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The questions to weigh before ordering a newbuilding tanker (04/12)

Placing a newbuilding order is a complex enough procedure on its own merit, given the fact that a ship owner has to accurately predict the market a few years down the line. But in today’s business environment, these decisions have additional layers of complexity, after the latest regulatory regulations on reducing shipping emissions. In its latest weekly report, shipbroker Gibson said that “ordering a new tanker is undoubtedly a big decision. More often than not the investment is driven by robust industry earnings, although at times the main reason is attractive asset prices, regulatory developments and/or the need for replacement tonnage. As the vessel’s trading life is typically around twenty years, the decision to order should also be considered against the backdrop of projected developments in tanker demand both in the short and in long term. Factors such as slowing growth in world oil demand and environmental concerns should also be taken into account”.

According to Gibson, “the IEA has recently published its annual long-term energy outlook, offering a view of developments in oil demand and supply through to 2040. In the New Policies Scenario, which is considered by many a baseline forecast, the agency takes into account not only the current policies but also ambitions, including those set out in Paris agreement, together with the likely evolution of known technologies. Here, global oil demand is projected to increase by around 1 million b/d per year to 2025, slowing notably thereafter to around 0.25 million b/d. The expectations are for robust growth in demand from the petrochemical sector, trucks and the aviation sector; while oil usage in cars is expected to peak around 2025, declining afterwards as the uptake of electric cars accelerates globally. Gains in global demand will entirely be coming from developing economies, largely Asia and the Middle East. China is anticipated to overtake US as the largest oil consumer, importing over 13 million b/d of by 2040. Strong increases are also seen in India and the Middle East, with consumption in both regions rising above the EU needs around 2030”.

The London-based shipbroker added that “in terms of supply, production in North America is forecast to increase substantially to 2025 and then plateau around 2030. Thereafter, output is expected to ease back; yet, an even bigger decline is projected in regional oil demand, meaning that exports out of the region will continue to rise. In Central/South America oil supply is projected to increase consistently throughout the forecast period, with likely strong increases in net exports between 2025 and 2040. As most of the demand growth is coming from Asia, this suggests ongoing growth in long-haul trade out of the Americas”.

Meanwhile, “when it comes to the refining sector, the IEA expects around 17 million b/d of new refining capacity to come online, almost entirely in Asia Pacific and the Middle East. As new plants are more competitive, the bulk of global refining throughput is projected to shift from the Atlantic Basin to East of Suez towards the end of the outlook period, focusing on growing integration with the petrochemical sector. Less competitive refining capacity in Europe, North America, Russia, Japan, Korea and China could be under threat. From the product tanker market perspective, the potential closure of inefficient and aging refineries in the West highlights the potential for growing regional product imbalances and hence rising product tanker demand”, Gisbon said.

Concluding its analysis, Gibson noted that “on the face of it, the IEA base case outlook remains positive for tankers, particularly for larger units. Oil demand is not expected to peak until 2040, although a notable deceleration in growth rates in the very long term reduces the ability to quickly absorb excess tanker capacity during the industry down cycles. Apart from trade demand prospects, shipowners should also be mindful of the IMO targets to reduce greenhouse emissions by at least 50% by 2050. Although measures to achieve these targets are yet to be defined, there is clearly a growing possibility that further regulations will be forthcoming, with potential major consequences for the global shipping fleet”.

 

Aframaxes Are Now the “Darlings” of the Tanker Market (01/12)

The Aframax tanker class is becoming the latest “success story” in an otherwise turbulent year for the wet market. In a recent analysis, shipbroker and tanker market specialist Charles R. Weber noted that “the recent rallying of the dirty tanker market has seen Aframax average earnings jump to nearly a three‐year high of ~$33,875/day during November. The resulting premium of Aframax earnings to LR2 earnings – which at $18,155/day is also at a near three‐year high – has reignited discussion around the ability for LR2s to opportunistically migrate from clean to dirty markets. The implication is that amid the stronger dirty market, a number of LR2s currently trading within the clean tanker market have – or soon will be – making their way into the dirty tanker market”.

According to CR Weber, “at least notionally, the implications for the Aframax market would be negative. The strong premium raises the risk of attracting a large number of LR2s away from clean trades and into the dirty market. This raises the specter of fresh fleet growth in the dirty space – just as the pace of newbuilding deliveries has been moderating.    Moreover, because the switch from clean to dirty is seamless relative to the inverse, which requires extensive and time‐consuming tank cleaning or a complex sequencing of cargoes to be able to normally trade in the clean market, units which make the switch to dirty generally remain there for longer than the inverse. An expanding fleet could overwhelm the level of fresh demand gains that have materialized from an improvement of trade dynamics amid stronger US crude exports and a resumption of crude exports in key Aframax markets. Meanwhile, in the clean tanker market, the implications of a large number of clean‐to‐dirty migrations would be positive as a fleet contraction materializes”.

The shipbroker added that “despite the notional implications, however, the reality may be less pronounced. Examining our proprietary global spot fixture data, vessel position histories, and AIS data shows that the number of switches thus far have been small. Over the past month, amid the surge in dirty tanker earnings, four LR2s switched from clean to dirty trades. Still, this led the dirty‐trading portion of the combined fleet to grow by 0.5%. During the preceding 18 months, an average of two units switched from clean to dirty trades per month, while 10 units over the entire period did the opposite. As compared with the fleet 18 months ago, the dirty‐ trading portion of the combined fleet grew by 13.3%, with 60% of newbuildings that delivered in the intervening space of time finding their way to dirty trades”.

“In the longer‐term, the fact that the average age of the dirty‐trading fleet is 3.7 years older than clean‐trading fleet raises the prospect of more opportunistic switches. Both sides of the size class, however, have strong forward demand prospects. Rising US crude exports have already benefitted Aframaxes, with 26% of exports serviced by Aframaxes.    Meanwhile, the VLCC class’ 26% share of US crude exports also benefit Aframaxes to facility shore‐to‐VLCC lightering. Further demand growth is envisioned given further US crude production growth. As corresponding trades are extra‐regional in nature, the implications for positive trade dynamics have already become evident in the correlation with earnings growth. Meanwhile, IMO 2020 regulations are expected to boost dirty tanker trades generally, with a surge in crude uptakes needed to produce compliant fuels and dislocated fuel oil demand from bunkers expected to boost fuel oil transportation demand to new demand source, including complex refineries for further processing into lighter‐end products. This will introduce a further fresh geographic diversification of trades, further improving trade dynamics. Moreover, while much of the 0.5% sulfur bunker fuel is expected to be produced with a heavy measure of gasoil, as at least some of the blend will come from fuel oil, the end‐product will likely require dirty vessels to transport it”, CR Weber said.

According to the shipbroker, “ultimately, the fungible nature of the LR2 fleet means that any structural gaps in supply in either the clean or dirty space can be filled, though migrations from dirty to clean are less instantaneous.  Though earnings in the dirty market are now moderating from recent highs – and will likely moderate more substantially during 1H19, relative dirty strength is expected to remain which will likely continue to draw units into dirty trades.  This will progressively improve clean earnings and could lead to a surprise to the upside for clean tanker by 2H19, at which point a sustained recovery could materialize, bringing dirty and clean earnings back to their more usual correlation” CR Weber concluded.

 

VesselsValue Sees Plenty of Upside in the Medium-Range Tankers as Capital Product Partners & Diamond S Shipping merge to make $1.5 Bn fleet (29/11)

Diamond S Shipping and Capital Product Partners have announced the merger of their product and crude tanker fleets. The new Diamond S Shipping Inc. fleet will contain 68 vessels, made up of 43 tankers from Diamond S Shipping and 25 from Capital Product Partners. The merged fleets will own the second biggest Handy Tanker fleet, owning a combined 52 vessels. The only larger Handy Fleet in the world is owned by Torm, the publicly listed Danish shipowner.

Capital Product Partners will retain control of 1 Capesize Bulker and 10 Post Panamax Containers.

This merger will be most significant in the MR2 tanker market. The trading areas of the two fleets is varied, CPLP appears to bring commercial relationships with operators well entrenched in the Latin American market, particularly Brazil. Diamond S MRs see more activity in the US Gulf, Singapore, and the far east. Regardless of who is ultimately fixing these ships on a day to day basis, the merger now creates an owner with a global footprint in the clean tanker markets.

We appear to be at the bottom of a market cycle for MR tankers, leaving plenty of upside for the asset value of the underlying vessels.

 

Chinese Oil Imports Could Offer Further Support to the Tanker Market Until the End of 2018 (27/11)

A resurgence is quietly underway in the crude tanker market, as a number of plays are helping alleviate oversupply issues. In its latest weekly report, shipbroker Banchero Costa noted that “in October, Chinese crude oil imports reached a new record of 40.8 million tonnes, an increase of 9.6 percent month-on-month and 31.5 percent year-on-year based on customs data. The increase has continued from the strength of previous months: In the first 10 months of 2018, imports increased 8.1 percent year-on-year to 377.3 million tonnes”.

According to the shipbroker, “the country’s declining domestic crude output continues to be supportive for import volumes, with the National Bureau of Statistics of China (NBS) reporting domestic production falling 1.9 percent year-on-year to 141.1 million tonnes over Jan-Sep 2018. While the U.S.-China trade war threatens to dampen China’s economic growth, stimulus measures are expected to help keep GDP growth above 6 percent. The building of China’s strategic petroleum reserves also remains ongoing, with the IEA estimating 287 million barrels in strategic stockpiles at the end of 2017, equivalent to 57 percent of the government’s 500 million barrel target”.

Banchero Costa’s analysis went on to note that “short term factors also led to October’s jump in import volume, which may not all be replicable in subsequent months. Chinese importers were likely stockpiling on Iranian crude ahead of the renewed U.S. sanctions, although purchases may now be wound back after China was among eight countries granted a 6-month waiver on the sanctions. Imports by independent refineries also strengthened to almost 2 million bpd (8.3 million tonnes) in October, according to data from Refinitiv Oil Research and Forecasts. This follows a buying spree in August-September when refining margins were positive, and as independent refineries seek to use up their import quotas before the end of the year. With Platts analytics estimating that quota holders used only 67 percent of their annual quota, leaving 40 million tonnes in quotas still available for the remainder of the year, imports by independent refineries are expected to stay bullish at above 9 million tonnes per month over Nov-December”.

The shipbroker concluded that “as China diversifies its supplies from traditionally largest supplier Saudi Arabia and looks for alternatives to U.S. supplies amid trade war uncertainties, crude oil imports from Russia, Iraq, and Brazil have been increasing. Russia replaced Saudi Arabia as China’s main crude supplier in 2016, and shipments from Russia have continued to strengthen by 12.6 percent year-on-year to 50.7 million tonnes over Jan-Sep 2018. Imports from Brazil also saw a significant pick up of 26.7 percent to 22.7 million tonnes, and could continue to increase as Petrobras begins marketing their new Buzios crude – a medium-sweet grade expected to be popular in China as their anti-pollution drive continues”, Banchero Costa said.

 

Product Tankers and the Rhine Low-Water Level Issue (26/11)

The product tanker market in Europe in being affected by weather conditions over the past few months. In its latest weekly report, shipbroker Gibson said that “low water levels on the Rhine have remained a persistent problem for the European commodity markets since the summer, forcing many refineries and industrial plants to reduce production, and in some cases to declare force majeure. Whilst most industries would have expected and planned for such lows over the summer months, few would have expected these levels to persist, and indeed worsen as the markets move deeper into winter. Indeed, just as one might have seasonally expected levels to rise, they receded. Early in October, depths at the key measuring point of Kaub (not far from Frankfurt) reached a record low of 25cm and have shown little material improvement since then”.

According to the shipbroker, “the impact of such low levels has not just been felt by the local barge market, and has reverberated all the way down the Rhine to the Amsterdam-Rotterdam-Antwerp (ARA) trading hub and beyond. Initially ARA stocks rose in response, with product supplies backing up down the river, as shallow waters forced barges to reduce cargo loads. In some cases, loads have fallen to less than 20% of potential loading capacity, whilst local media reports suggest that movements on the upper Rhine have all but stopped, significantly disrupting industrial activity”.

Gibson added that “middle distillate stocks should be rising ahead of winter, particularly given the inability to get products up river, but have in fact fallen by nearly 1 million tonnes since October. Lower stocks have been facilitated by lower imports, re-exports and diversions away from the ARA hub in the wake of persistent logistical issues and a backwardated gasoil market. However, water levels will rise eventually. For now, the consensus among meteorologists is that rainfall will remain limited for the next month or so, meaning water levels could ease off further. Yet, once the rains return and water levels do start to rise, buying activity into the ARA hub will firm, perhaps substantially if stocks continue to fall over the coming weeks. This resurgent demand would of course translate into firmer product tanker demand and should provide a short term boost to distillate flows from the US Gulf, Baltics and Middle East into ARA, provided we don’t see too much competition from newbuild crude tankers trading product into Europe from Asia”.

Meanwhile, in the crude tanker market this week, Gibson said that “moderate VLCC fixing with Charterers concentrating upon older, and more challenged, units to secure noticeable discounts from still resilient modern tonnage. Within short, the bargain supply will run dry, and attention will be forced onto the more expensive vessels and if next week becomes busy, those Owners will look to quickly take advantage. For now, rates for older units to the East move at down to ws 80, with younger ladies looking into the low ws 90’s, with runs to the West remaining marked in the low ws 40’s. Suezmaxes, that had been on the backfoot, at last showed some sparkle as Owners became more attracted to ballasting opportunities. Demand picked up and rates to the West gained to as high as ws 70, with runs to the East into the ws 130’s. Aframaxes were already in the mood to jump, and a busy week throughout the area, and further East, allowed rates to upshift to 80,000mt by ws 165 to Singapore with further gains, or consolidation, at least, anticipated for next week”, the shipbroker concluded.

 

Tanker Owners Looking Forward To Increased Ton-Mile Voyages on Iranian Sanctions (24/11)

Once again, the disappearance of Iranian oil from many markets, not to mention Iranian VLCCs, is shifting fortunes in the tanker market, with ship owners looking forward to “early Christmas presents”, as one analyst recently put it. In its latest weekly report, shipbroker Allied Shipbroking said that “current geopolitical developments between Iran and the US, which have led the latter to re-impose its sanctions, have significantly affected oil prices over the past couple of months. With Iranian oil out of the picture for many of the main importers, Saudi Arabia and the rest of the OPEC countries have already started to gradually increase their output to cover the demand gap. However, these plans were disrupted by a footnote in these most recent sanctions, which stated that several countries (including China, India and Japan) are allowed to continue importing oil from Teheran for a limited time period, but without any specified limitation in the imported volume. It is worth mentioning that China is the biggest importer of Iranian oil. This would essentially leave Iranian production levels to approximately 1.1 million bpd in November and to even higher figures in December”.

Allied’s Research Analyst, Mr. Yiannis Vamvakas said that “in addition to this, competition from other countries has intensified. Russia has raised its output during the previous months (11.41 million bpd in October), and with further growth being planned for 2019. At the same time, US production is expected to reach to 10.7 million bpd by the end of the year and is set to increase by another 250,000 bpd in 2019. As a result, Brent oil prices, which had reached a four-year high of $86 a barrel in October based on tight supply concerns, have slid back down to $67 now, losing around 21% within a month. With a supply glut on the horizon, Saudi Arabia is now considering proceeding, together with the rest of OPEC members, to an output cut of about 1.4 million bpd, even though Washington asserts that the provision of waivers is a temporary measure”, said Vamvakas.

According to Allied’s analyst, “another interesting aspect of the Iranian sanctions is the possible decision by Teheran to maintain production numbers at high levels, even after the waiver program expires, and use some of the domestic VLCC fleet as floating storage. With a considerable portion of the Iranian tanker fleet out of the picture, market participants can expect a positive impact on the demand for the rest of global tanker fleet despite reports that there are already around 14 inactive Iranian VLCCs. Moreover, it is worth mentioning that the average haul should increase, adding further support for freight rates. China will turn its focus to other oil sources with West Africa and Brazil being most likely candidates, increasing the average ton-mile demand significantly”.

Vamvakas went on to note that “other Far Eastern countries that are currently under the US waiver program will also change their import business partners with the US being an additional option. However, here we should mention that despite the continuing dredging that takes place in the US Gulf ports, fully loaded VLCCs are still unable to call the majority of ports there. Freight rates in the crude oil market have already picked up over the past couple of weeks, with the Iranian sanctions being an important factor. Beyond this however, with the northern hemisphere enter into its winter period, the seasonal increases in oil demand that typically take place have also played a significant role in this most recent rally. The Paris-based International Energy Agency (IEA) announced in their latest monthly report that its forecast for global demand growth for 2018 and 2019 have remained unchanged from last month. With some volatility being anticipated due to uncertainty in the oil market, market participants are expecting the positive sentiment to continue for the rest of 2018, as well as the first quarter of 2019. However, with the rate of deliveries expected to be seen within 2019 this current upward momentum trend may well end up being curbed significantly in the long run”, he concluded.

 

Christmas Arrived Early for Tankers: Will they last? (23/11)

New data seems to suggest that the recent rally in tanker freight rates could be more than just a blip. In its latest weekly report, shipbroker Intermodal said that “halfway through the fourth and last quarter of the year, we spot a significant change in freight rates for tankers trading dirty, as well as on their asset values. The improvements on VLCC rates, which showed its first sparks with Chinese imports steering the wheel at the end of September, has now stabilized”.

According to Intermodal’s, Tanker Chartering Broker, Dimitris Kourtesis, “during the past month and a half TD3C has increased more than 100%, sitting today at 90WS for modern units, with Aframaxes and Suezmaxes also following the trend and looking at 140WS mark to the East and 130WS respectively. It is worth mentioning that Suezmaxes have further benefited from both increased activity in West Africa as well as the maintenance that is taking place in the only berth in Basrah, which accommodates Suezmaxes with crane capacity of 15 tons but only allows those of 20 ton cranes at the moment”.

He added that “many of the LR2 operators/owners have been taking advantage of the elevated dirty market by switching from trading clean products to dirty. Some of the Owners that switched and are currently enjoying the spike are Maersk, OceanTankers and Eletson, who has been already loading dirty products to their LR2’s since the previous spike in DPP products. Bunkers remain on about the same levels ($555-560 basis Fujairah), while with US sanctions in place Iranian tonnage (NITC) is slowly being withdrawn from the market as many charterers cannot utilize the vessels. NITC currently owns/operates more than 30 VLCC’s”.

Kourtesis added that “since early October when WTI prices reached the highest levels in the last 3 years ($76.41), prices have been stepping back gradually, currently standing at about $56 per barrel. According to latest news on oil cuts, Saudi Arabia is willing to reduce oil output about 1.4 million barrels per day, which is 1.5% of global supply. Russia on the other hand, up to today clearly states that it does not want to follow any of the upcoming OPEC oil cuts. When talking about production cuts on the oil output, usually oil cuts are addressed to heavier barrels, which don’t affect the light sweet supply (WTI, Brent), hence prices are not being affected. OPEC members will be meeting on December 5th to discuss oil cuts in order to prevent prices from falling further”.

Intermodal’s analyst notes that “any oil cuts will affect the freight market – considering that oil supply and supply of ships is correlated. It seems that the steady demand that has significantly increased freight rates on large tankers has also affected assets values. Last week it was reported that NGM sold the MT ”Alter Ego I” (309.700 dwt, 2001) for $21.5 million, whilst Hellenic Tankers paid $18 million for MT “Seaways Sakura” (298,600 dwt, 2001) in mid-end September. With Diwali celebrations during early November and the Bahri reception taking place last week, activity ex Middle East has slowed down, with fewer fixtures compared to last month. Charterers with remaining cargoes from the November program currently maintain a low profile to avoid owners’ bullish attitude. On the other hand, Owners are hoping to actually push rates even higher as charterers have already started to cover December cargoes and everybody is back to their offices. Irrespective of who regains control in the short term, it seems that Christmas has come early for tankers this year and hopefully it will also last longer”, Kourtesis concluded.

 

Iran and Now Venezuela Are Shaking Things Up in the Tanker Market (20/11)

After the Iranian sanctions, another factor which could shake things up in the tanker market is the fall in Venezuela’s oil production. In its latest weekly report, shipbroker Gibson said that “to say its been tough for Venezuela in recent years would very much be an understatement. The economy has shrunk more than half since 2013, almost 10% of their 30 million population have fled and their oil output – which accounts for 90% of their exports – has plummeted to levels not seen since 1940’s. A chronic lack of investment in the vital oil infrastructure, years of mismanagement and hyperinflation has sent the country’s oil production into ‘free fall’.

According to Gibson, “since January Venezuelan crude output has averaged at 1.4 million b/d, down by 0.6 million b/d over the corresponding period last year. The fall in output is reflected in crude exports. ClipperData indicates that this year the country’s total exports have averaged just under 1.2 million b/d, down by 0.37 million b/d year-on-year. The decline has been witnessed both in the long haul and short haul crude trade. Shipments to Asia Pacific, mainly China and India have averaged 0.57 million b/d during the 1st ten months of this year, down by 80,000 b/d versus 2017 figures. Although this does not look like much, there also has been a notable decline in crude trade to the Caribbean where PDVSA owns/leases crude storage facilities for further shipments. Exports to the Caribbean have fallen in 2018 by 170,000 b/d year-on-year. Without a doubt, the seizure of PDVSA’s assets by ConocoPhillips in May this year has been a contributing factor behind the overall decline. However, some progress in their dispute has been made after a payment from PDVSA to Conoco concluded using a combination of cash and commodities. Finally, Venezuela on average has shipped less crude to the US this year than it did over the same period in 2017, although some minor rebound has been seen in recent months. Overall, between January and October 2018, crude trade has averaged 0.43 million b/d, down by 120,000 b/d when compared to the same period last year”.

Gibson said that “interestingly, the decline in Venezuela’s total crude shipments this year has been smaller than the fall in production levels as the problems faced by Venezuela’s refining sector intensifies as well. A lack of funds for upgrades and maintenance as well as skilled staff seeking employment elsewhere has been the driving force behind the issues. Venezuela’s biggest refinery, Amuay, is running at under 20% and other key refineries are barely functioning. The ongoing decline in crude refining runs means an increasing need to import products, mostly from the US. It has been reported that large amounts of heavy naphtha have been shipped south to blend with Venezuela’s deteriorating local crude quality. Apart from more product shipments into the country, there are also logistical issues. Media reports suggest that delays have occurred in unloading fuel cargoes since most of their ports are more orientated for exporting rather than importing therefore contributing to shortages. It was reported that one tanker bringing imported gasoline was highly contaminated forcing PDVSA to withdraw the product from distribution. The incident has been allotted to them having to seek fuel from ‘unreliable suppliers’ due to many companies unwilling to do business with a country carrying US sanctions”, the shipbroker noted.

“Going forward, the economic turmoil faced by Venezuela shows no signs of abating. As such, there appears little upside to crude production levels, despite the country having one of the world’s largest oil reserves. Many are seeing 1 million b/d as the floor to Venezuela’s production, although others have mooted the idea of output being as low at 0.7 million b/d by the end of 2019. Nonetheless, Venezuela’s oil minister Manuel Quevedo has stated recently that even with all the problems faced production has stabilized and that the government is hopeful that output will increase to 1.6 million b/d by the end of the year. An ambitious target, perhaps, considering the falling rig count, which is usually an indicator of future production”, Gibson concluded.

 

Tanker Market On a High Note (17/11)

Fortunes have improved in the tanker market as of late, as per the latest monthly OPEC report. In October, tanker spot freight rates for dirty vessels increased considerably, with gains being registered across all classes trading on all major routes. As the market approaches the winter season, tanker market spot freight rates saw notable improvements following a year of accumulative losses. On average, dirty tanker spot rates rose by 28% in October from a month earlier.

Rate developments in October showed Aframax spot freight rates achieved the strongest growth compared with the larger classes, rising by WS25 points, supported by healthy tonnage demand on the main trading routes. Similarly, in the dirty segment, VLCC and Suezmax average spot freight rates increased by WS21 points and WS19 points, respectively, over a month earlier. These gains were mostly driven by higher seasonal tonnage demand, as well as increased transit and port delays in different regions, including the Caribbean, the Middle East and the Far East. In October, dirty tanker spot freight rates on most of the routes remained well above the rates of the same months a year earlier.

Clean tanker freight rates increased on almost all reported routes in October, with average spot rates rising for the East and West of Suez routes by 6% and 18%, respectively. The clean tanker market was mostly uneventful in October, while vessel oversupply persisted. Despite higher monthly rates, clean tanker rates in October remained below those registered the same month a year ago.

Spot fixtures

In October, OPEC spot fixtures dropped 3.9% from the previous month to average 14.33 mb/d, according to preliminary data. The drop came on the back of lower spot fixtures on the Middle East-to-East and Middle East-to-West routes, which went down by 0.37 mb/d m-o-m each in October to average 7.79 mb/d and 1.62 mb/d, respectively. On the other hand, fixtures outside of the Middle East were up by 0.14 mb/d, m-o-m.

Sailings and arrivals

OPEC sailings dropped by 0.22 mb/d, or 0.9%, m-o-m in October to stand at 24.71 mb/d. Middle East sailings declined as well, down by 0.27 mb/d over the previous month, to average 17.97 mb/d. Vessel arrivals went up in October at European and West Asian ports, increasing by 2.5% and 3.0%, respectively, over the previous month, while arrivals at North American ports showed a decline of 4.3% and Far Eastern ports stayed flat from the month before.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
Following the usual seasonal trend, VLCC spot freight rates showed notable gains in October from the previous month across all reported routes. On average, VLCC spot freight rates increased considerably by 48% m-o-m to stand at WS66 points, up by 20% y-o-y. This long-awaited increase in rates was registered on all major trading routes mainly due to eastern destinations where freight rates registered for tankers operating on the Middle East-to-East route showed increases of WS28 points from a month before to average WS83 points. At the same time, bullish sentiment was spreading into other areas.

The chartering market in West Africa (WAF) and the Middle East showed higher rates. Gains for VLCCs were driven by storms and weather delays in the Far East, discharge uncertainties at eastern ports, increases in chartering activities and replacement vessels. Therefore, VLCC spot freight rates on the Middle East-to-East route and rates on the WAF-to-East route rose by WS28 points and WS25 points to average WS83 points and WS81 points, respectively, showing increases of 51% and 45%, in October. VLCC Middle East-to-West spot freight rates recovered as well, though to a lesser extent, up by WS11 points, or 47%, m-o-m in October to stand at WS33 points.

Suezmax
Suezmax spot freight rates rose further in October from one month before, increasing by WS19 points, or 29%. In West Africa, Suezmax rates reached a level not seen in some time supported by higher activities and healthy tonnage demand. In the Middle East, bad weather conditions and prompt tonnage replacements drove freight rates to levels not seen for a while. Suezmax freight rates in October were also supported by arbitrage opportunities and lightering operations. Therefore, rates registered for tankers trading on the Northwest Europe (NWE)-to-US Gulf Coast (USGC) route gained 21% to stand at WS67 points. Suezmax spot freight rates for tankers operating on the West Africa-to-USGC route went up by 37% from a month before to stand at WS94 points.

Aframax
In general, Aframax spot freight rates rose in October, although the levels of gains varied on different routes. Average rates rose in October, up by 21% from one month before, as a result of higher rates seen on all reported routes, although the larger increases remained on the Caribbean-to-US East Coast (USEC) route, which showed an increase of WS37 points from one month earlier. Scarcity of available vessels combined with weather delays in the Caribbean supported Aframax spot rates on that route. Aframax spot freight rate gains were also driven by higher rates in the Mediterranean on the back of tightening Aframax availability and increased transit delays in the Turkish Straits

Spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes rose by 21% and 19%, respectively, from the previous month to stand at WS129 and WS120 points. Similarly, the market in the east showed higher rates as Aframax spot rates went up on the Indonesia-to-East route by 20% m-o-m to stand at WS123 points. Aframax also benefited from a reduction in VLCC loading in the North Sea, which were replaced by smaller ships in the market.

Clean tanker freight rates

Clean tanker spot freight rates increased by 13% on average in October compared with the previous month. The gains were registered on fixtures in both directions of Suez, with rates edging up on most selected routes.

In the east, spot freight rates for tankers operating on the Middle East-to-East route rose by WS14 points, while rates on the Singapore-to-East route remained flat. Spot freight rates on both routes averaged WS124 points and WS123 points, respectively, from the previous month. Clean spot freight rates on the NWE-to-USEC route rose by WS4 points to stand at WS25 points. The Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes showed the highest increases on the back of enhanced activities in the area and as the Black Sea market firmed. Spot rates went up on both routes by WS30 points and WS32 points, respectively, to stand at WS150 and WS162 points.

 

Impact of US sanctions on the tanker market (16/11)

Earlier this month, the US re-imposed sanctions on Iran, banning global exports threatening heavy penalties on any country that continues to trade with the middle-eastern nation. According to US secretary of state- Mike Pompeo during an address on the November 4, the goal is “depriving the regime of the revenues that it uses to spread death and destruction around the world”. He continued that the ultimate aim is to compel Iran (currently the world’s sixth largest exporter of crude oil) to permanently abandon its well-documented outlaw activities and behave as a normal country.

However, although Iranian exports will be dramatically reduced, they will not cease altogether. Some countries such as India and South Korea have signed a waiver, that will allow them to continue exporting limited volumes of Iranian oil without being shut out of the US financial system. China, who is the world’s largest exporter of Iranian oil is also likely to receive some exemption in a bid to avoid further dispute in the ongoing US-China trade war. Initially Saudi Arabia and other OPEC members upped production, as was the case in similar circumstances in the past, leaving oil importers such as India are seeking to source supply from further afield and replacing Iranian crude with supply from the likes of west Africa, Brazil and the Caribbean. A move that would be positive for tanker tonne mile demand. More recently, and in response to the sanctions, Saudi Energy Minister Khalid al-Falih announced on Monday, a major cut in oil production in a bid to rebalance global markets and to boost oil prices that have fallen by around 20% over the last month as global supply has increased. Trump has criticised this plan and has urged Saudi Arabia and OPEC to keep pumping ahead of their December meeting.

Whilst the new US sanctions could in fact be driving momentum in the short-term tanker markets, the outcome of the upcoming OPEC meeting will no doubt be an important determinant as to the future of oil prices and supply further down the line and consequently the demand for tankers in the longer-term. As we discussed in last week’s article, VLCC rates are currently strong but what remains to be seen is if this upturn is driven by sentiment in the market or if it is merely down to seasonality, as the northern hemisphere prepares for winter. At Alibra we have noted month-on month increases in the crude sector since September with period rates continuing their upward trajectory this month. VLCCS are up 27% to $ 32,425/pdpr and suezmaxes up 22% $22,375/pdpr and aframaxes up 15% $17,375/pdpr. Based on this current spike in rates, our short-term estimations for the tanker period market is that crude will remain healthy in to Q1 of next year.

 

 

Tankers: Ton-Mile Demand Poised to Increase (12/11)

After a long time in the doldrums, the tanker market is primed for better days, as a result of a projected increase in ton-mile demand and various factors coming into play, from the sanctions on Iran, to the US-China trade war. Meanwhile, the product tanker market could also stand to benefit in the medium-term, as a result of the looming IMO 2020 rules and a series of changes of consumption habits in Asian countries.

In its latest weekly report, shipbroker Gibson said that “oil prices had been on an upward trajectory since July last year, with Brent values briefly climbing above $85/bbl in early October. However, more recently prices have moved down to just over $70/bbl. Nonetheless, so far in 2018 Brent has averaged some 34% higher than it did back in 2017. Such an increase is starting to make an impact on global consumption levels. The IEA has revised its figures for growth in oil demand this year, down by 110,000 b/d to 1.3 million b/d, most notably in non-OECD Asia. Vitol has made an even more dramatic revision, with estimates down by 400,000 b/d. Concerns are also mounting that we could see slower growth in demand next year, in part due to a step-up in prices, in part due to the US-China trade war. The IEA outlook for 2019 has been revised down by 100,000 b/d, while Vitol figures are twice that much”, the shipbroker said.

According to Gibson “growth in oil demand is a valuable forward indicator for tanker trade. As such, should owners be alarmed by these downward revisions? The crude tanker market appears unaffected at present, with other factors at play. A major rebound in VLCC spot earnings over the past month has been driven by the combination of rising Middle East spot cargoes aimed to support a surge in Chinese demand and an ongoing robust long-haul trade out of the Americas. More demand for international owners has come at a time of marginal growth in the trading fleet, restricted by robust long-haul trade out of the Americas. More demand for international owners has come at a time of marginal growth in the trading fleet, restricted by robust demolition, while weather disruptions have also affected vessel itineraries. Suezmaxes and Aframaxes have benefitted from demolition, while weather disruptions have also affected vessel itineraries. Suezmaxes and Aframaxes have benefitted from the rebound in West African and Libyan crude exports, while much higher VLCC rates have also made smaller tonnage more attractive on certain routes. Going forward, tonne mile demand is expected to continue to increase, led by further gains in long haul trade, mainly out of the US. However, another round in OPEC-led cuts cannot be ruled out in 2019 if robust growth in non-OPEC crude production leads to an overhang in oil supply”.

In contrast, the product tanker market is more sensitive to changes in underlying consumption levels, as higher petrol prices at the pump threaten to limit demand in key product importing countries. Gibson noted that “slowing growth could also translate into a build-up in product inventories, a factor with potential negative implications for arbitrage movements. However, a new trend is starting to emerge. Many economies which used the last oil price collapse as an excuse to phase out subsidies, have started reintroducing them again. In Asia, India has cut taxes for retail gasoline and diesel, Malaysia has reintroduced petrol subsidies and the Philippines government intends to suspend planned fuel tax increases next year. Indonesia has announced the freeze in prices for subsidised transport fuels, while Thailand is considering similar measures. Finally, South Korea is evaluating plans to temporarily reduce taxes on retail gasoline. The role of subsidies may become an even more important factor for protecting consumer demand over the coming years if oil prices continue to rise”.

The shipbroker concluded that “the last but not the least factor that is likely to aid crude and product tankers alike next year is the IMO 2020. As preparations get under way in the 2nd half of 2019, we could see more barrels being traded, irrespective of potentially slower demand growth across the barrel. Charterers are likely to take advantage of cheaper, HSFO-based freight rates ahead of the switch to 0.5% sulphur bunkers, while refiners race to produce as much compliant fuel as possible and move it into position ahead of 2020”.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “a slow paced week for VLCCs that did allow rates to settle off a little from previous highs, but Owners drew strength from their successful resistance last month and defended a low ws 90 mark to the Far East with levels to the West averaging in the low ws 40’s. Next week will be disrupted by industry events in Dubai but there remains enough to do for November to prevent Charterers becoming too complacent…yet. Suezmaxes remained steady throughout but Diwali Holidays crimped short haul volume and the health of the marketplace relied more upon the spiking rates seen elsewhere, that also provided ballasting opportunities too. 130,000 by ws 125 East, and down to ws 45 to the West remained typical. Aframaxes held very steady through the week with tight early availability propping up more forward opportunity – 80,000 by ws 140 to Singapore, and probably more of the same over the coming week”, Gibson concluded.

 

Tankers and Container Ships Lead the Way on Demolition Market (08/11)

2018 will go down in history as the year of tankers and container ships’ starring role, when it comes to demolition activity. In its latest weekly report, Clarkson Platou Hellas commented that “as we approach the Diwali festivities, buying interest has started to quieten but the Indian sub-continent remains volatile, especially in India and Pakistan with Bangladesh seemingly more stable. The below sales seem to be speculative compared to where the actual domestic markets lie and where, reportedly, some cash buyers in particular have gambled on a price surge ‘post holidays’. The continued influx of Container vessels into the market is a welcomed one as the annual spike in Tanker rates continues and finally gives Owners the opportunity to trade these types of units for a profit. This will limit the number of Tanker units we expect to see in the final months of the year and will provide some rest bite to cash buyers expenditure, where they have had to Gas free for Hot works any Tanker unit they purchased, as the majority of Owners have continued to sell their tankers on an ‘as-is’ basis on a gas free for men entry only condition, thus placing the onus on the cash buyers to bring the vessel up to gas free capacity sufficient for entry into the recycling yards. Generalizing, the rupee in India has recovered slightly this week which has given encouragement locally, however the steel markets have weakened slightly but many believe the current domestic steel rates have now reached the bottom which may create positive sentiment. Pakistan itself has suffered problems this week with riots and unrest in the recycling districts due to political reasons and the steel markets have also fallen which has affected sentiment locally, and the Bangladeshi market remains stable with inquiry still evident to acquire tonnage, although some predict this may slow down in the near future due to the large volume of tonnage that has arrived recently to their shores”, Clarkson Platou Hellas concluded.

In a separate note, Allied Shipbroking added that “there were fair signs of revival this past week, with it being a second consecutive week were by a significant number of vessels were reported scrapped. We continue to see a lack of activity coming from the Dry Bulk space, though this trend may well start to shift as we approach close to years end. The only reported deal this past week was the sale of an 18 year-old Japanese Cape which went to Bangladeshi breakers for a firm US$ 467/ldt. On the tanker side, owners are still looking keen on retiring some their vintage carriers. However, given the fact that important gains have been witnessed for the larger crude oil carriers as of lately, it seems as though this has influenced the market somewhat, with most of the activity coming to light focusing on the smaller product tankers. With regards to scrapping destinations, Bangladesh remains the market leader for now, but with some concerns about available capacity being raised now, we may well find Pakistan and India managing to catch up fairly quickly with relatively limited increases in terms of offered prices. Overall things will remain under fair pressure on the pricing front, with weak domestic currencies and falling steel plate prices, still keeping margins relatively tight and acting as a ceiling for the time being”.

Meanwhile, GMS, the world’s leading cash buyer said that “the supply of tonnage, particularly in the beleaguered tanker and container sectors, continued at pace this week, amidst another mixed showing from the local markets. There seems to be a greater degree of Cash Buyer speculation brewing than there is actual appetite for tonnage from the various markets. India cooled off once again this week, with some ongoing / worrying reversals in local steel plate prices, Pakistan steel prices also tumbled dramatically (to the tune of about USD 15/LDT in the course of a day and about USD 23/LDT overall decline) and the appetite in Bangladesh is showing increasing signs of waning (as predicted last week) after a stunning fourth quarter rally on prices there and a massive collection of fixtures this week. The currency in India also remains on shaky ground having depreciated alarmingly over the past month or so (and once again this week) as most end Buyers are now expecting / fearing a much softer end to the year as a result. All of this makes much of the ongoing Cash Buyer speculation into the high USD 400s/LDT (particularly on the multitude of smaller LDT containers committed recently) somewhat puzzling as it increasingly seems as though local markets will be unable to match some of these speculative numbers for much longer and certain Ship Owners and Cash Buyers could be left holding the bag with some over-priced inventory. Owners may therefore be faced with the prospects of chasing down the market as Diwali holidays approach in India and a traditional breather from the frantic fourth quarter action is expected to therefore logically ensue”, GMS concluded.

 

No US Crude oil exports to China for second month in a row (07/11)

The determined development that saw no US seaborne exports of crude oil to China in August, has continued into September. This is despite crude oil not being a part of the ‘official trade war’.

“The trade war between the US and China is now impacting trade in both tariffed and some un-tariffed goods with both countries looking elsewhere for alternative buyers and sellers.

Tonne mile demand generated by total US crude oil exports has risen 17% from August to September, but is down 4.8% from the record high in July.

For the crude oil tanker shipping industry distances often matter more than volumes, with exports of US crude oil to Asia generating 74% of tonne mile demand in September, up from 70% in August,” Peter Sand, BIMCO’s Chief Shipping Analyst, says.

In 2017, Chinese imports accounted for 23% of total US crude oil exports. In 2018 that number was 22% during the first seven month, but has dropped to 0% in August and September.

US crude oil exports to any other destination were record high

For the seventh month in a row total US crude oil exports, excluding china, hit a new all-time high reaching 7.9 million tonnes in September.

South Korea has become the largest long-distance importer of US crude oil at 1.1 million tonnes in September, its highest level ever. Similarly, the next top three overseas importers of US crude oil, namely the United Kingdom, Taiwan (both at 0.94 million tonnes) and the Netherlands (0.74 million tonnes) all imported more in September than ever before.

Exports to Asia jumped in June and July, from a 43% share of total exports since the start of 2017 to reach a 56% share. That share was down to 46% in August, but climbed back to 51% in September. The two other major importing regions are Europe (33%) and North and Central America (13%), while South America (2%), the Caribbean (1%) make up the rest – September share of exports in brackets.

 

Aegean Marine Petroleum Network Inc. Files for Chapter 11 to Implement Restructuring Transaction with Mercuria Energy Group Limited (07/11)

Aegean Marine Petroleum Network Inc. announced that the Company and certain of its subsidiaries (the “debtors”) filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. The debtors enter this process with the support of Mercuria Energy Group Limited (“Mercuria”), a key strategic partner and one of the world’s largest independent energy and commodity companies. Mercuria has agreed to provide more than $532 million in postpetition financing to fund the chapter 11 process and the Company’s working capital needs. It has also agreed to serve as the stalking horse bidder in a sale process designed to optimize the value of the Company as a going concern. The Company continues to explore value-maximizing alternatives.

The debtors have filed a motion with the bankruptcy court seeking to jointly administer all of the debtors’ Chapter 11 cases under the caption In re Aegean Marine Petroleum Network Inc., et al. The debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the US Bankruptcy Code and orders of the bankruptcy court. The debtors have filed a series of first day motions with the bankruptcy court that seek authorization to continue to conduct their business in the normal course, including in relation to employees, customers and suppliers, among others. The debtors are seeking approval of the Mercuria-led postpetition financing. This financing is designed to ensure the Company has adequate working capital to fund the business and continue ordinary course operations during the Chapter 11 Cases and to fund the sale process.

In connection with its restructuring efforts, Kirkland & Ellis LLP is acting as legal counsel to Aegean, Moelis & Company LLC is acting as investment banker to Aegean, and EY Turnaround Management Services LLC is acting as restructuring advisor to Aegean.

 

VLCC Tanker Market Could be Headed for a Slowdown (06/11)

The VLCC tanker market has had a good run of late, but could be headed for a correction in the coming days. In its latest weekly report, Affinity Research said that “the rally of the VLCCs continued throughout this week as well, where TD3C and TD15 reached WS 100 and WS 95 respectively. This kind of levels have not been noted from January 2016. However, this is expected to be the peak of the market, as with nearly 8 offers coming out from the AG, the market will get calmer. Regarding Suezmaxes in West Africa, TD20 was assessed the same as the previous week, however sentiment is good due to the supply of the Carribean and the AG . Approximately 25m bbls are needed to be covered in the 3rd decade so done the market has potential as we move deeper into the month. What December will bring, will rely on the fate of the WTI/DME spread & impact of delays in the Far East & Turkish straits”.

Affinity added that “the situation is reversed on the Transatlantic, however. WTI/DME spread has been lingering around USD 7-8, while Worldwide oil prices have dropped off considerably, damaging Trader confidence and lessening the appetite for long haul voyages. The impact of this, has not being realised for the time being as delays on lightering tonnage maintain a short list of firm candidates. However, with Aframaxes having ballasted TA to replenish the fleet and because of lower demand for USG/EAST voyages, the Americas markets could well cool off in a couple of weeks’ time, despite heavy Venezuelan exports”.

In a separate note, Charles R. Weber said that “the VLCC market remained firm this week with rates extending gains on lagging sentiment amid sustained demand strength. Chartering demand in the Middle East slipped w/w from last week’s strong fixture tally but with charterers continuing to work second‐decade November cargoes it became increasingly apparent that the November cargo program would exceed the historical peak observed during the October program. Meanwhile, demand in the West Africa market remained unchanged from last week’s strong pace with eight fixtures reported. Demand in the Atlantic Americas was improved on the reappearance of cargoes from the USG (including the first cargo bound for China since August), augmenting elevated ex‐ Brazil demand. October spot demand generation places Q4 on course further strong gains. Adjusted ton‐miles, a proprietary measure we developed to factor for the implications of a wider geographic distribution of trades relative to historic norms, showed a 15% y/y expansion during Q3 and the October pace, if sustained through the remainder of the quarter, would yield an acceleration thereof to 24% y/y (12% q/q). This would undoubtedly place the VLCC market on course for a strong conclusion to 2018 and start to 2019. As the market progresses into 2019, expectations are tempered by 2019’s decades‐high projected net fleet growth – with deliveries front‐heavy during H1”, said CR Weber.

Meanwhile, in the Suezmax market, CR Weber said that “rates remained firm this week as fundamentals remained tight. Fresh delays in the Turkish straits added to the headwinds, prompting rates on the BSEA‐ MED route to gain 10 points to conclude at ws115. In the West Africa market, rates firmed in tandem despite a slowing of fixture activity as stronger recent demand for VLCCs yielded lower cargo availability for the smaller size class. The regional Suezmax fixture tally dropped 47% w/w to a one‐month low of nine. Rates on the WAFR‐UKC route added 5 points to conclude at ws112.5. In the Atlantic Americas, Suezmax rates remained firm on high regional Aframax rates and freshly stronger regional VLCC rates. The USG‐SPORE route added $200k to conclude at $4.50m lump sum. The CBS‐USG route was steady at 150 x ws 125 and the USG‐UKC route was unchanged at 130 x ws120. With Aframax rates retreating from recent highs, the relative $/mt premium for Suezmax units has expanded which may lead to some losses thereof during the upcoming week”, the shipbroker concluded.

 

Another Period of Sanctions in Iran: Will The Tanker Market Benefit? (05/11)

The Iranian oil market factor is back in play in the crude tanker segment. In its latest weekly report, shipbroker Gibson said that “sanctions are back. From Monday any company trading Iranian crude faces being cut out of the US financial system. The Trump Administration has stated its aim is to reduce Iranian shipments to zero, although few expect this to actually be the case. The Administration appears to have softened its stance, perhaps realising that zero exports are both unrealistic, and potentially economically damaging in terms of oil prices. Friday, Bloomberg has reported that waivers are likely to be granted to eight countries, with the official confirmation expected early next week”.

The shipbroker added that “despite this, even Iran’s top buyers during the previous round of sanctions have shown at least some willingness to comply with Washington’s demands. Korea has stopped buying altogether, importing nothing in September, having slowed purchases in previous months. Japan has continued to buy but has steadily reduced its purchases with just one VLCC arriving in the country for October and no known flows for November. Volumes have also eased into the Mediterranean, although some refiners have continued to import up to the wire, with the last Suezmax to come West with Iranian crude currently discharging in Greece. The main Western buyers; Italy, Greece and Spain appear to have now halted all purchases as expected”.

“It is, however, more complicated for other buyers. China, India, Turkey and Syria are all expected to continue purchases, although the volumes remain uncertain. Sinopec and CNPC have publicly stated their intention to skip November loadings citing sanctions concerns, yet overall China is expected to remain Iran’s largest customer. Further muddying the waters, reports of higher volumes of Iranian crude heading into storage in China suggests some Iranian crude could be resold over the coming months.
India also looks set to continue importing, albeit lower volumes. This week the Indian press reported that the country had won waivers from the US, allowing Indian refiners to import 9 million barrels per month up to March 2019, broadly in line with the volumes already expected for November, but below the 17 million tonne per month average imported for the year to date”, said Gibson.

According to the shipbroker, “regardless of any waivers it may receive, Turkey may be in no mood to cooperate with the US given recent relations. However, in reality Turkish refiners will be wary of the US, and have so far reduced purchases as they weigh up the risks of non-compliance. For the tanker market, we maintain our view first highlighted in our September 14th report that Iranian sanctions will benefit the crude tanker market. Quite simply, with Iran’s main customers all seemingly reducing their purchases, they will have to source replacement supplies from elsewhere. Given that these replacement supplies will not be shipped on Iranian tonnage, the wider tanker market will benefit. Some of that effect already appears to have materialised in recent weeks, with higher demand for Atlantic Basin crudes in both the Mediterranean and Asia, whilst Middle East exports (excluding Iran) have also increased over the past month. Questions will remain as to precisely how much Iranian crude is finding its way to market. Tracking Iranian crude flows has already become more difficult in recent months, and increasingly movements will be concealed. Likewise, illicit trading of Iranian crude may also slip beneath the radar”, said Gibson.

Meanwhile, in the VLCC tanker market this week, Gibson said that “VLCC rates briefly touched 3 figures into China but, it was never really cemented, as something to build on, and subsequent fixtures have now been fixed slightly lower. Last done for a voyage into South Korea was 270,000mt x ws 93 and 280,000mt x ws 37.5 for the US Gulf but, with Charterers keeping things moving at a slower pace, they are hopeful that such tactics will bear fruit and some potential discounting can be realised. After last week’s sharp gains, Suezmax rates have now stabilised at ws 55 West and ws 120 East. Rates are expected to remain steady next week, although there will be more available tonnage in the next fixing window. There has been very little Aframax enquiry from the AGulf region this week and, with ballasters on the horizon from Singapore, options for Charterers remain healthy. However, the strong performing Mediterranean market has attracted the attention of Eastern vessels, which in turn has enabled Owners to maintain steady levels of 80 x ws 140 for Agulf-East”, the shipbroker said.

 

Is the tanker market back on track? (02/11)

Sentiment is starting to improve in the tanker market as of late, with fundamentals looking to be back on track, as several factors are contributing to an improvement. In its latest weekly report, shipbroker Allied Shipbroking said that “it seems that optimism has once again returned to the wet market, particularly on the crude carrier front, after a prolonged period of sluggish activity and low earnings. The question that is swirling around in everyone’s mind now is as to how sustainable this rebound is beyond these seasonal spikes. Current market fundamentals on the supply side look positive, as the whole tanker fleet stands right now at 5,150 vessels, a number only 39 vessels higher compared to the start of the year. For VLCCs specifically, the figures are even more impressive, as fleet growth has reached negative levels in the year so far”.

According to Mr. Yiannis Vamvakas, Research Analyst, with Allied Shipbroking, “demolition has played a significant role here, as approximately 150 tankers have been scrapped this year so far, 53% more than the whole calendar year of 2017. Orderbook data is also lower in comparison to the respective period of 2017 and 2016, although it is worth mentioning that a significant percentage of the currently held orderbook is expected to be delivered within 2019. In addition to this, the number of vintage tankers has started to decline, with only 276 tankers currently being older than 20 years old, 5% less than last year. Nevertheless, there is another aspect that can trigger ship-owners to proceed with further scrapping. This is the upcoming 2020 emissions regulations, which may push for units to be retired earlier than would usually be expected. In addition, it is possible that several of the larger sized tankers will be used as floating storage tanks from refineries as buffers zones for the new fuel”.

Vamvakas added that “demand has played an important role as well in this rebound, as growth in US crude exports has been an important boost this year (albeit with some disruptions noted in the last 5 months or so), with EIA data showing that US production and exports has witness an important increase in 2018, with another surge being forecasted now for 2019. Another aspect that has affected the market is the geopolitical turmoil between Iran and the US, which has led to the renewal of sanctions against the former, in effect banning oil imports from Iran. As a result, oil supply has diminished, and tonmiles have increased for Far Eastern importers, with producers such as West Africa having gained market share of late. Moreover, the production of ultra-low sulfur fuel oil due to the 2020 emissions regulation will also play its part on the demand side as well. These could be the further increase of distance between crude oil sources and suitable refineries for ultra-low sulfur fuel oil. The modern and flexible refineries, mainly placed in the US Gulf and the Far East will benefit from this regulation, in contrast to the obsolete refineries situated in areas such as Europe and Russia. Moreover, seasonality has also played its part as we entered the fourth quarter, as traditionally this is a period were the northern hemisphere prepares for the upcoming winter period, providing an upward surge in demand”, Allied’s analyst said.

“Despite all this the IEA made a downward revision to its estimates for demand growth in 2018 and 2019, putting the figures now at around 1.3 mb/d and 1.4 mb/d respectively, which although softer than the figures published earlier in the year, they are still at fair levels. All in all, a positive outlook for the crude oil market has started to take shape now, but with the threat of over-confidence still hanging in the horizon for the medium and long term. This threat takes shape in the form of the possibility of yet another new ordering spree, something which could easily shift the scales back to an excessive glut in tonnage supply”, Vamvakas concluded.

 

Newbuilding Ordering Picks Up as Shipowners Are Turning to the Tanker Segment Once More (31/10)

Over the past few days, there has been a resurgence of tanker ordering activity. In its latest weekly note, shipbroker Allied Shipbroking said that it was “a fairly interesting week overall for the newbuilding market, given the firm flow of fresh orders coming to light the past couple of days. Despite how bizarre it may seem, the tanker sector has taken the lead as of late, to push activity further, with Singaporean investors seemingly being very keen for fresh projects at this point. On the dry bulk side things seem to be in regression for yet another week, despite the good sentiment in terms of earnings that the market is currently under. With the exception of the Ultramax segment, which experienced a considerable increase in its orderbook, given the massive order for 4 firm with options for another 4 units from ICBC Leasing, fresh interest for all other segments seems rather sparse. Notwithstanding this, given that we are still at an early stage of the 4th and final quarter of the year, a quarter typically showing a fair splurge in new orders, we may well anticipate a strong newbuilding activity to take place in the short-run at least”.

In a separate newbuilding note, Clarkson Platou Hellas said that “whilst contracts were signed last month, it’s come to light this week that Gefo have added to their orderbook at AVIC Dingheng with two 7,500dwt stainless tankers with Ice 1A. Delivery is understood to be within end 2020. Kouan also announced that Stenersen have signed contracts for two further 17,500dwt coated IMO2 tankers taking their orders at the yard to four units – delivery of the latest two is due in 2020. Stenersen have taken delivery of the first vessel in this series with a second unit to deliver soon. It was announced that CIMC Raffles finalised contracts for two firm plus two option 2,700lm RoRos with Bohai Ferry – with delivery of both firm vessels due in 2020. Huangpu Wenchong took an order for a single circa 180m LOA train ferries for CG Railway Inc (USA). The contract was signed in the summer and now become effective – delivery is due in 2020”.

Meanwhile, in the S&P market, Allied said that “on the dry side, the long anticipated boost in activity finally took shape this past week, with numerous transactions coming to light. With buying interest varying across all main segments and all different age groups, it seems as though good sentiment amongst buyers is in abundance now. Moreover, with more than 2 months to go before the closing of the year, we can anticipate things to heat up further, while at the same, many will keep a closely eye as to how asset prices start to react. On the tanker side, things seemed considerably more active this past week as well. It seems as though the recent improvement in the freight market has further enticed buyers to act though still not at to aggressive price levels. Notwithstanding this, given that current asset price levels may seem very attractive, on the back of further improvements being heralded in terms of fundamentals, we may well interest rise further over the next couple of months”.

In a separate note, ships’ valuations expert VesselsValue said that in tankers, “values have remained stable with the exception of older Aframax and LR1 tonnage. Aframax tankers British Eagle, British Falcon and British Kestrel (113,600 DWT, Feb – May, 2006, Samsung) sold in and en bloc deal to Capital Maritime and Trading for USD 41.1 mil, VV value USD 44.65 mil. MR2 Pacific Vega (46,000 DWT, Jun 2010, Shin Kurushima Ujina) sold to Transocean Maritime for USD 16.35 mil, VV value USD 16.95 mil. Ocean Yield ASA purchased MR1s Ardmore Defender and Ardmore Dauntless (37,800 DWT, Feb 2015, Hyundai Mipo) for USD 25.7 mil and USD 25.3 mil respectively, VV value USD 26.48 mil and USD 26.11 mill respectively”. In bulkers “values have remained stable with the exception of mid age Capes. Capesize Pacific Explorer (177,500 DWT, Jan 2007, Mitsui Ichihara) sold, DD Due, for USD 21.0 mil, VV value USD 21.76 million. Panamax Rich Wave (81,800 DWT, Jul 2017, Tsuneishi Zosen) sold to ArcelorMittal for USD 30.0 mil, VV value USD 29.81 million. Panamax Ioannis Zafirakis (73,300 DWT, Aug 2004, Namura) sold for USD 10.3 mil, VV value USD 10.53 mil. Supramax Nikkei Dragon (53,000 DWT, Jan 2009, Oshima) sold for USD 13.0 mil, VV value USD 13.4 mil. Handy Star Life (28,000 DWT, Mar 2011, Shimanami) sold for USD 11.5 mil, VV value USD 10.88 million”, VV concluded.

 

Demand Keeps Momentum in the VLCC market (30/10)

As the winter season in the northern hemisphere draws nearer, things are beginning to heat up in the tanker markets as well. In its latest weekly report, shipbroker Charles R. Weber said that “the VLCC market saw rates remain range bound at elevated levels on sustained demand strength in the Middle East and West Africa markets. The Middle East market observed 38 fixtures, representing a three‐week high and a 31% w/w gain. The West Africa market observed eight fixtures, also a three‐week high and three more than last week’s tally. Strong efforts to correct crude oil prices have been observed from Saudi Arabia, raising the specter of further demand gains from the Middle East region as new supply reaches the market. The October Middle East program yielded 157 spot cargoes, representing a record high and a 12% gain from September’s spot cargo program. In the first decade of the November program, cargo demand jumped to 54 cargoes, which is a 10% gain on the first decade of the October program, underscoring fresh demand gains. Moreover, recent Saudi commitments to increase supply are too new to be reflected in these demand gains”.

According to CR Weber, VLCC demand in the USG market evaporated this week with no fixtures reported. USG Aframax lightering rates have surged this week, guiding prompt Aframax lightering rates to over $60,000/day, which adds significantly to the freight cost component of US crude exports; uncertainty around the forward Aframax rate environment could maintain lower regional VLCC demand through at least the near term.  Any associated adverse impact on VLCC trade dynamics and thus freight rates is of low likelihood as prevailing fundamentals suggest near‐term strength. The Middle East availability surplus concluded the October program with 12 units and declined to nine during the first decade of the November program. We project that the tally will decline further during November’s second decade to just six units”, said the shipbroker.

Meanwhile, in the Middle East, as per CR Weber, rates on the AG‐CHINA route added four points to conclude the week at ws90. Corresponding TCEs rose by 9% to ~$50,245/day. Rates to the USG via the Cape concluded unchanged at ws34. Triangulated Westbound earnings eased $16/day to ~$57,652/day. Similarly, in the Atlantic Basin, rates in the West Africa market followed those in the Middle East. The WAFR‐CHINA route was up by 5 points to ws85. Corresponding TCEs rose by 11% to ~$47,802/day. Rates in the Atlantic Americas were steady on a tight regional supply/demand profile. The USG‐SPORE benchmark route was unchanged at $7.0m lump sum”.

In the Suezmax segment, “the West Africa Suezmax market remained strong this week on stronger regional demand and a tightening global supply/demand positioning. The week’s regional tally of fixtures rose 70% w/w to seventeen fixtures – a seven‐week high. Rates on the WAFR‐UKC route added 7.5 points to conclude at ws107.5. In the Atlantic Americas, surging demand for Aframaxes extended rate gains to alternative size classes while natural Suezmax demand remained elevated. The CBS‐ USG route added five points to conclude at 150 x ws125. The USG‐UKC route added 2.5 points to conclude at 130 x ws120 while the USG‐SPORE route added $200k to $4.30m lump sum”, CR Weber said.

Finally, in the Aframax market, “the Caribbean Aframax market observed considerable rate strength this week on strong demand and a run on units to service USG‐area lightering. The CBS‐USG route jumped 60 points to conclude at ws265 while the USG‐UKC route added 80 points to conclude at ws235. Lightering rates jumped from $40,000/day a week ago to over $60,000/day. A shortage of units on the front‐end of the list factored heavily into these gains – particularly as a failure to secure prompt units for USG lightering threatened to backup area crude pipeline systems tied to crude exports. As units free during the upcoming week and the situation eases, rates should moderate in tandem. Still, we envision that rates will remain elevated through at least the near‐ term, relative to levels observed during Q3”, the shipbroker concluded.

 

Tankers: New refining capacity in India to trigger crude demand (29/10)

India is gearing up to be one of the major markets for crude oil demand, together with China. In its latest weekly report, shipbroker Gibson noted that “India, along with China has long been revered as a key driver of world oil demand growth. However, higher crude prices and a weaker rupee have seen domestic fuel prices surge. Now, with sanctions imminent against one of India’s largest suppliers, consumers could see further price rises which may impact on their purchasing power. This begs the question; can the crude market really rely on India to drive demand over the coming years in a higher price environment?”

According to the shipbroker, “since the start of 2018, crude prices have risen over 11%. What has become an already expensive time for Indian refiners to import US$ priced crude has been exacerbated by a simultaneous 13% decline of the Indian Rupee vs the US$. This unwelcome mix has meant in real terms, an almost 30% increase in the price of crude for Indian refiners. The Reserve Bank of India recently estimated that for every $10 increase in a barrel of oil, GDP suffers by 0.15%, potentially cannibalising some the anticipated oil demand growth. Furthermore, crude import reliance is rising as domestic production fails to grow. Quite simply, higher crude prices offer zero upside for the Indian economy. To limit the impact, the Government has sought to protect consumers from rising prices through tax cuts on diesel and gasoline this month and has even asked domestic refiners to sacrifice margins in order to limit price rises”.

Gibson mentioned that “despite higher prices, seaborne arrivals in the first two decades of October are pointing toward a strong gain, with Kpler reporting an average of 308,000 b/d higher crude imports month on month than September (a 5% increase YOY Q3 2017 vs Q3 2018). There have been higher volumes from Nigeria and Latin America, with noticeable arrivals from Venezuela as well as increasing gains from Iraq. Indian crude buying seems strong for now. Imports have also risen from Iran, with September volumes already up 20% YOY, prompting many to ask whether imports from Iran will wind down following the sanctions snapback. Indeed, Oil Minister Dharmendra Pradhan has stated India’s intent to continue lifting Iranian barrels, with Indian refiners reportedly already placing orders to buy 9 million barrels for November. Perhaps this is unsurprising when it is considered that heavily discounted Iranian barrels may help the country manage the effect of higher international crude prices. India has even sought to implement a new payment system to purchase Iranian crude in rupees, in order to circumvent US sanctions”.

