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Product Tankers: Less Cargo, Higher Earnings – The Market Paradox

The product tanker market has experienced an extraordinary freight rally between early August and mid-October 2026, despite a significant contraction in global refined petroleum product trade. While declining cargo volumes would normally translate into weaker vessel demand and softer freight rates, the opposite has occurred. Refinery disruptions, geopolitical developments and changing vessel employment have created a market increasingly driven by tonnage availability and geographical imbalances rather than underlying cargo growth.

According to Signal Ocean data, global seaborne refined product shipments declined by 10.9% year-on-year between 1 August and 15 October, falling from 265.96 million MT in 2025 to 237.07 million MT in 2026. Clean petroleum products accounted for most of this contraction, declining by 12.1% to 186.75 million MT, with naphtha recording the steepest reduction at 23.7%, followed by jet fuel at 14.5%, diesel at 10.3% and gasoline at 9.9%. Meanwhile, fuel oil shipments decreased by 5.8% to 50.32 million MT, highlighting the broader weakness in refined product transportation demand.

Interestingly, this contraction has coincided with an exceptional strengthening in freight earnings. Between 3 August and 14 October, all 18 monitored Baltic Exchange product tanker routes registered gains, with LR2 and LR1 vessels leading the rally. The LR2 Middle East Gulf–UK Continent route (TC20) surged from USD 108,734/day to USD 324,060/day, an increase of 198%, while the LR1 equivalent (TC8) climbed 173% to USD 234,399/day. Similarly, the LR2 Middle East Gulf–Japan route (TC1) reached USD 284,762/day, compared to USD 138,253/day in early August. The Mediterranean–Far East LR2 route (TC15) recorded an even more remarkable 414% increase, reaching USD 172,513/day.

The MR market has followed a similar upward trajectory, although geographical differences remain considerable. South Korea–Singapore (TC11) earnings increased by 261% to USD 64,144/day, while West Coast India–Japan (TC12) climbed 280% to USD 50,642/day. Singapore–Australia (TC7) strengthened by 188% to USD 67,775/day. Conversely, the Atlantic market experienced a less pronounced recovery, with US Gulf–UK Continent (TC14) increasing by just 35%, illustrating the stronger momentum across Eastern Hemisphere trades.

A particularly important development is the changing employment pattern of larger product-capable tankers. During the examined period, Aframaxes engaged in crude trading increased by 20.3% year-on-year to 858 vessels, while crude-trading Panamaxes rose 18.6% to 134 units. Conversely, clean-trading LR2 participation declined by 39.2% to 158 vessels, while LR1 participation fell 9.6% to 208 units. With crude tanker earnings reaching exceptionally elevated levels, owners have increasingly found dirty trading more attractive, effectively withdrawing substantial capacity from the clean market. Importantly, returning these vessels to refined product transportation requires tank cleaning, preparation and additional time, preventing an immediate supply response.

Looking ahead, geopolitical developments could further support this imbalance. The recent US–Russia agreement facilitating Russian diesel shipments, alongside Washington's temporary sanctions relief, could generate additional product tanker employment and reshape trading routes.

However, the actual increase in shipments remains uncertain. Should additional cargo demand materialise while LR vessels continue favouring lucrative crude employment, clean tanker availability could tighten further. Consequently, freight earnings may remain elevated despite declining overall trade volumes, with vessel deployment and geopolitical developments increasingly determining the market's direction.

S&P Activity:

Dry:

On the Ultramax sector, the "Bulk Guatemala" - 61K/2013 Iwagi was sold for USD 23 mills to Lianson Fleet Group basis an old sale. Moving down the sizes, the Supramax "Ever Progress" - 57K/2012 Jiangsu Hantong was sold for USD 16.24 mills via auction, while the Japanese-built "Jin Xing" - 55K/2007 Oshima changed hands for USD 14.6 mills to Heng Fa Shipping. Finally, on the Handysize sector, the "Stellar Isabela" - 38K/2017 Shimanami found new owners for high USD 24 mills.

Tanker:

On the Suezmax sector, the "Maran Poseidon" - 158K/2010 HHI was sold for USD 98.5 mills, while the "Zouzou N." - 150K/2010 New Times changed hands for USD 103 mills. Moving down the sizes, Chinese buyers acquired the coated Aframax "Afra Mare" - 105K/2008 HHI for USD 59 mills. Finally, on the MR2 sector, the "Prive Angel" - 51K/2008 STX found new owners for USD 24.5 mills basis prompt delivery in Fujairah.

Xclusiv Shipbrokers, Inc.