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Traders Plan Gasoline, Diesel Freight Swaps as U.S. Drives Rally

Freight traders are designing two new swaps contracts tied to rates for tankers hauling refined oil cargoes as rising U.S. and Middle East exports help rates for the vessels to rebound from a slump.

The first Forward Freight Agreement is linked to how much vessels earn from shipping European gasoline to the U.S. and then returning with diesel, Duncan Farmer, the chairman of a trader group using Baltic Exchange oil-shipping prices, said in a Jan. 21 interview. It will start within 12 months, he said, adding that a second new contract is being developed based on shipments for refined fuels within Asia.

Surging U.S. exports of refined products are helping to drive up shipping costs for the cargoes at a time when a glut of crude tankers is cutting returns from those vessels. Trading in swaps tied to gasoline, diesel and jet fuel freight surpassed crude-related contracts for the first time since at least 2006 last year, Baltic Exchange data show. Trafigura, WL Ross & Co. and Blackstone LP are among companies buying product-tankers.

“We should have a good opportunity to get things up and kicking again,” said Farmer, who is also a Geneva-based freight trader for Trafigura Pte. “That should allow more people to get involved that are not necessarily involved in the physical business themselves, maybe some more institutional money.”

An increase in products exports from the U.S. and new Middle East and Asian refineries are combining to create trade routes that increase shipping distances and boost rates as fleet growth slows, Evercore Group LLC, a New York-based investment bank, said in a Jan. 17 report.

Crude and Products Diverge

Earnings from Medium Range product tankers, which haul about 37,000 metric tons of cargo, will jump 39 percent to $11,500 daily this year, it said, raising a prior estimate of $10,500. The bank simultaneously cut its forecast for the biggest crude carriers to $18,000 from $21,000 and said they will be unprofitable.

U.S. exports of gasoline and other refined oil products last year probably exceeded the nation’s fuel imports from as recently as 2009 as strengthening demand from Latin America spurred a fourfold gain in ship charters.

Refineries’ petroleum-product shipments exceeded imports by an average of 935,000 barrels a day in the first ten months of last year, U.S. Energy Information Administration figures compiled by Bloomberg show. Inbound shipments surpassed deliveries by 841,000 barrels daily in 2009, according to the data.

Demand Exceeds Supply

Global demand for product tankers will rise 4.6 percent to the equivalent of 99.9 million deadweight tons this year, estimates Clarkson Plc (CKN), the world’s largest shipbroker. That compares with fleet expansion of 2.8 percent. Crude tanker demand will rise 3.3 percent while the fleet able to carry that oil will expand 3.7 percent, according to the shipbroker. Deadweight tons measure ships’ capacity.

Volumes of tanker freight derivatives declined 1 percent to 142.4 million metric tons of refined products traded in 2012, according to data compiled by the Baltic Exchange. That exceeded crude oil shipping contracts, which plunged 55 percent to the equivalent of 82.2 million tons, the data show.

Seaborne product shipments totaled 823.9 million tons in 2011 and is projected to rise to 902 million tons by 2015, the research division of DVB Bank SE (DVB), a German transport lender, said in a report in September.

Blackstone said in August it bought nine refined oil tankers, about a year after WL Ross, the private equity firm led by billionaire Wilbur Ross, was part of a group that invested $900 million in a fleet of 30 of the ships. Trafigura said Jan. 21 it had agreed to buy three medium range product tankers, its first such purchases.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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