According to Gibson “looking further ahead, irrespective of prices, developments in Indian refining capacity are likely to be the main driving force behind the growth in crude import demand. Between 2019-2022, 550,000 b/d of additional refining capacity is due to come online, roughly the same as demand growth projections over the corresponding period. Even if domestic demand does falter, high run rates are likely to keep import volumes high. If unexpectedly the domestic market cannot absorb all the product, then refined product export volumes will have to rise”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Charterers did their best to restrict the fresh cargo flow and initially their efforts prevailed to allow rates to drift off slightly from last week’s numbers. Late week, however, the tide turned as more forward positions hit resistance, which eventually led to a noticeable rebound getting underway, with short haul rates moving to as high as ws 125, with ‘standard’ Far East movements at no less than ws 85 for modern units, and rate ideas to the West moving up through the mid ws 30’s. With a full second half November programme to come, there is now potential for something even more substantial if Charterers don’t control the pace. Suezmaxes gained sharply to the West on news of a 20 tonne crane restriction being imposed by Basrah for November liftings and those compliant units managed to quickly drive rates towards ws 60, with runs to the East also improving to ws 110+ and perhaps higher could be seen into next week too. Aframaxes eased off a little to 80,000mt by ws 135 to Singapore upon lighter interest but there’s a solid feel nonetheless, and any concerted cargo-push would lead rates up again in short order”, the shipbroker said.

 

Suezmax Tanker Owners Can Find Hope for 2019, Unlike their VLCC Counterparts (23/10)

As the tanker sector is still trying to recover part of the lost ground of the past couple of years in terms of earnings, shipbroker Charles R. Weber, in a recent research analysis, noted that supply fundamentals are bound to improve in the near future, at least for some segments, since VLCCs are about to post their biggest fleet growth since the ’80s, not leaving much room for hope.

According to the shipbroker, “Suezmax demand surged 12% y/y during the first nine months of 2018, easing the extent of an epic disjointing of fundamentals created by 7% decrease in demand between 2015 and 2017 coinciding with a 17% net fleet expansion.  The improvement has already been well reflected in spot market earnings the class has observed: spot market earnings surged from a record quarterly low of ~$5,563/day during 1Q18 to ~$15,464/day during September and over $23,000/day today. Despite the improvement, total demand during 3Q18 remained just shy of the previous record set during 1Q15 – with the earnings improvement of late underscoring the importance of diversity when it comes to the geographic distribution of trades.   Indeed, diversifying both the geography of both loading and discharging points reduces the class’ overall efficiency and stimulates competition for units between loading regions”.

CR Weber said that “at the start of the decade, the West Africa and Black Sea markets collectively accounted for 55% of the Suezmax loading profile.  Declining trans‐Atlantic crude exports from West Africa and growing trades from the region to Asia have allowed VLCCs to cannibalize Suezmax demand there. Suezmax demand gains in the Black Sea market, meanwhile, have been modest. During the first nine‐ months of 2018, the two regions collectively accounted for just 35% of total‐ Suezmax demand”.

The shipbroker says that the diversification of Suezmax trades can be viewed as having occurred in two stages. Ironically, neither stage was expected when their respective preceding newbuilding ordering sprees were penned. In the first stage, “Suezmax supply growth, already high from the boom of the 2000s, accelerated further as owners identified the class as the most stable and extolled the virtues of taking advantage of that fact and seemingly attractive newbuilding prices (compared with the pre‐crisis highs of the mid/late 2000s).   These units began delivering just as trans‐Atlantic West African crude volumes commenced a structural decline due on rising domestic US crude production and a round of refining capacity rationalization on the US east coast.     Meanwhile, a lack of interest in Aframax newbuidlings as the Suezmax fleet was being over‐ordered created disparities between the two classes that opened up the larger class to markets traditionally serviced by the smaller Aframaxes.    Thereby, owners alleviated Suezmax woes sufficiently that the class was not excluded from the earnings rally of 2015”.

In Stage 2, “having failed to create oversupply levels akin to the 1970s and 1980s and clearly not content with that fact, owners embarked on yet another newbuilding spree.   These units started delivering in earnest in 3Q16  ‐‐ following four consecutive quarters of declining demand.    Meanwhile, the demand growth rates in traditionally Aframax markets, petered out.   As this follow‐on round on newbuilding deliveries wore on and created the worst fundamentals setup witnessed in decades, earnings continued to erode and between 3Q16 and 3Q18, spot Suezmax earnings averaged below OPEX, at just ~$9,528/day. The poor performance of this period belies though an impressive improvement in demand trends, which only recently reached levels sufficient to support earnings in a meaningful and substantial way.  The new demand gains are almost exclusively in the Atlantic Americas and the Middle East.  In the former, crude exports from the US have maintained the directional growth of regional demand, offsetting softer intraregional demand from freight rate differentials that disfavored Suezmax tonnage for Aframax trades.  With US crude exports serviced by the class being long‐haul, associated ton‐mile gains were substantial.   Meanwhile, in the Middle East, demand has been stronger due to both Suezmax suitability for certain trades (like Basra Heavy cargoes and India‐bound voyages) and low freight rates being offered by the slew of newbuilding units not absorbed by East‐West clean trades on maiden voyages seeking cargoes from the region”, CR Weber noted.

Meanwhile, regarding the 2019 estimates of the tanker market, “the million‐dollar question at the moment is whether the rebound in earnings being observed now is reflective of the supply/demand equation having passed an inflection point.  In the affirmative, this would imply that earnings are set for directional gains through the coming quarters. The answer isfar from clear‐cut, however, and though 4Q18 appears set for earnings at least at two‐year highs, much uncertainty surrounds the view for 2019. On the supply side, fleet growth has moderated.  After posting net growth rates of 5.7% and 8.4% during 2016 and 2017, respectively, 2018 is projected to conclude at 2.0%, followed by 2.9% during 2019.    While the moderation is a positive development and allows demand to catch up, any further fleet growth in the near‐term is unconstructive.    Also, even as Suezmax fleet growth is moderating, VLCC fleet growth is projected at 7.7% for 2019 (the loftiest annual growth rate for the class in 43 years), which risks derailing the fragile recovery that class is observing, with trickledown effect on Suezmax earnings”, the shipbroker said.

Finally, according to CR Weber, “on the demand side, growing US crude exports remains a key prospect.  The EIA projects that US crude production will accelerate by 1.2 Mb/d to 12.2 Mnb/d by 4Q19 from 3Q18.  Meanwhile, over the same space of time, domestic refinery inputs are expected to grow by just 0.1 Mnb/d.  Factoring for regional production and refining disconnects and other items, the implied growth in exports could be ~745,000 b/d.   If Suezmaxes retain the 30% share of US crude exports thereof that they have enjoyed over the past ten months, and assuming demand elsewhere is unchanged, Suezmax demand growth could clock in as high as 5.9% y/y during 2019.  A larger share of West African exports being absorbed by VLCCs amid Iran sanctions could offset much of that, however.  Moreover, the runway to US crude production at 12.2 Mb/d is likely to be bumpy with periodic highs and lows. By the close of 2019, however, we expect that Suezmaxes will be included in concerted rallying of crude tanker earnings as global refiners boost uptakes to produce IMO 2020‐compliant bunker fuels.  The extent of this, too, is increasingly tenuous, however, as scrubber adoptions is already surprising to the high side—particularly among the most bunker‐intensive maritime segments”, it concluded.

 

Tankers In Demand as Shipowners Are Making Moves Expecting the Market to Rebound (20/10)

The tanker market appears to be bottoming out according to shipbrokers. As a result, shipowners are seeking more and more wet tonnage in bargain prices, looking to invest while prices are still subdued. In its latest weekly report, Intermodal said that “in the last three months approximately 72 tankers changed hands involving ships larger than 33kdwt up to VLCC. 43 of those vessels had to do with traditionally crude carriers and 29 involving ships from 33kdwt up to 78kdwt. As brokers we can say that even if there were twice as many ships available for sale there would still be buyers left hungry for tonnage. The strategy of investing in a low market seems to be in full effect now. Shipowners are willing to purchase and subsidize a tanker for a period of time until better days are on the horizon”.

So, are better days upon us soon? According to Intermodal’s SnP Broker, Mr. Timos Papadimitriou, “the same question was asked back in 2016 when the dry market was in trouble and assets were being sold for almost 40% less compared to now. Many back then thought that the market would sink even further. Instead, improving fundamentals and a consequent change of mood resulted in an asset value rally that lasted all the way until the second quarter of 2018”.

“As far as the tanker market is now concerned, the reality is that better days have been anticipated during the past couple of years, with different milestones set for crude and product tankers respectively. The product story, the BWMS system story and the demolition story were some of them, with the last one being tight up mostly to crude carriers that saw an overwhelming increase in scrapping activity. Now the latest milestone is 2020 for the product segment and early 2019 for crude tankers”, Papadimitriou said.

He added that “the product market milestone has a lot to do with the low sulfur regulations and an anticipated need for low sulfur fuel that will render product carriers from – MRs to LR2 (LR3 are also being mentioned a lot also) – the vessels of choice. On the crude side, things are already looking better every day for the past couple of weeks. Sentiment is positive and ships for sale are scarce, while depending on the resilience of the rates we might actually see a rise on values sooner rather than later”.

According to Intermodal’s broker, “on the other hand there is an abundance of MR candidates of 9 up to 14 years old, Japanese owned and built. Interesting enough we don’t see a lot of Korean built MRs for sale, but that has to do mostly with the profile of owners. Japanese owned ships are usually placed in the market just before their employment expires and with the frequency we see new ships being circulated we can assume that charterers are not very keen to extend employment. A plethora of ships usually leads to lower prices as buyers have the tendency to either wait or offer less than the last done reported deal when supply is ample. Either way the product segment is trailing its crude counterpart, at least for now when it comes to sentiment” Papadimitriou noted.

“It seems that the market is bottoming out and depending on the respective strategy of each owner there is a variety of opportunities to invest. As it is always the case when a sector has suffered bad earnings for a prolonged period of time, resulting in diminishing asset prices, buyers can assess easier the market as when to invest, and now more than ever it is a buyers market”, Intermodal’s analyst concluded.

 

Demolition Market Slows Down, as Tankers are Still the Main Scrap Candidates (18/10)

The number of ships sold for scrap has apparently slowed down a bit, during the course of the past week, as the market has paused a bit. Nevertheless, tankers are still the main candidates, as bulkers are enjoying a healthy rise in freight rates lately. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “after last week’s flurry of activity in terms of new tonnage and concluded sales, the market started to creep back to its old volatile ways as recyclers in India have reportedly lost confidence. This is basically from the previously reported troubles facing the Rupee as it made no gains against its previous losses and moved further into treacherous lower levels, resulting in sentiment to decrease from Cash Buyers and recyclers.”

“However, moving away from India, the sentiment and buying interest remains strong from Bangladesh and Pakistan, and this is where many of the recent Tanker sales will more likely end up. Also, there is certainly starting to be more activity from the Container sector, especially from the German market, as they are keeping a watchful eye on the developments in the recycling world. This is evidenced by the amount of Container sales and circulated tonnage seen, as it now looks to become the most prevalent sector in the recycling industry at present. We therefore see a certain amount of uncertainty in the market and we believe going forward, it will be dictated by how the currencies in the sub-continent behave themselves over the coming weeks”, Clarkson Platou Hellas concluded.

Accordingly, Allied Shipbroking said that it was “an active week in terms of ship recycling activity. The volume still holds despite the absence of activity reported for dry bulk tonnage. The tanker sector continues to be the main feeding source, while in terms of concluded activity, of interest was the sale of a 19-year-old VLCC which was sent to Indian breakers at a relatively competitive price (when compared to the price levels being heard of late). In addition to this, we also witnessed the retirement of 2 Aframax also being picked up by Indian breakers, though at slightly firmer levels. Meanwhile, a couple of containerships and a 25-year-old gas carrier were also amongst some of the most interesting deals concluded this past week. With regards to the trends being noted amongst the main shipbreaking regions, Indian breakers seem to have gained some market share of recent, despite the fact that the Indian rupee has slumping to historical lows and the slight decline noted in local steel plate prices. Bangladeshi breakers are still locked firm at the most enticing price levels being quoted right now, while Pakistan remain seems to be following closely though with minimal volume being seen as of yet”..

Meanwhile, in a separate report, GMS, the world’s leading cash buyer of ships said that “after weeks of positivity, some worrying reversals, both on local steel plate prices and currencies, wracked the subcontinent markets this week and may well preclude some (worrying) price declines in the near future. To start with, the Pakistani Rupee lost over 10% of its value in some dramatic setbacks that shook the Gadani market, whilst the Indian Rupee sunk to new lows in excess of Rs. 74 against the U.S. Dollar, leaving a rather grim outlook on subcontinent currencies against the USD. Countering some of the negative moves of the week were Pakistani steel plate prices, which declined overall but gained almost USD 20/LDT by the end of the week, imparting some sense of stability to a market that was otherwise reeling from the recent currency devaluation. Bangladesh on the other hand remains the one bright spot in the subcontinent, but the question begging to be answered is “for how much longer?” Having beached 5 VLCCs over the previous few tides, subsequently committing several more large LDT tankers and even more beachings this week, availability of both yard space and capable local Buyers able to open large Dollar value L/Cs are swiftly becoming increasingly hard to find. There has also been a noticeable influx of vessels over the past few weeks, particularly as the container sector starts to feel the heat, in addition to the steady flow of tankers that the markets have seen through a majority of 2018. As Diwali holidays approach in India, many will be hoping for some stability on the currency (having seen almost 40% of its overall value lost) and a strong end to the year after recent struggles. Finally, China continues to maintain its increasingly invisible stature in the ship recycling industry as Turkey’s overall status remains unchanged from last week”, GMS concluded.

 

Older Handy Product Tankers Could Soon be Scrapped due to IMO 2020 Rules (15/10)

As the 1st of January 2020 is edging closer, the effects of the IMO 2020 rule on burning cleaner marine fuels are bound to be diverse, across all ship classes. One such case is the Handy product tanker range. In its latest weekly report, shipbroker Gibson said that “looking at the orderbook for Handysize product carriers (25-39,999 dwt), one might think that this size range presents an attractive investment opportunity, with just three vessels currently under construction; the lowest orderbook of any tanker asset class”.

According to the Gibson, “scrapping is clearly expected to increase. The average scrapping age for a Handy tanker is 26 years old and, with 25 vessels still trading over this age bracket, these units are prime candidates for demolition now. However, it may be a few more years yet before scrapping starts to accelerate, given that 90% of the fleet currently falls below 20 years of age. However, there are grounds to expect the average scrapping age to fall over the coming years, most notably from 2021 onwards. From 2001 through to 2011, an average of 30 Handies were delivered each year; as these vessels turn 20 they could face additional demolition pressures. Although we note that the average age for scrapping in this sector is 26, pending legislation could force early retirement. IMO 2020 for example will force these vessels to burn compliant fuels. Given the higher consumption of these older units, the incentive to scrap will increase; whilst the economics of installing scrubbers may also prove unattractive. Further, the need to install a ballast water treatment (BWT) systems makes the scrapping argument even more compelling. In short, without a new round of ordering, supply in this sector is set to decline, perhaps dramatically into the next decade”.

“But what about demand for the Handy tanker? Is that also projected to fall in line with fleet supply, justifying the lack of investment? Volumes of dirty cargoes carried on Handy tankers have shown a clear trend of decline in recent years (see chart) and there is little reason to expect this trend to reverse in the short term. Come 2020, short haul trade of fuel oil may decline as gasoil steals a slice of global bunker demand, further limiting the trading opportunities for the dirty Handies. However, as compliant fuel oils (considered a dirty product) gain traction, dirty Handies may see demand return, coinciding with a period of tighter fleet supply”, Gibson said.

