Oil freight rates from the US Gulf Coast for Aframax crude tankers hit a new record this week, according to shipbrokers cited by Reuters, as demand increases for US crude oil bound for Europe and the Mediterranean in front of the new IMO 2020 rules that will go into effect in just a couple of weeks.
Last week, the worldscale rate for an Aframax tanker was $46,800 per day. But Equinor and Unipec have chartered Aframax tankers this week for $60,700 per day—a near 30% increase in just one short week.
That cost is spread out over the 700,000ish barrels of oil that an Aframax tanker holds.
Europe’s appetite for light, sweet crude oil has increased over the last couple of weeks, as new maritime rules—known as IMO 2020—will cap the amount of sulfur allowed in fuel burned by maritime vessels. This spike in demand is limiting the number of Aframax tankers available, and as such, is increasing the costs to ship the IMO 2020-compliant oil. According to analysts and shipbrokers who spoke to Reuters, this demand could increase US oil exports to 4 million barrels per day, in what would be a new high for the US.
US exports of crude oil has increased from an average of 2.065 million bpd at the start of the year, 3.633 million bpd now, according to the Energy Information Administration (EIA).
While IMO 2020 is expected to increase demand for low-sulfur crude, not every country has agreed to the new rules, including Mexico, Venezuela, and Thailand, according to Bloomberg, and not every country who has signed it will comply full force from the very beginning.
The new IMO rules stipulate that ships can only use fuel that contains 0.5 percent of sulfur, down from the current 3.5 percent maximum allowed sulfur content. If a vessel is fitted with a scrubber that captures most of the sulfur in the fuel, it can continue using high-sulfur fuel.