The clean tanker market is expected to face a series of changes, as refining capacity is expected to shift. In its latest weekly report, shipbroker Gibson said that “total global refining capacity has been in an upwards trend for a long time, and years with declines are rare, barring those caused by overarching events such as the COVID pandemic. It is possible that this trend will soon change. Refinery closures are accelerating in the Atlantic Basin, driven by lower margins largely caused by structural demand developments. In recent months, global refining margins have been surprisingly strong, though maintenance activity and the closure of refineries are partly responsible. East of Suez, refining capacity is still growing, though at a slower pace than in previous years, whilst some capacity rationalisation is also prevalent in China”.

According to Gibson, “so far this year, the 260 kbd LyondellBasell refinery basin in Houston and Grangemouth (150 kbd) have shut their doors, and Wesseling (150 kbd), and Philips 66 Los Angeles (139 kbd) are scheduled to fully close or be repurposed. BP Gelsenkirchen is to close a third of its 257 kbd refinery and put the rest up for sale. Combined, these closures amount to around 800 kbd of capacity scheduled to shutter in the West this year. Closures may provide support to the margins of the remaining refineries, possibly helping to delay further shutdowns. However, European refining is likely to remain under pressure with Dangote expected to reach full scale gasoline production later in Q4, and demand also pressured in the key US export market. Given the competitive challenges facing European and some US refiners, even with the additions of Dangote and Olmeca, the IEA expects capacity in the Atlantic Basin to shrink faster than demand this year. The start-up of the 340 kbd Olmeca refinery has been beset by delays, and it is now expected to ramp up later in the year, though the timeline until full capacity is reached is unclear. Greater refining capacity in Mexico may push more US barrels into Europe to compensate for the loss of the Mexican export market, but the closure of Lyondell somewhat balances this”.

“Globally, refinery capacity additions are largely taking place East of Suez, with additions in China, the Middle East, and India this year. In the Far East, some Chinese independent refiners have struggled to remain competitive and have been forced to close or cut runs, as increased difficulty in accessing cheap oil from Iran and Venezuela, and a push by Chinese policy makers to raise import taxes and limit rebates on fuel oil has weighed on margins. China has also been consolidating its state-owned refineries, with the 410 kbd Dalian refinery to be permanently shut from the end of this month. 2026 will see further refinery additions in the East, but there are no large-scale projects in the pipeline in Western economies. Beyond next year, the pipeline of new refinery capacity additions looks limited, though FIDs may still be taken”, Gibson said.

The shipbroker added that “it is difficult to project what this all might mean for the clean tanker market. With demand in the largest markets in the West shrinking, clean tankers may find themselves turning East for employment. However, a significant share of new expansions East of Suez are focused on meeting domestic demand rather than export markets and may not benefit clean tankers. Some continued demand growth such as in Latin America may provide limited support, though in West Africa this could be met to a significant extent by increased local refining capacity provided by Dangote and other smaller local refineries”.

“Additionally, if demand in especially Europe shrinks more slowly than refining capacity, we could see increased need for imports from East of Suez, possibly supporting clean tanker demand. Overall, the clean tanker market may no longer be able to rely on the long-standing upwards trend in global refining capacity, with new investments mostly taking place East of Suez, where demand is expected to continue to grow”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide