40 years at the time. "There are still substantial stocks available to IEA member countries that can be deployed in case of necessity, and you can imagine that we will continue to keep a close eye on market developments and potential disruptions this year," Gould said. "That part of the arsenal is still very much intact. Some countries will look to replenish those stocks as and when it's prudent to do so."

The Asian high sulfur fuel oil market is likely to be bogged down for most part of 2023 by ample Russian supply, despite expectations of steady to strong demand, especially from the downstream marine fuels sector, several traders and analysts said. Russian-origin supply is likely to increasingly find its way east following a ban on the country's oil product exports in 2023. That could tilt the demand-supply balance more toward a market that's likely to be long than balanced, even with expectations of steady HSFO demand from the utility sector and even more so from scrubber-fitted vessels. "It looks like it's going to continue ... Russian barrels coming into Asia [and] weighing on the [HSFO] fundamentals," said a Singapore-based fuel oil trader with a Western company. "No big changes on the demand side, just a lot more supply." It may not, however, necessarily be all doom and gloom for the Asia HSFO market as there are factors that could come into play to support demand, traders said. China a possible swing factor Expectations that China's economy is likely to stage a rebound, even if gradual, would mean rising demand -- and output -- for middle and light distillate products. That may result in incremental demand for HSFO as a coker feedstock to produce relatively better margin products, traders said. Beijing has issued 18.99 million mt of export quotas for clean oil products in its first batch for 2023, S&P Global Commodity Insights reported Jan. 3, citing several sources with knowledge of the matter. The clean product quotas for exporting gasoline, gasoil, and jet fuel are 46% higher from 13 million mt issued in the same batch for 2022. Increased freight activity due to an economic upswing could also support bunker demand, traders said. Although high sulfur bunker fuel is estimated to account for only around 10% or so of China's total bunker demand, most of China's HSFO demand is met through imports, most of it, from Singapore. Russian supply Another factor that may support the Asia HSFO market is the slim likelihood that Russian refiners may cut run rates after the European Union's ban on Russian oil product imports Feb. 5, said traders. "If Russia [refiners] reduces run rates, then it might be bullish for the [HSFO] market going forward. If not, it might mean more coming in and the East market having to absorb more [Russian] barrels," said another Singapore-based fuel oil trader. Most market participants, however, said the trade flows that have emerged following Russia's war on Ukraine are likely here to stay, if not consolidate, by way of higher volumes getting shipped through the respective routes. "I don't think [the EU ban] would change the oil flow. Russia is selling much more to Singapore, than they are to Europe anyway, so what's the point of reducing run rate," said a Singapore-based fuel oil trader at a major shipping company. "[Russia] still has plenty of outlets ... it's just a little bit more difficult in terms of logistics, but not impossible, as demand for [relatively cheap] Russian fuel oil is still there. They still need the money," said a fuel oil trader at a South Korean refiner, suggesting that it was unlikely that Russian refiners would cut run rates. Russian HSFO fuel oil exports to Asia stood around 1.4 million mt in December 2022, up slightly from 1.3 million mt in November 2022, Kpler data showed. Downstream demand optimism High sulfur bunker demand is expected to be buoyant in 2023, extending a similar trend from 2022, traders said. Market optimism broadly stems from expectations that demand will see a further uptick from more scrubber-fitted vessels coming into operations in the near- to medium-term. "The delta between LSFO [low sulfur fuel oil] and HSFO has widened, allowing for a faster return on investment," a Singapore-based commercial manager at a shipping company said. The spread between the benchmark Singapore marine fuel 0.5%S cargo and the Singapore 380 CST HSFO cargo assessment averaged $261.09/mt in 2022, up from $119.69/mt in 2021, S&P Global data showed. Singapore's high sulfur bunker fuel sales rose 29.7% year on year to 12.42 million mt over January-November 2022, accounting for 28.4% of its total sales across all bunker grades, up from 25.8% in 2021, latest data from the Maritime and Ports authority of Singapore showed.

