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Friday, December 15, 2017

Weakening markets

The tanker market has been very volatile in recent months and rates for the different segments have at times moved in different directions. Over the last week all segments have weakened and the rates for the crude segments have converged.

 The situation this autumn is quite different from that at the same time last year. Stock is relatively high, there is no hurricane activity and crude oil prices have fallen to a level which has prompted OPEC to cut production. OPEC has become more ambitious and is now aiming at a price level of as high as USD 55 per barrel. OPEC crude oil production has fallen since July.

 

The average activity in the VLCC spot market appears to be at about the same level as last year though the fleet is increasing due to high deliveries and moderate sales for decommissioning. Some tankers have been removed from the tanker market as they have been sold for conversion; however, all in all we have not recorded more than some 4 m dwt removed from the market so far this year - of which 2.7 m dwt was for demolition.

 

The U.S. is the only area with really recent figures. Here crude oil imports are slightly up on last year (0.9%) and recent consumption figures are quite strong. The U.S. Energy Information Administration reports that recent weekly data indicate that demand growth for key oil products in the United States has recently accelerated. While demand comparisons to last year are problematic due to the effects of Hurricanes Katrina and Rita, comparisons to 2004 and 2003 provide a better indication of current oil demand strength. U.S. domestic oil production increased from 5.076 mbd for the week ending 8 September 2006 to 5.307 mbd during the last week in October. The reduction in imports of 0.231 mbd per day would mean some 9 VLCCs less per year if the oil was taken from the Middle East.

 

Looking at the three main light product categories (gasoline, distillate fuel, and jet fuel) in combination, demand for the four weeks ending 27 October 2006 averaged over 15.5 million barrels per day. Comparing this to the four weeks ending 29 October 2004 shows an annual average growth rate of 2.2%, which is somewhat higher than a typical annual growth rate of about 1.5% to 2.0%. Comparing the latest four weeks to the four weeks ending 31 October 2003 shows a similar 2.1% annual average growth rate.

 

BraemarSeascope reports that oil companies have used their own tonnage on the better earning voyages, and contract arrangements have also reduced the number of these cargoes coming to the market. With the November programme now over 80% completed, owners have performed well keeping rates pegged at their current levels. December may well prove more challenging as charterers continue to hold the trump cards.

 

Contact: Erik Ranheim