The shipbroker added that “as the market dynamics evolve, some Handies trading in the dirty market may be forced to migrate into the clean sector (provided their tanks are in a suitable condition to do so). In effect reducing the negative demand impact for the Handy sector resulting from lower fuel oil demand, particularly if, as per our recent report dated 5th October 2018, the clean sector experiences a positive demand side boost. The older vessels which are not suitable for clean cargoes may however struggle to find employment”.

Meanwhile, “the fate of the Handy sector is also linked to that of the MRs (40-55,000 dwt). When the MR market is poor, those vessels will often compete for Handy cargoes, limiting the earnings potential of the smaller ships. Likewise, when MRs and the overall tanker sector firms, Handies are expected to benefit, even if not to the same degree as in previous years. Evidently, the future for this size class of tanker is probably the most uncertain of all”, Gibson concluded.

 

Product Tankers: The Return of Brazilian Demand (15/10)

The Brazilian economy is on track to expand by 1.8% this year, a downward revision from the International Monetary Fund’s (IMF) initial expectation of 2.3% in January. This downward revision is due to lower than expected consumption, exacerbated by fuel strikes observed across the country, placing a halt on the transportation of goods. As a result, refined product demand found pressure in May, particularly for gasoline and diesel with the former finding additional weakness in a preference for ethanol consumption as a result of higher fuel pricing. We are beginning to see demand pick up yet again; however, a lack of growth in refinery intake coupled with outages has resulted in higher import activity. The Replan refinery experienced a fire in August, causing the shutdown of 415,000 b/d of crude processing capacity. The refinery has resumed partial operations, but is not expected to become fully operational until next month. This coupled with a return of domestic demand has increased import requirements over the last few months.

One source for this import stream is the US Gulf, which is typically served by MR2 tonnage; however, we have since observed an increasing presence of LR1 tonnage along this route. Looking at our propriety fixture data, out of the total volume fixed from the US Gulf to Brazil, the first two months of 2018 observed 100% MR activity; however, this began to face pressure in March, down to 96%. The MR market share slowly declined over the following months, falling to its lower level in August, just 74%, while 26% was served by LR1 tonnage. For September, a similar trend was observed with 64% of the activity LR1 tonnage, 3% LR2 tonnage and 33% MR tonnage. As noted in the Figure below, the preference for larger tonnage was largely driven by increased availability of LR1s. We observed the LR1 US Gulf position rise to a three-week moving average of 74 vessels in the beginning of July, likely placing some pressure on rates for these vessels relative to MR tonnage. For now; however, the tonnage list has been reduced and with the recent build-up of gasoline stock in the US to 235 million barrels, well above the five-year average for this time period, we expect more activity to the Caribbean and South America. Specifically, more volumes are likely to be sent to Brazil in the context of rising product demand in the final quarter of 2018.

 

Hurricane Season Boosted Tanker Markets in September (13/10)

The tanker market was mixed during September, as smaller classes like the Suezmax and Aframax benefitted from the hurricane seasons, while VLCCs were flat, as oversupply issues still hampered the segment’s recovery, said OPEC in ints latest monthly report.

Dirty tanker market sentiment was mixed in September. On a m-o-m comparison, dirty tanker freight rates were up by 4%. This gain was a result of higher rates for Suezmax and Aframax, while VLCC rates remained flat. Overall dirty tanker market remains influenced by an oversupply of ships, with charterers continuing to keep the market generally under pressure. Earnings for dirty tankers were mostly weak as the market maintained its seasonal low tonnage demand as it comes out of the summer months. Nevertheless some gains were achieved in Suezmax and Aframax classes driven by transit delays in the Turkish straits and port delays in the Mediterranean. Additionally, freight rates did gain some ground in September due to the hurricane season.

Average clean tanker spot freight rates also evolved positively in September despite, although the gains were limited. Marginally enhanced rates registered in the East of Suez, while in the West of Suez gains were partly driven by higher bunker prices.

Spot fixtures

Global spot fixtures rose by 3.4% m-o-m in September. OPEC spot fixtures also increased in September, up by 0.75 mb/d, or 5.3% m-o-m, averaging 14.92 mb/d, according to preliminary data. The gains in fixtures were mainly registered on Eastern routes. Fixtures on the Middle East-to-East bound destinations were up 4%, or 0.31 mb/d, m-o-m. In the Middle East-to-West, fixtures dropped by 0.04 mb/d m-o-m. Fixtures outside of the Middle East went up by 11.1% m-o-m. Compared with the same period one year earlier, all fixtures were higher with the exception of Middle Eastto-West fixtures, which dropped by 8% from the previous year.

Sailings and arrivals

Preliminary data showed that OPEC sailings increased by 0.17 mb/d m-o-m in September, averaging 24.94 mb/d, which is 1 mb/d higher y-o-y. September arrivals in Far Eastern ports showed the only increase during the month, rising by 0.23 mb/d m-o-m. Arrivals at North American, European and West Asian ports all declined from the previous month, by 0.17 mb/d, 0.14 mb/d and 0.06 mb/d, respectively, to average 10.31 mb/d, 11.80 mb/d and 4.36 mb/d in September.

Dirty tanker freight rates

Very large crude carrier (VLCC)
VLCC spot freight rates turned flat in September compared to the previous month, to stand at WS44 points on average.

The month started on a softer note for VLCC as spot freight rates on different routes declined, despite the relatively reasonable demand for the first and second decades of the month. The VLCC market continued to suffer from a surplus of ships, which kept rates mostly under pressure.

Freight rates in the Middle East and West Africa waned, as the markets were mostly quiet. Therefore, VLCC spot freight rates for tankers operating on the Middle East-to-East route showed an increase of only WS1 point from the previous month, to average WS55 points in September. VLCC spot freight rates for tankers operating on the West Africa-to-East route showed a similar gain, up by WS1 point from a month earlier to average WS56 points.

VLCC spot freight rates on the Middle East-to-West long-haul route dropped by a small WS2 points from a month earlier, to average WS22 points in September. Towards the end of the month, freight rates firmed marginally as activities picked up and a thinner list was seen in the Middle East and West Africa. Moreover, higher volumes from Latin America and increased bunker prices, combined with improved sentiment in other markets, such as the North Sea and Caribbean, supported freight rates.

Generally spot freight rates were weak in September, impacted by continuing typical seasonal developments usually witnessed in the summer months. Nevertheless, on an annual basis, average spot freight rates for VLCCs were higher by 14% than the same month a year before.

Suezmax
Suezmax spot freight rates increased marginally in September, compared to the previous month, up by WS5 points to stand at WS62 points. On average, this is a similar level to the same month last year. In September, Suezmax saw occasional healthy demand in different markets.

In the East, the Suezmax market was mostly steady. A flurry of loading requirements in the middle of the month supported freight rates in the Atlantic. Additionally, rates were supported by the hurricane season in the Americas. Spot fright rates for eastern destinations firmed towards the end of the month, driven by higher bunker prices and delays in the Turkish straits. Delays in the Black Sea drove some rate enhancements in this area. As a result, registered spot freight rates for tankers operating on the West Africa-to-USGC route increased by WS7 points, compared to the previous month, to average WS68 points in September. Spot freight rates on Northwest Europe (NWE)-to-USGC routes increased by WS3 points m-o-m to average WS56 points.

Aframax
Aframax spot freight rates showed a decline across most reported routes in September compared to the month previous. Nevertheless, the drop was offset by higher spot rates registered in the Caribbean, which was, affected by the hurricane season, as tonnage availability in the region was thin. As a result, Aframax sport freight rates on Carribean/US East Coast (USEC) route were up by WS34 points to stand at WS152 points in September. This is an increase of 28% from August.

In the Mediterranean, Aframax spot freight rates declined despite showing occasional increases. Furthermore, the weak Suezmax market and maintenance programmes in some ports affected rates negatively, causing rates in the Mediterranean to drop and reversing the gains achieved in the previous month. Spot freight rates for Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes declined by 6% and 8% m-o-m, respectively, to stand at WS107 points and WS101 points. Aframax freight rates in the East dropped on the Indonesia-to-East route by 2% m-o-m to average WS103 points in September.

 

BIMCO: US Crude Oil Exports to China drop to zero in August (10/10)

In August, no US seaborne exports of crude oil to China were recorded. A massive change to the export pattern seen since early 2017. Chinese buyers, led by the world’s top tanker charterer Unipec, were rumoured to have stayed away – and new data proves it. Now rumours have it, that Chinese buyers returned in early October, data will eventually show if this is right and to what extent at a later stage.

Despite being left out of the ‘official’ trade war at the last minute, crude oil was removed from the Chinese USD 16 billion list before it came into force on 23 August 2018, crude oil exports are now taking centre stage. BIMCO’s Chief Shipping Analyst Peter Sand comments: “The tanker shipping industry is hurt when distant US crude oil export destinations like China, are swapped for much shorter hauls into the Caribbean and South, North and Central America.

The trade war is all around us now. What appeared on the horizon half a year ago is now impacting many seaborne trading lanes.

All commodities may be impacted regardless of them being officially tariffed or not. What we see in terms of crude oil transport, is harmful to the global shipping industry as well as cumbersome to the exporters and importers of the product.”

In 2017, Chinese imports accounted to 23% of total US crude oil exports. In 2018 that number was 22% during the first seven month. In August the share fell to 0%.

US crude oil exports to any other destination were record high

Total US crude oil exports excluding china hit a new all-time high in September at 6.96 million tonnes.

Exports to Asia jumped in June and July, from a 43% share of total exports since the start of 2017 to reach a 56% share. In August that share fell back to 46%. The two other major importing regions are Europe (26%) and North and Central America (18%), while South America (5%), Caribbean (2%) and Others (4%) make up the rest. (August share of exports in brackets)

Chief Shipping Analyst Peter Sand adds: “For the crude oil tanker shipping industry distances often matter more than volumes.

Even though volumes were record high, tonne-mile demand dropped by 19% from July to August due to the shift in trade patterns.

Exports to Asia are by far the most important. When measuring the tanker demand in tonnes-miles (TM), exports of US crude oil to Asia generated 70% of TM-demand on that trade in August– down from 78% in June and 75% in July.”

 

Tanker Market: The Oil Price – To – Freight Demand Correlation (09/10)

There’s always a reason behind any sudden surge in tanker market rates and this time around is no different, especially if ones takes note of the days which led to last week’s spike. In a recent weekly report, Allied Shipbroking said that oil traders have been busy of late, “as the price of oil continues its climb amidst a series of concerns regarding supply constraints. The week had already started on a bullish footing, with oil prices hovering around the US$ 80 per barrel mark as many in the market braced for further potential disruptions that could be brought about by Hurricane Florence. Being already in a state of readiness, Trump’s UN speech was set to liven up the speculative flames as he took an aggressive tone on OPEC and what he sees as a continued effort in pushing up oil prices”.

George Lazaridis, Head of Research & Valuations, with Allied Shipbroking said that “this coupled with the bringing back of US sanctions against Iran’s oil sector (set to kick in around November) was more than enough to drive up concerns and bring back speculators by the masses. Given that it was only recently that OPEC and Russia decided against raising output beyond what they had agreed on back in June, many have already been in anticipation of a supply crunch in the making. Adding to this the most recent report released by the US Energy Information Administration which showed one of the largest drops in US crude stockpiles which pushed their levels below their five-year average for this time of the year, it looks as though these concerns may well have a stable founding”.

According to Lazaridis, “all this was enough to shoot the price of Brent Crude to its highest level in four years, while in early trading hours today it had jumped to just above US$ 83 a barrel. West Texas Intermediate was quick to follow peaking at US$ 73.65 a barrel, its highest level since July. At the same time U.S. crude oil production may well be breaking one record after another, but we are already seeing signs that it is starting to plateau given that in the last quarter we witnessed the lowest level of new oil rig additions since 2017. With such bullish signs on the horizon, it looks as though there was plenty of motivation for many traders to book in volumes these past weeks, while given that most small and medium sized oi producers have been scaling back their forward contracts, many importers were filling up inventories and stockpiles before the price surge gained further momentum.

Allied’s analyst said that “all this seems to have ramped up demand in oil tankers during the past couple of weeks, helping boost freight rates across most major routes. At the same time this leaves for much concern as we may on the one hand have seen a temporary spike in enquiries, however if this upward price trend in crude oil continues for too long, it may well dampen demand and cause for a dramatic scale back which would leave the freight market in a worse off state than what we were witnessing during the same time frame last year”.

He added though that “there are however signs that things may well improve, with indications seen that many have already started to switch over to different suppliers as they look to circumvent the Iranian oil restrictions. These sorts of restrictions always cause an inevitable hike in tone-mile demand as most look to source their needs from further away destinations than they would be under normal conditions. At the same time given that Saudi Arabia’s state oil giant Saudi Aramco is set to bring new crude output capacity online in the fourth quarter of 2018 from its two fields in Khurais and Manifa, it has in effect increased its ability to boost its production figures by a further 550,000 bpd if there is demand and if it agrees to do so in the next OPEC members meeting. With ample extra capacity given that it utilizes only 10.5 million bpd from its total capacity of 12 million bpd, its commitment to offset a drop in Iranian production is realistic while also leaving ample excess capacity to further drive growth in global output levels”, the shipbroker concluded.

 

As VLCC Rates Spiked, Product Tankers Are Still Reeling Under Pressure (08/10)

This week’s big news, from a shipping market’s standpoint, was the spike of the VLCC tanker market. Shipbroker Gibson noted in its latest weekly report that “the highlight of this week’s trading has been an impressive spike in spot VLCC rates, with daily TCE earnings up to their highest level since April last year. The Middle East and West African markets have been supported by an extended period of healthy enquiry from Asian buyers, although weather delays in the Far East have also helped. In the Caribbean/US Gulf, VLCC lumpsum costs for Asian discharge have witnessed a similar hike, on the back of sparse tonnage availability. Suezmax rates out of West Africa and the Black Sea have also jumped to their highest level this year, aided by robust Asian demand, a strong VLCC market and delays in the Turkish straits. Aframaxes are weaker in comparison; however, over the past couple of months, we have also seen sizable swings in rates for tonnage trading in the Mediterranean, Caribbean and to an extent in the UK Continent and in the Baltic. Although the current gains in VLCC and Suezmax rates are unlikely to last for an extended period of time, the latest events show the first display of any meaningful volatility in the crude tanker market for a very long time. We may also see more spikes over the winter season, as highlighted in our weekly report last week. The growing potential for forward volatility is starting to be priced in one year time charter rates for crude tankers, with assessments up by 5-10% over the past month”.

According to Gibson, “however, these emerging signs of positivity are not really reflected in the product tanker market (despite TC2 jumping by WS35 this week). Overall, the performance has been disappointing during the past three months, even with the limited clean tanker fleet growth due to robust demolition. The weakness in TCE returns has been in part attributable to competition from newbuild crude carriers able to take a large volume of products on their maiden voyages and some migration by coated tonnage from dirty to clean trades, following very disappointing results in the crude tanker market during the 1st five months of this year. On the demand side, the picture has been mixed. On one hand, some positive developments have been seen. Product shipments out of the US Gulf continue to grow, albeit at a slower pace than in previous years. Russian CPP exports remain robust, yet hardly any growth has been seen year-on-year so far in 2018. The same can be said for product flows into West Africa but spikes in demand occasionally have offered much-needed support. In the Middle East, the key market for larger product carriers, export flows have hardly changed, while in India strong growth in domestic consumption undermines volumes available for exports. In China, product exports increased substantially during the 1st five months of the year but have fallen notably thereafter. The overall picture is that, although total product tanker demand has increased, these gains have been far too modest to impact the freight rates positively”.