As EU sanctions on Russian crude and oil products come into force, the Baltic and Black Sea shipping markets face uncertainty. In this episode of the Platts Commodities Focus podcast, our EMEA Tanker Editors and Freight Analytics team delve into the challenges and opportunities facing shipowners in these regions. From navigating new strategies to considering the potential impact of these sanctions, join us as we explore what the future holds for shipping in the west. Learn more: Europe & Africa Crude Oil | Dirty Tanker Freight | Shipping News & Insights Infographic: Sanctions on Russian commodities tracker More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

Seaborne Ukrainian grain flows through the Black Sea slumped another 22% on the week to reach 514,848 mt during the Dec. 12-18 period, with the average cargo size shrinking by 26% on the week to 25,742 mt, an analysis of UN's Black Sea Grain Initiative Joint Coordination Centre data by S&P Global Commodity Insights showed Dec. 19. "We'll probably see an improvement by February or March," said a shipbroker, pointing to unfavorable weather, harvest delays, and bombing as the major factors pushing weekly Ukrainian grain seaborne exports to the lowest levels observed since August. The UN-brokered Black Sea Grain Initiative, signed July 22 by Russia, Ukraine and Turkey and renewed earlier in November for another four months starting Nov. 19, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal reaching almost 14.2 million mt as of Dec. 18. Declining significantly over the week, the size of the average shipment over Dec. 12-18 reached as low as 25,742 mt, dipping below the August – December weekly average size of 26,336 mt for the first time since early November. The largest cargo observed during week 50 was a 71,400 mt shipment of wheat headed to Indonesia on Star Emerald, 2019-built, 82,063 dwt, vessel which departed from the terminals of Yuzhny/Pivdennyi Dec. 15. Similar to last week, corn shipments dominated the Dec. 12-18 flows, accounting for almost 44% of total cargoes, with wheat accounting for almost 32% and sunflower products close to 22%, with the residual flows being soya beans. Notably, the share of high-income destinations halved to 30% of total shipments over Dec. 12-18, with over 40% heading to upper-middle-income destinations and less than 30% of the shipments reported to be destined for lower-middle-income destinations. Europe and Central Asia continued to attract the lion's share of the Ukrainian seaborne grain exports, reported at 52% of the cargo volumes during the week ended Dec. 18, with nearly 27% heading to East Asia and Pacific and about 11% destined for the Middle East and North Africa. The remaining volumes were shipped to South Asia, JCC data showed. On the back of significant macro-economic headwinds, dry bulk freight rates have remained weak, with the Platts KMAX 9 Index, a weighted average of spot time charter equivalent rates on key Kamsarmax routes assessed by Platts, last standing at $12,811/d on Dec. 16, almost 36% lower than the $19,956/d average for 2022 to date. Focus on successful JCC inspections "Since early November, the JCC has been deploying three joint inspection teams, with the exception of one day," said a JCC spokesperson to S&P Global inquiries. "The UN has requested an increase in team numbers, and the parties have been discussing this as well as how to improve efficiencies in inspections. However, we have not seen an increase yet." "We hope of course that the situation is going to improve but to see an improvement, the number of successful inspections per day needs to increase, which means the number of joint inspection teams needs to increase, too." "So, the backlog is predominantly linked to JCC's inspection capacity although bad weather has also contributed to several delays," the JCC spokesperson concluded. The JCC said late Dec. 18 that "84 vessels are waiting in Turkish territorial waters. Out of those 84, 65 are waiting to move – following inspections – into Ukrainian ports with the capacity to export approximately 2.5 million tons of grain and other food products." Some of the vessels have waited for over a month, with the remaining 19 vessels already loaded with cargo and awaiting outbound inspection. According to the JCC, the number of inspection teams has not increased and remains stable at three per day, with plans to conduct 12 inspections Dec. 19, split equally between inbound and outbound vessels. Platts is part of S&P Global Commodity Insights.

