Product tanker earnings surge despite declining cargo volumes

October 25 ------ The product tanker market has recorded a significant freight rally between early August and mid-October 2026, despite a sharp contraction in global refined petroleum product trade, according to the latest market analysis from Xclusiv Shipbrokers.

As explained, 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, according to Signal Ocean data. Clean petroleum product shipments fell by 12.1% to 186.75 million MT, with naphtha recording the steepest decline at 23.7%, followed by jet fuel at 14.5%, diesel at 10.3% and gasoline at 9.9%. Fuel oil shipments also decreased by 5.8% to 50.32 million MT.

Despite weaker cargo volumes, refinery disruptions, geopolitical developments and changing vessel employment patterns have created a market increasingly driven by tonnage availability and geographical imbalances rather than underlying trade growth.

LR2 and LR1 earnings lead the freight rally

Between 3 August and 14 October, all 18 monitored Baltic Exchange product tanker routes recorded gains, with LR2 and LR1 vessels experiencing the strongest increases.

The LR2 Middle East Gulf–UK Continent route (TC20) surged by 198%, from USD 108,734/day to USD 324,060/day, 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 with USD 138,253/day in early August. The Mediterranean–Far East LR2 route (TC15) recorded a 414% increase, reaching USD 172,513/day.

MR market strengthens, led by Eastern Hemisphere trades

The MR segment also experienced substantial freight gains, although regional differences remained pronounced.

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.

By comparison, the Atlantic market recorded a more moderate recovery, with US Gulf–UK Continent (TC14) earnings increasing by 35%, highlighting the stronger freight momentum across Eastern Hemisphere trades.

Shift towards crude trading reduces clean tanker availability

A key factor behind the rally has been the changing employment patterns of larger product-capable tankers, as elevated crude tanker earnings encourage owners to shift vessels towards dirty trades.

During the examined period, Aframaxes engaged in crude trading increased by 20.3% year-on-year to 858 vessels, while crude-trading Panamaxes rose by 18.6% to 134 units.

Conversely, clean-trading LR2 participation declined by 39.2% to 158 vessels, while LR1 participation fell by 9.6% to 208 units.

This shift has effectively withdrawn substantial capacity from the clean tanker market, supporting freight earnings despite declining refined product shipments. Returning vessels from crude to clean trading also requires tank cleaning, preparation and additional time, limiting the market’s ability to respond immediately to changes in demand.

Geopolitical developments could sustain market imbalances

Looking ahead, Xclusiv Shipbrokers highlighted that geopolitical developments could further influence product tanker employment and trading patterns.

The reported recent US–Russia agreement facilitating Russian diesel shipments, alongside temporary US sanctions relief, could create additional tanker employment and reshape trade routes. However, the extent to which these developments will translate into increased cargo movements remains uncertain.

Should additional refined product shipments materialize while LR vessels continue to favor more profitable crude trading, clean tanker availability could tighten further.

As a result, product tanker earnings may remain elevated despite weaker overall trade volumes, with vessel deployment decisions, regional tonnage imbalances and geopolitical developments playing an increasingly important role in determining market direction.

Source: safety4sea.com