The shipbroker went on to note “not surprisingly, the MR and LR1 market for one year time charter deals has been very quiet, with the latest assessments at or close to their lowest level seen over the past decade. Rates are somewhat better for LR2s but still not far off multi-year lows. With winter ahead of us, is there much of further downside? The number of scheduled deliveries for larger product carriers is notably smaller in 2019 compared to those witnessed in recent years. There is a healthy delivery profile for MRs but anticipated demolition activity will offset at least some of that. On the demand side, the approaching start-up of an export orientated refinery in Saudi Arabia could lift regional product exports. From the 2nd half of 2019, we could also see additional demand, with oil companies/traders/bunker providers stocking up on compliant bunker fuels ahead of 2020. This alone suggests there is more upside potential than downside risk. However, first we need to see a similar degree of volatility in the clean tanker market, as in crude, before charterers consider reviewing their trading strategies”, Gibson concluded.

 

Tanker Oversupply Issues Could Be Alleviated in the Coming Months Says Shipbroker (06/10)

The tanker market could be heading for a mild recovery, at least if ones takes a closer look at the supply part of the equation. In a recent analysis, tanker specialist Charles R. Weber said that “VLCC earnings remained in positive year‐on‐year territory and averaged over $20,000/day for a second‐consecutive month during September, capping off a Q3 that surprised to the upside with average earnings for the quarter of ~$19,045/day. A Bloomberg survey of analysts published in early August projected average earnings during Q3 of $15,000/day (a 17% reduction from the respondents’ May projection for the same quarter), underscoring the extent to which the turn of events surprised participants. A temporary surge in demand for US crude exports during May contributed in no small way to the reversal of fortunes experienced during Q3. During the month, twenty‐two units were fixed for USG cargoes – which compares with an average of five per month during the preceding 12 months”.

According to CR Weber, “given geographical isolation of the USG load region and the long‐haul nature of trades originating there, many of the performing units were sourced from Asia – and all were removed from availability lists until at least late‐August. Moreover, a directional improvement in the demand for VLCCs to trade cargoes from points throughout the Atlantic Americas – a range stretching from Uruguay to the USG – remained intact and continued to both draw units that would otherwise be available for Middle East trades, and employ them for longer periods”.

The shipbroker’s Head of Tanker Research, Mr. Geores P. Los noted that “indeed, even as US crude exports scaled back during Q3 amid high domestic refinery uptakes and easing production growth while Venezuelan crude exports continued to decline, a surge in Brazil’s exports more than made up for the shortfall. A strong ethanol yield from Brazil’s sugarcane crush crop this year displaced even more of the country’s growing surplus crude production, enabling a fresh strengthening in the pace of crude exports. These factors built upon steady and elevated VLCC demand in the West Africa market to allow a fresh surge in VLCC spot ton‐mile generation during Q3”.

According to Los, “Middle East demand, too, has been steadily rising since the start of the year. The August Middle East cargo program tested a record high with 147 cargoes, besting the 1H18 average by 13% and contributing to draws on available tonnage.  The Middle East cargo availability growth comes as regional producers are boosting production on relaxed quotas to ease the impact on crude prices of a tightening oil market and declining Iranian crude exports ahead of the US’ November 4th sanctions reimplementation date”.

Meanwhile, “Iran sanctions alone raise the prospect of a strong Q4. Reports indicate that India has reduced its demand for Iranian cargoes from November to zero, in a move that sees the country join other key buyers South Korea and Japan in halting Iranian imports ahead of sanctions. Although China has not indicated that it will halt Iranian imports, its largest crude importer, Sinopec, will reportedly cut its Iranian purchases in half.  In seeking alternatives, these importers will have little choice but to look to suppliers look further afield”, Los added.

According to the analyst, “already, Asia‐bound fixtures from West Africa last week were at a YTD high and spot market participants are now anticipating an imminent surge in purchases of US crude export cargoes. VLCC rates on the USG‐SPORE route have also recently surged to levelsthat enable speculative ballasting from Asia by offering a round‐trip TCE that exceeds most AG‐FEAST TCEs. As a result, replenishment of Middle East positions looks set to more closely match demand levels, preventing the large‐scale availability surpluses observed just a few months ago. When the October Middle East cargo program concludes, we project that there will be just 11 surplus units available – half the surplus observed at the conclusion of the September program and the fewest for any month since April 2017.  Further reductions are expected progressively during Q4. Over the past 12 months, a close correlation of R² = 0.8073 has been observed between the Middle East tonnage surplus and benchmark TCEs”, CR Weber concluded.

 

Aframax Tankers and LR1s Among Top Future Investment Opportunities for Shipowners (05/10)

Predicting the recovery in asset prices involves many factors, and the current strength of spot market returns, or term hire rates are only a part of the story. Value investors still have plenty of opportunities to acquire prime aged assets at a significant discount to their expected future market value.

Tankers offer the most promising investment overall, as most large crude tankers still have significant upside remaining based on an analysis of expected market trends over the next several years. However, opportunities abound in other vessel classes as well.

Handysize Bulkers – Lagging other bulker segments, but ton mile demand for these units remains on a gradual upwards slope.

Panamax Container Vessels – The removal of a significant number of older ships has preserved the value of prime age and fuel-efficient vessels.

LR1 Tankers – The large clean product tanker segment has seen a tough market environment over the past several years due to the large growth in vessel supply.

Aframax Tankers – Aframaxes have suffered from changes in trade patterns, but remain the workhorses of the crude tanker fleet, and the average age of the fleet on the water remains high. Rates should recover as older units come out of service, preserving the value of a five-year-old ship.

Vessel specific forecasts give a much better view of the expected asset value performance, but the trend in five year old asset values is a good starting point when looking for discounted vessels.

 

VLCC Market Is on the Mend… For Now At Least (02/10)

The tanker market is readjusting to the Iranian sanctions and the Chinese Holidays already underway. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates were strengthening this week and are poised for more substantial gains in the coming week on the back of strong draws on Middle East tonnage by West Africa demand, which extended a decline in surplus tonnage. Demand in the Middle East market rose 32% w/w to a six‐week high of 41 fixtures while demand in the West Africa market surged 140% w/w to a YTD high of 12 fixtures. With charterers working in the second decade of the October Middle East program, the strong demand profile in both markets – which source tonnage from the same pool of available units – saw the extent of surplus capacity in the date range drop to a fresh 19‐month low. Just 10 surplus units are projected to be available at the conclusion of the second decade. This is three fewer than the level seen at the conclusion of the month’s first decade and is more than half the 22 surplus units at the conclusion of the September program”.

CR Weber added that “the narrowing surplus suggests that forward rate gains could surprise to the upside in the coming weeks. The pace of demand will likely guide the level of any gains, ultimately, though given the exponential nature of the spot tanker market, we believe that rates have room for upside even in a low demand case (assumes that October’s program matches September’s, rather than the markedly stronger August program). For its part, the NITC fleet actively trading continues to decline. NITC VLCCs storing crude has risen by two units to five, as compared with a week ago, while the number of units in drydock has increased by one to three”.

The shipbroker also noted that “accordingly, the NITC trading fleet stands at 29 units, compared with 32 a week ago. As NITC‐undertaken deliveries of Iranian crude declines, demand gains for other units to transport cargoes from both the Middle East and crude origination points further afield is likely, presenting further impetus for rate gains in the coming weeks and months. This week’s surge in demand in the West Africa market appears to underscore the potential for strong sanctions‐associated ton‐mile development”.

In a separate note, Affinity Research said that “moving swiftly along to Suezmaxes, WAFR has seen some healthy activity clambering its way towards WS 80. It looks as though four ships will show interest in WAFR stems today, and whilst some off market activity has depleted the volume remaining in the 2 nd decade, a hangover of next to no ships will inevitably continue to drive TD20. Strait delays and a limited influx of tonnage continue to plague MED cargoes, with local weather disruptions further complicating matters. The Americas, which up until yesterday had stayed strangely silent, finally whirred back into action. Whilst the BSEA market promises great freights, with the Turkish straits to transit and waiting time the returns may not even compare to USG/EAST voyages. There were zero FOC vessels available yesterday morning and whilst we see a load of projections with Tropical Storm Kirk and some other storms brewing in the Atlantic, any ship with safe prospects is going to command a premium”, said the shipbroker.

Meanwhile, in the product tanker market, Affinity added that “on the product front, continental MR sentiment has been strong throughout, though not with tonnes of activity. There have been PPT ships all week, but owners have managed to lift TC2 to 37 x WS 110, and with WS 115 likely to be paid soon. Handies have held stable/quiet throughout, with Baltic-UKC at 30 x WS 130 and cross-cont at 30 x WS 120. LR1s in the west are firmer (ARAWAFR at 60 x WS 115 currently on subs), while LR2s are considerably tighter with Med-Japan arranged at USD 1.85 Mn”.

 

Tankers: Will History Repeat Itself This Winter Around? (01/10)

Tanker owners will be looking forward to the upcoming winter period, typically the strongest of each year for the wet sector. However, they will also not be wishing for a repeat of last season, when the freight market failed to recover. In its latest weekly report, shipbroker Gibson said that “winter has typically been a period of stronger earnings and higher freight volatility for the tanker sector. However, the winter of 2017/2018 was a disappointment across all sectors, despite it being particularly cold in the Northern hemisphere. As analysts, this has made forecasting the 2018/2019 season all the more challenging. The reasons why last winter failed to deliver are numerous. Key themes include OPEC production cuts, stock drawdowns, which prompted lower demand for seaborne crude trade, and rising tanker supply among other factors. So how is this winter likely to shape up? Will we see a demand driven spike for this season? Will winter disappoint? Will weather delays come to the rescue, regardless of the fundamentals? Will tanker supply blunt any rally before it really gains any momentum? Only time will provide those answers. However, analysing the fundamentals may give some owners reason to be more positive this year”.

According to the shipbroker, “focusing purely on tanker supply, the Aframax/LR2 fleet stood at around 1,014 vessels 12 months ago, vs. 1,013 today. Put simply, the supply side story for this asset class has hardly changed. The picture is similar for VLCCs and not much different for Suezmaxes, with the fleet having grown by 15 vessels over the past 12 months. Generally speaking, the supply side looks stable heading into winter. One reason to be more optimistic, relative to winter 2017/18”.

Gibson added that “the demand side is of course harder to predict and complicated by the impact of Iranian sanctions on trade flows. Yet, with oil stocks near ‘normal’ levels, any incremental increases in demand will have to be met from increases in crude trade flows, most of which are expected to be seaborne. Given that the IEA sees world oil demand surging in Q4 to a record 100.3 million b/d, crude tankers could be set for a seasonal boost”.

The London-based shipbroker said that “however, due to voyage lengths, Q4 demand has already been felt to a certain extent for the VLCCs. Higher demand from Chinese refiners seeking to fully utilize their crude import quotas and concerns about Iranian supplies has supported the market. Whether or not the VLCC market can continue to move up throughout Q4, depends on part on how robust this buying activity remains and how lost Iranian barrels are sourced. The more delivered Iranian crude the Chinese consume, the less the benefit for the ‘international’ tanker fleet. So far OPEC has indicated that production will stay flat which, if true, is likely to force Asian refiners to source more from the Atlantic Basin, supporting tonne mile demand and VLCCs in particular. In fact, evidence has already emerged of stronger Chinese buying of West African grades, whilst Korean, Japanese and Chinese buyers have tapped into the US market. Potentially, this points to more barrels being shifted from Suezmaxes to VLCCs but of course is supportive for the entire crude tanker sector”.

Gibson added that “Aframax owners also have reason to feel more confident about the coming winter season. Whilst Iranian sanctions should be marginally beneficial for all crude tankers (see report dated 14th September), Aframaxes could be the primary beneficiaries. Without additional OPEC/Russian supplies, the focus will be on trading crude supplies already in play. Given that Europe and the Mediterranean is expected to lose 600-700,000 b/d of Iranian crude, local grades will benefit from higher regional demand, which could support short sea Aframax trade. Likewise, Aframaxes will continue to see higher demand in the US Gulf, for both lightering and conventional trading operations as US crude remains one of the key sources of supply in the medium term.

Overall the biggest wildcard for winter concerns the weather. The UK tabloids this week pushed the idea that Europe is braced for its harshest winter since 2010. Whether this reflect the reality remains to be seen. In any case, the story for this coming winter looks a bit more promising than it did 12 months ago”, the shipbroker concluded.

 

Tonnage Oversupply Still Blocking VLCCs’ Rebound, While Product Tankers Still Not Seeing the Expected Positive Effect From LSFO Capacity Expansions (25/09)

Despite the fact that ship owners appeared to be pushing for higher VLCC rates over the course of the past week, a rebound in freight rates wasn’t able to be materialized, as a result of abundant tonnage availability. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates struggled through much of the week as an apparent and abrupt conclusion to the September program with fewer than expected cargoes rocked sentiment. Still, demand strengthened: In the Middle East market, where charterers progressed to early October cargoes, fixture activity jumped 41% w/w to a four‐week high. Meanwhile, the Atlantic Americas saw demand fixture activity extend from last week’s strong pace, rising 20% w/w to 12 fixtures and raising the specter of insufficient natural positions going forward that could prompt ballasters from Asia”.

According to the shipbroker, “as a result of this, by the close of the week rates turned positive, paring the earlier losses and concluding above last week’s closing values. Further rate gains appear likely as the extent of surplus capacity has narrowed. After surging during the final decade of the September program due to low cargo availability to 22 units, the surplus appears poised to drop to just 13 units during the first decade of the October program. This would be the smallest surplus observed in over a year and thus could support a strong push in rates – though we note this is heavily subject to the extent of demand, which itself is proving uncharacteristically volatile”, said CR Weber.

Meanwhile, “reports indicate that Iran’s crude supply is in fresh decline as many buyers seek alternative sources ahead of the November 4th sanctions re‐imposition date, under the JCPOA of May 8th. We expect that this will bode well for the VLCC market, as buyers will require replacement cargoes sourced from both other regional producers and from producers further afield, stoking both strong ton‐miles and greater spot market VLCC demand. As observed during previous sanctions on Iran’s petroleum sector, some units in Iran’s 38‐strong NITC VLCC fleet may idle to undertake storage activities, thus exiting from normal trades. Presently just four of NITC’s units are engaged in storage, with three of these for a period of under three weeks. Lending further support to the VLCC market, import plans ahead of China’s 400,000 b/d Hengli Refinery startup indicate a number of VLCC cargoes through the end of the year. Reports indicate that a startup date for the plant in October has been postponed to November, but that import plans calling for up to 2 MnMT crude this year remain unchanged. A former Itochu trader is understood to be joining in October to facilitate crude procurement and undertake derivative trades. The refinery is designed to process Arab Medium, Arab Heavy and Brazilian Marlin at a ratio of 6:3:1”, CR Weber concluded.

In the product tanker market, shipbroker Affinity Research said that “although some are hoping for clean markets to pick up once refineries, particularly those in Europe, install LSFO refining capacity extensions, for now the continent is continuing on a woeful trend of limited inquiry. This has pushed rates down further, with TC2 rates verging on 37 x WS 100 and an additional 10 points for West African runs. On a similar note, Handies are maintaining a flat 30 x WS 130 for Baltic – UKC. The US, though, is showing signs of promise with a strong start to the week establishing a 38 x WS 105 on TC14, although this may require some testing. LR1s and LR2s have also been on the more positive ends of things, with LR1s’ ARA – WAFR landing 60 x WS 100 and LR2s creeping up to USD 1.75 Mn for Med – Japan. The Med list has taken some time to tighten up, but upon doing so, rates reacted accordingly. PPT cargoes, specifically, helped rates firm up quicker, which has firmed up sentiment all around, even though the odd tonnage still lingers. We’ve seen 30 x WS 130 once or twice in the Med, and would summarise the market as 30 x WS 125 – 130, depending on load and date, which is better than where we were at least! The Black Sea, on the other side, hasn’t been properly tested in light of the firmness in the Med, but we assume we’ll be seeing levels of 135 – 140 at this rate. Market prospects going forward depend on further activity next week”, the shipbroker concluded.