Ukrainian grain flows retreated in the week ended Dec. 11, plagued by inspection delays, which also saw the weekly average cargo size edging lower. According to S&P Global Commodity Insights' analysis of data from the UN's Black Sea Grain Initiative Joint Coordination Centre, seaborne Ukrainian grain flows through the Black Sea during the period Dec. 5-11 slid 21% week on week to 657,235 mt, with the average cargo size easing to 34,591 mt, down 5% on the week. The UN-brokered Black Sea Grain Initiative, signed July 22 by Russia, Ukraine and Turkey and renewed in November for another four months starting Nov. 19, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal reaching almost 13.7 million mt as of Dec. 11. Market sources have been pessimistic regarding the progress made in accelerating flows, with the latest weekly shipments standing almost 9% below average. "Vessels still waiting for up to 30 days. It's all mainly JCC delay rather than port congestion," explained a shipbroker, with sources previously expressing optimism about stronger flows by mid-December. Also easing slightly on the week, average shipment during the period Dec. 5-11 stood at 34,591 mt, almost a third larger than the average weekly cargo size of 26,367 mt since the inception of the safe passage deal, indicating that market participants might feel more comfortable bringing larger assets into the trade. The largest cargo during the week was a 67,100 mt shipment of corn headed to China aboard the 2011-built, 80,310 dwt Aeolian Vision, which departed from Chornomorsk Dec. 8. The JCC said late Dec. 11 that "82 vessels are waiting in Turkish territorial waters. Out of those 82, 59 are waiting to move – following inspection – into Ukrainian ports with the capacity to export approximately 2.2 million tons of grain and other food products." Some of the vessels have waited for over a month, with the remaining 23 vessels already loaded with cargo and awaiting outbound inspection. According to the JCC, the number of inspection teams has not increased and remains stable at three per day, with plans to conduct nine inspections Dec. 12, one on inbound vessels and eight on outbound. The share of shipments destined for high-income regions during the week Dec. 5-11 hovered close to 60% of all cargoes, with almost 35% heading to mid-income destinations and less than 4% of the shipments reported to be destined for low-income destinations. As for cargo types, corn shipments dominated the Dec. 5-11 flows, accounting for almost 49% of total cargoes, with wheat cargoes claiming almost 18%, and rapeseed just above 13%. The remainder comprised sunflower products and other foodstuffs. Europe and Central Asia attracted almost 71% of the cargo volumes during the week ended Dec. 11, with 10% heading to East Asia and Pacific, and about 9% destined for the Middle East and North Africa. The remaining volumes were shipped to South Asia and sub-Saharan Africa, JCC data showed. At the same time, global dry bulk freight prices remain weak, with the Platts KMAX 9 Index, a weighted average of spot time charter equivalent rates on key Kamsarmax routes assessed by Platts, last standing at $13,223/d on Dec. 9, over a third below the $20,109/d average for 2022 to date. Tanker disruption brewing With the introduction of the G7 price cap on Russian seaborne crude Dec. 5, tanker delays have escalated after Turkey issued a notice dated Nov. 16 requiring all ships transiting or entering Turkish waters from Dec. 1 to provide letters confirming that insurance cover will remain in place under any circumstances throughout the duration of the transit or while the ship is in a Turkish port or waters. Consequently, delays for tankers transiting the Turkish Straits have jumped to the highest in almost a year, tightening tonnage availability elsewhere in the Med. Southbound tanker delays to transit the straits were assessed at 10 days on Dec. 9, unchanged from Dec. 7 but up from three days at the start of the month and the highest since Dec. 3, 2021, according to assessments by Platts. If the issue is not resolved this week, Med rates for Suezmax and Aframax vessels are likely to tick higher on the back of a supply shortage in the region. "Discussions are still in progress, but no common ground has been found as yet," a shipping source said. "Any sustained delays will certainly have a positive impact in the Med tanker markets." Platts is part of S&P Global Commodity Insights.

