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Wednesday, December 13, 2017

POINTS OF VIEW

The patterns of the tanker markets are becoming much more variable as the different parts of the global economy inter-react more quickly than ever, leading to greater rate volatility. This trend is reflected in the variety of issues dealt with by industry analysts in just a few days last week. 

Drewry states OPEC’s March 30 meeting will review its crude oil production cuts and squeeze on quota-busting that it announced in February. This meeting could go two ways, suggests Drewry. If oil prices remain at current levels in the high USD30s then OPEC is likely to increase production again, either by reversing the last cut or by turning a blind eye to quota-busting. However if oil prices were to come back down and show signs of further weakness, whereby they might not remain at the USD22-28 level for the OPEC oils basket, then OPEC is likely to maintain April production as it is (the Saudis have already taken a firm line by reducing their customers’ April stems by 8-11%). It might make another production cut in May.


Lorentzen & Stemoco comments on tougher product requirements in the US and Europe. With US refining margins currently at record levels, refiners are maximising production. But the new amendments to the Clean Air Act have led to a number of states banning the MTBE gasoline additive (which is then substituted with a corn-based ethanol blend). In addition, the latest sulphur specification applying from January 2005 means that US refiners have to upgrade their plants to comply. Refiners elsewhere, particularly in Europe, are also upgrading to comply with local sulphur requirements as well as to maintain their ability to export to the US.

How will this affect product imports? Europe still allows MTBE in gasoline but this may not be exported to some US states. However this is NOT expected to affect trade that much since Europe is primarily exporting gasoline blending components to the US rather than finished gasoline. In addition, one of the biggest product importing states, New Jersey, has no ban on MTBE. In fact the main challenge for Europe’s exporters, and therefore for product exports and the tanker industry, will be next year’s new stricter sulphur regulations, suggests L&S.

Poten reports that last week the US Senate voted to sell some Strategic Petroleum Reserve (SPR) oil to use the money for homeland security programmes - current SPR contents are 648m barrels with a total capacity of 700m. The broker calculates that the current SPR represents 453 days of US crude imports from Saudi Arabia, 476 days from Venezuela or 282 days from Venezuela and Nigeria. More crucial for the tanker market is that it estimates that the SPR fill rate of some 100,000 bbls/day accounts for roughly 10% of aframax fixtures in the Caribbean. If they stop filling the SPR and instead SPR is drawn down at 100,000 bbls/day, that cuts effective imports by 200,000 bbls/day.

The Centre for Global Energy Studies (CGES) believes that increasing Russian oil exports to the US will significantly change tanker trading patterns. Russian oil output of 8.5-9m bbls/day is expected to be up to 9.5m by the end of this year and to 12-13m by 2015. By 2010 CGES forecasts that 3.5m bbls/day of Russia’s crude oil exports will be going to the US – more than one third of current total US imports. It predicts that 50 VLCCs will be needed to service shipments from Murmansk and Ceyhan, and 75 suezmaxes and aframaxes for the Baltic and Black Sea trades.

However much the pattern changes, some basics don’t change, though. The fundamental drivers of the tanker market are US oil demand and OPEC and non-OPEC oil supply which, between them, feature in all four reports. What changes is the detail of the day – the time and the place and form. Getting the latest information and comment is what gives a tanker operator his edge.