Product tanker earnings have more than doubled on the West Coast India–UK Continent (WCI-UKC) lane since August, with LR2 daily rates climbing to the high-$120,000s from the high-$50,000s, according to shipbroker Gibson. The surge reflects a sharp redirection of Middle East cargoes, tightened clean tonnage, and a wave of coated LR2s leaving the clean market for dirty work.

What is driving the LR2 rally?

Middle East clean product flows tell the story. CPP exports from the Mideast Gulf and Gulf of Oman jumped to a preliminary 2.4 million barrels per day (mbd) in September, up from 1.4mbd in August, after the 922kbd Ruwais refinery returned to full operation. Yanbu exports remain disrupted under Houthi threat. Strait of Hormuz transits rose as regional producers' fleets repositioned back into the region.

A favorable East-West spread is now pushing Middle Eastern and WCI middle distillate cargoes westbound, lifting LR demand. High cargo volumes are meeting tighter tonnage, with at least 100 coated LR2 units now engaged in dirty service. Gibson noted that this activity leaves "overall LR tonnage fairly limited." A few maiden westbound Suezmax voyages this month suggest operators are either stretching conventional LR capacity or simply chasing the economics of larger parcels.

How have the smaller segments performed?

MR earnings on TC12 rose to roughly $40,000 per day from the mid-$10,000s per day over the same August-September stretch, drawing strength from the larger segments. Pacific MR TCEs surged to the mid-$60,000s per day — more than double the mid-$20,000s per day recorded in early August. The Atlantic basket held near the mid-$30,000s per day, broadly steady rather than tracking the Pacific rally.

US Gulf (USG) exports have risen sharply alongside higher refining rates since the war began, anchoring Atlantic MR demand. Gibson observed: "The Atlantic MR market is mainly supported by USG exports, which have risen sharply alongside higher refining rates since the war began. Still, the West remains persistently short of middle distillate cargoes given the loss of Middle Eastern products, a squeeze deepened since Yanbu supply was disrupted."

September flows confirm the shift: Turkey and Brazil — traditionally Russia's two largest diesel buyers — now rely primarily on the USG. Russian refinery hiccups, following a spate of drone attacks, have compounded the squeeze.

On the Atlantic's eastbound side, a recently widened East-West naphtha spread has made eastbound economics more attractive, though sluggish Asian petrochemical demand caps the upside.

What is happening in the East?

Chinese product exports hit 1.08mbd in September, the highest since March 2024, up from roughly 780kbd in July when Beijing lifted its export ban. Far East activity remains high, driven by strong exports out of the North, with high margins keeping refiners running at elevated rates — though the recent rise in crude oil prices is narrowing those margins.

Regional LRs, after discharging naphtha cargoes in Asia Pacific, are increasingly fixing onto long-haul westbound runs into East Africa and Europe. That trade removes the long ballast leg owners would otherwise need and tightens LR supply in the Middle East as a result. ME/WCI clean product exports heading east have collapsed to around 500kbd in September, from a June peak of roughly 1.16mbd.

What could derail the rally?

Gibson flagged a thicket of swing factors for shippers and owners to watch:

• Beijing may sharply restrict or suspend October product export quotas
• South Korean refining supply remains constrained, with possible strategic reserve draws
• A US diesel export ban remains at the "studying feasibility" stage per the US Treasury
• Russian refining recovery would reduce USG reliance and ease current tightness
• A remaining newbuild schedule of 23 LR1/LR2s and 52 MRs due for delivery this year

"Geopolitical risk continues to be the dominant swing factor across global CPP supply," Gibson warned. "Any price change, refining margins and product spreads, which in turn can redirect trade flows, and a change in export policy anywhere could quickly dent cargo volumes and put downward pressure on rates."

Winter heating demand and weather-related disruption remain the upside supports that could keep rates elevated even as these variables play out, with crude segment volatility and further dirty-up activity still capable of pulling clean tonnage tighter into year-end.