Waving goodbye to its historic symbiosis with Russia, Europe heads into 2023 facing a global tug-of-war for diesel supply. With low global diesel stocks setting supply and demand balances on edge, Europe is set to face Asia, the US, and Latin America in a battle for diesel barrels that will only add to price volatility in 2023. Global diesel stocks were playing catch-up even before Russia's invasion of Ukraine Feb. 24, emerging from the pandemic with demand having largely recovered but with immense losses to refining capacity, particularly in Europe. The Ukraine crisis sparked panic among diesel buyers, tightening the spot market and causing the steepest backwardation on record before a combination of high prices, economic weakness, a tapping of strategic reserves, and continuing consumption of the key industrial fuel restored some order. But fears of a renewed crisis simmer. Diesel and gasoil stocks in the Northwest European hub of Amsterdam-Rotterdam-Antwerp sat at 1.716 million mt, 24.9% below the five-year average late November and their lowest since 2008 for the time of year, data from Insights Global showed. Inventories elsewhere have faced a similar fate as demand outstrips supply, with diesel stocks across the Atlantic around 37% below the five-year average at the end of November and middle distillate stocks in Singapore around levels last seen in 2004 for this time of year, US Energy Information Administration and Enterprise Singapore data showed. Crisis, what crisis? Question marks remain over where Russian diesel might go -- and in what quantity -- as trade flows readjust following the start of EU import sanctions Feb. 5 that could halt 2.5 million mt of diesel, which currently continue to arrive each month. Analysts point to ongoing high prices as global arbitrage routes take time to rejig and potentially limited export destinations constrain Russian diesel production. How much this hits global balances could hinge on the global slowdown, with diesel key to industrial production. "In Europe, we expect 2023 FOB ARA diesel barge cracks to average well above the five-year range, at $43/b in first-half 2023, and $41/b in H2 2023," Rebeka Foley, an oil analyst at S&P Global Commodity Insights, said. Platts, part of S&P Global, assessed FOB ARA diesel barge cracks versus Dated Brent at $42.13/b Dec. 1, 154% above the five-year average. Bank of America's Head of Global Commodities Research Francisco Blanch was more bullish for early 2023. "Low diesel stocks, particularly in PADD 1 [US East Coast], and the risk of diesel supply disruptions from Russia point to a very tight outlook near-term, with a risk of diesel spiking to $200/b, from $150/b at present." BofA forecast European ultra low sulfur diesel cracks to average $57.50/b in the first quarter of 2023 before falling to $30 by the year's end as the economy slows, Blanch said. S&P Global's latest Oil Markets report showed cracks projected to remain above $40/b through Q4 2023 despite Western Europe's demand for diesel and gasoil contracting by 5.39 million b/d in 2023, with the biggest contraction in the third quarter at 5.52 million b/d. Russian alternatives With sanctions choking off Russian supply to EU countries, likely additional volumes will need to come from the Middle East, Asia, and the US. Sizeable arbitrage flows already come to Europe from the East of Suez, with arrivals in Europe surpassing 2 million mt in September and October, and around 1.75 million mt in November, according to shipping fixtures and Kpler data. While currently within historical ranges, flows to Europe are expected to increase when Russian supply ends as bullish price forecasts should attract high volumes of Asian barrels and more refining capacity comes online in the Middle East. Traders expect volumes from Saudi Arabia's Jazan and Kuwait's Al-Zour will help replace Russian volumes, once fully operational. The 400,000 b/d diesel-strong Jazan was initially expected to be fully operational by H2, 2020, but has faced severe delays and has not yet begun exporting diesel. The newly commissioned 615,000 b/d Al Zour refinery exported its first cargo of jet fuel Nov. 28, indicating startup of distillate units, and is expected to ramp up production through 2023. While the new capacity will eventually help offer some relief to middle distillate markets, "the bulk of this new supply will only become available quite some time after the EU ban on Russian refined products comes into force," said Warren Patterson, head of commodities strategy at ING bank said. Flows from the US Gulf Coast are also expected to step in to help plug the Russian product gap, but arbitrage economics are typically more unstable than those from East of Suez, with Europe competing with Latin America and the US Atlantic Coast via the Colonial pipeline. US Gulf Coast exports of ULSD to Europe surged 117% on the month to 484,200 mt in September, before crashing to 284,000 mt in October and rising to about 418,800 mt in November, shipping fixtures and Kpler data showed. The impact of the EU ban on refined products will depend on how quickly trade flows can adjust and whether there are willing buyers of Russian diesel and gasoil further afield, which would free up alternative supplies for the EU. "However, the quality of product and logistics could certainly complicate the necessary shift in trade flows," Patterson said, as potentially longer distances and quality requirements affect buying behavior. One thing looks clear, the European diesel market could still take some time adjusting to life without direct and immediate access to Russian barrels.