 

Tankers: It’s All About Demolition Activity In The Hunt For VLCCs’ Rebound (24/09)

With a rebound proving to be elusive in the VLCC tanker segment, it seems that all prospects for the realization of such a recovery hinge on older units being sold for scrap. In its latest weekly report, shipbroker Gibson pointed out that “robust scrapping activity has been one of the key features of the tanker market this year. Demolition has been particularly strong in the VLCCs sector: we have seen 32 tankers sold to the breaking yards so far in 2018 versus 11 units over the whole of 2017. In addition, three former VLCCs (converted into FSOs and used for storage projects) were also sold for permanent removal. In part, the decision to scrap has been due to poor tanker returns, particularly during the 1st half of the year, with 24 units reported for sale between January and May. Higher scrap prices have also played a role, with values on the Indian subcontinent peaking during the 1st quarter of 2018 at their highest level in over three years, at around $460/ldt”, said the shipbroker.

According to Gibson, “this is welcome news for owners, as tonnage oversupply is perhaps the main culprit for the weak sector performance. On paper, the number of VLCC removals this year exceeds new deliveries, with just 26 units entering trading between January and August. However, some of the tankers reported for demolition had been absent from the trading market for quite some time, while for many others trading opportunities were limited. Out of those scrapped, four VLCCs were on storage duties throughout 2017, while over a dozen of other vessels were also involved in some sort of temporary storage, typically lasting somewhere between 2 to 6 months at a time. The total number of VLCCs in crude floating storage has declined dramatically this year. At present, we are seeing just two VLCCs engaged in crude storage, versus on average 27 VLCCs per month in 2017. The majority of the ships that were previously storing have resumed trading, while others have been sent to the demolition yards, as detailed above”, said the London-based shipbroker.

“Finally, there are also a few that, after being discharged from floating storage duties, continue sitting idle, without any visible trading activity in sight. These units are mainly of vintage age and could be under pressure to exit the market for good. Overall, there are plenty of ageing ladies – over 55 vessels in the existing VLCC fleet were built in 2000 or earlier. Due to their age profile, low industry returns and limited trading opportunities, these tankers are the most vulnerable to demolition pressure in a run up to 2020. We could also see some younger Iranian tankers returning into floating storage after the US reimposes sanctions, although these ships at present cannot compete for international cargoes”, Gibson noted.

Concluding its analysis, Gibson said that “to sum up, the pool of potential candidates to exit trading operations in the short term is substantial. Yet, we should not forget that we still have nearly 25 VLCCs scheduled for delivery this year and another 60 over the course of 2019. The above maths suggest that the growth in the VLCC fleet could be restricted over the next twelve to sixteen months, if the demolition activity remains robust. Will this be the case? In many ways, the answer to that lies with the owners’ expectations of how the market will fare over the coming months”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “very little VLCC rate movement week on week, but there was sufficient volume seen to allow Owners just a little more hope than of late, and the top end of the range edged up to ws 57.5+ to the East accordingly, with rates to the West remaining in the low ws 20’s. Availability remains ‘easy’, however, and a push for any significant improvement will be more of a challenge and with a widespread Holiday in the Far East to disrupt the Monday flow too. Suezmaxes only found modest attention that merely led rates along a low and flat path – again. Down to 130,000mt by ws 77.5 to the East and to ws 24 to the West for now, and likely through next week too. Aframaxes remained at no better than 80,000mt by ws 110 to Singapore and the steady, but unspectacular, scene is likely to remain in situ for the next phase also”, the shipbroker noted.

 

Tanker Market: The Iranian Factor May Soon Come Into Play (18/09)

Once again, the loss of Iranian oil for the international market is an eventuality, which is bound to alter fundamentals in the tanker market. In its latest weekly report, shipbroker Gibson commented that “as we move closer to the November 5th re-imposition of sanctions against Iran, the impact is starting to become more noticeable for the tanker market. The IEA reported this week that Iranian crude production had fallen by 150,000 b/d to 3.63 million b/d in August, the lowest since July 2016. Ship tracking data suggests that exports have fallen further, by 400,000-500,000 b/d to around 2.4 million b/d. So, the question really is, by how much and how quickly will Iranian production fall and who is going to replace those lost barrels?”

According to Gibson, “during the last round of sanctions output fell as low as 2.6-2.7 million b/d, with exports generally around the 1.2-1.3 million b/d mark. Whilst it might be reasonable to expect similar levels this time around, Iran may find itself with fewer willing buyers. South Korea has stopped buying all together, with the last cargo imported in July, and appears willing to comply with US demands. Japan and India have also reduced imports in recent months, but have sought waivers from the US, and it looks likely that they will both continue to import at least some volumes of Iranian crude after sanctions are imposed. Reliance Industries and Nayara (formerly Essar) look set to stop purchases altogether but the state owned refiners appear prepared to continue imports”.

Meanwhile, “in Europe, volumes are already easing off as sanctions approach. For the time being, some cargoes are still heading towards Spain, Italy and Turkey. Whilst shipments to the European Union are expected to cease entirely ahead of November 5th; Turkey, which continued to import Iranian crude throughout the last period of sanctions, may continue doing so, particularly when current US-Turkey relations are considered. By contrast, China may even step up purchases as Iran is forced to offer increasingly attractive discounts, whilst utilisating state owned NITC to handle delivery and cargo insurance”, said the shipbroker.

“Iranian exports will have to decline. Replacement barrels from elsewhere will therefore be needed. OPEC production is increasing, having hit a 2018 peak of 32.63 million b/d in August. However, additional volumes are likely to be required to offset the expected decline from Iran. Outside OPEC, the US could of course become a key source of additional supply for the global oil markets, with refiners in Korea, India and Japan already taking more. However, the US cannot shoulder the burden alone whilst also keeping oil prices at an acceptable level. Earlier this week US Energy Secretary Rick Perry met his Saudi and Russian counterparts, reportedly to urge them to guarantee supplies in order to keep prices in check, a key political point for President Trump. For the tanker market, what Saudi Arabia, Russia and the rest of OPEC do is key. Quite simply, if the lost Iranian barrels are compensated by supplies from elsewhere, there will be more demand for the international tanker fleet, as the NITC fleet will not be able to compete for these cargoes”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Owners will feel a little deflated this week after it offered so much potential, with a good number of cargoes expected to enter the market, but in fact gave very little. Even with this, Owners have been able to slightly strengthen rates to both East and West directions, with last done being 270,000mt x ws 55.5 for a voyage to China and 280,000mt x ws 20 to the USGulf via Suez Canal. There is still a chance that Charterers do in fact have some end month positions to cover and if that is the case, then Owners should be able to secure further premiums over last done. A quieter week for the Suezmax market has seen rates remaining supressed at 140,000mt x ws 27.5 to the West and 130,000mt x ws 80 for Eastern destinations. Next week is expected to be more active but we still have a long tonnage list, which will keep rates unchanged. The outlook on Monday was bleak for Aframaxes in the AGulf, with plentiful good quality tonnage options visible for Charterers and little outstanding enquiry. However, a steady flow of activity has kept rates pretty steady. AGulf-East began the week at 80 x ws 107.5-110 levels but has only slipped to around the 80 x ws105 level as we draw a close to week 37”, the shipbroker concluded.

 

Tanker Market: Freight Rates on the Up During August (15/09)

In its latest monthly report, OPEC painted a pretty picture on the course of the tanker shipping market. It said that average dirty spot freight rates in the tanker market increased in August from the previous month by 7%. The average increase was driven mainly by gains registered for the VLCC and Aframax classes, while Suezmax freight rates showed negative developments. VLCC rates registered gains compared with the previous month. Several markets showed higher freight rates in August despite frequent fluctuations. Rates in the Caribbean, West Africa and the Middle East increased as a result of enhanced tonnage demand, while rates in Asia were also supported by port delays. Enhanced Aframax sentiment was seen in several markets, including the Mediterranean and the North Sea.

Moreover, ongoing ullage delays on the US Gulf Cost (USGC) were the main driver behind the freight rate increase. On the other hand, Suezmax average rates mostly dropped in August due to low activity in general. Product tanker spot freight rates continued to remain weak, following the trend seen in recent months, with no clear signs of recovery, declining by 9% and 2%, respectively, both East and West of Suez.

Spot fixtures
Global spot fixtures dropped by 3.6% in August compared with the previous month. OPEC spot fixtures declined by 0.59 mb/d, or 4%, to average 14.19 mb/d, according to preliminary data. The drop in fixtures was registered in all regions. Fixtures in the Middle East to both east- and west-bound destinations declined m-o-m by 0.17 mb/d and 0.18 mb/d, as did fixtures outside the Middle East, which averaged 4.31 mb/d in August, less by 0.24 mb/d from one month earlier. Compared with the same period a year earlier, all fixtures were higher in August with one exception – Middle East-to-West fixtures – which dropped by 17.1% from the year before.

Sailings and arrivals
Preliminary data showed that OPEC sailings declined by 0.8% m-o-m in August, averaging 24.77 mb/d, which is 0.77 mb/d or 3.2% higher than in the same month a year earlier. August arrivals in North America and the Far East increased over the previous month, while Europe and West Asia arrivals fell by 0.06 mb/d and 0.27 mb/d, respectively, to average 11.69 mb/d and 4.29 mb/d in August.

Dirty tanker freight rates
Very large crude carrier (VLCC)
Following improved sentiment at the end of July, VLCC August spot freight rates in August increased in general. Several markets showed sustained growth in rates at the beginning of the month. The Caribbean saw a significant increase in rates followed by a similar rise in West Africa, though at a lower level, combined with a slightly tighter tonnage list, mainly in the East. Together, routes saw rising trends, which did not continue through to the end of the month, as tonnage demand lessened when August requirements were covered and tonnage availability started to increase. Nevertheless, weather delays at Far Eastern ports prevented freight rates from declining significantly, as the availability of modern vessels was thinning.

Moreover, high fixtures for the month of September provided support to higher freight rates, mainly in the Middle East, causing VLCC spot rates to rise on all major trading routes in August, despite an average increase of 13% from one month before. Middle East-to-East and Middle East-to-West spot freight rates rose by 11% and 26%, respectively, from the previous month, and spot freight rates on the West Africa-to-East route increased by 11%.

Suezmax
Contrary to the VLCC market, Suezmax freight rates came under pressure in August. Suezmax activity level was generally thin, especially in the West as tonnage demand was affected by the refinery maintenance season in Europe. A tonnage build-up in several areas undermined Suezmax freight rates in the month. Rates dropped in West Africa as a result of limited loading requirements. Similarly, Suezmax markets in the Middle East and the Black Sea showed a drop on the back of a generally persistent downward trend. Thus, freight rates for tankers operating on the West Africa-to-USGC route dropped by 8% from the previous month to average WS61 points, while in the West, freight rates on the Northwest Europe (NWE)-to-USGC route declined by 5% m-o-m to average WS53 points.

Aframax
Aframax spot freight rates experienced their biggest increase in August from one month before compared with dirty tankers in other classes, rising on all reported routes. On average, Aframax freight rates were 10% higher in August compared to a month earlier. The Aframax market in the Caribbean turned positive, showing higher gains than on other reported routes. Continuous ullage delays on the USGC were the main driver behind the freight rate increase, thus average monthly freight rates for tankers operating on the Caribbean-to-US East Coast (USEC) route rose by 21% over the previous month to average WS119 points.

In the Mediterranean, the Aframax market strengthened in August following a stronger chartering market in the Baltics and the North Sea. Nevertheless, the firming trend was slow despite occasional tightness in the tonnage list, which helped owners to push for higher rates. As a result, freight rates for tankers trading on both the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes increased by WS4 points and WS6 points in August compared with the previous month, to stand at WS115 points and WS110 points, respectively. Similarly, average freight rates for tankers trading on the Indonesia-to-East route increased by 7% to average WS105 points.

 

A sigh of relief for VLCCs: Temporary or Not? (11/09)

VLCC tanker owners – at least some of them – seemed to breathe a sigh of relief over the course of the past week, but questions regarding the long-term prospects of the market, still linger. In its latest weekly report, Affinity Research said that “the first two decades in the MEG for VLCCs enjoyed a flurry of activity and high rates, although one can only ride the high wave for so long. Activity has since slowed, leaving owners in an awkward position and unable to be making cases for any adjustments with such limited cargo going around. The final decade is only just getting into the swing of things, but already we can tell that the heavily positioned tonnage list isn’t going to be doing owners any more favours, with charterers keen to get their teeth stuck in. This could be the lead up to a MEG/East breaking point, with rates threatening to dip beneath WS 53 this week, although this is largely dependent on whether the remaining last decade cargoes are covered early next week. The US Gulf and Caribbean VLCC markets, however, have shown some positive signs, as these markets exhibit fragmented bursts of activity. High uncertainty in natural positions draws out long way eastern ballasters which in the end support worldwide VLCC fixing, but most importantly creates a buzz and some strong sentiment”.

In a separate note this week, shipbroker Gibson said that in the Middle East, “VLCC Charterers do their utmost to hold off showing their last decade positions here and, with this apathetic attitude, rates have drifted off a little against a gradual build-up of tonnage available for the remainder of the month, which is also likely to suppress any potential optimism going into the last quarter of the year. Last done levels are 270,000mt x ws 52 for a generic AGulf/China run and 280,000mt x ws 18.5 via Suez for a voyage to the USGulf. The MEG has simply been suffocated by exceedingly long Suezmax tonnage supply. Even a spurt of late week Basrah cargoes could not lift the current levels of 140,000mt x ws 27.5 to the West and no less than 130,000mt x ws 80 East. Next week, will see October dates worked; however, with tonnage still long on supply, more of the same is expected. Fresh tests at the start of this week in the AGulf highlighted the change in the Aframax landscape. Two quiet previous weeks passed, resulting in a buildup of tonnage. Consequently, when Charterers entered the market this week, the axe on the rates came down. AGulf to Red Sea rates dropped from $900k (last done) to $600k, whilst AGulf-East rates dropped down to 80,000mt x ws 107.5-110 levels”, Gibson cocnldued.

Meanwhile, turning to Aframaxes, Affinity Research said that “the North has stayed particularly quiet, with rates dropping down to even the high sixties for Baltic/Cont voyages, and mid nineties for x/North Sea. A mix of meagre inquiries, plenty of vessels and some upcoming works in Primorsk give the market a bleak outlook for some weeks to come. The Mediterranean market, however, has seen some positive signs, as a rush of inquiries crossMed and significant Black Sea programmes for September’s 3 rd decade add a nice rise to the market. The West African markets for Suezmaxes have taken off in the past week, with markets enjoying a working eight cargoes yesterday alone. Owners have been particularly happy, with rates successfully climbing higher than previously forecasted. As the tonnage list gradually whittles down, we are expecting this positive sentiment and outlook to continue into next week”.

The shipbroker added that “on the clean front, LR2s have seen a slight uptick in deals, but TC1 deals in particular have been kept quite lowkey. There’s a chance we could see the market hold at WS 97.5, considering the recent increases in bunkers. LR1s, meanwhile, have fared a very quiet week, as have MRs, although the latter did have a slight spike in action earlier in the week. The real action has been in North Asian MR markets, where owners have been gradually bumping up those freight levels. Korea/Singapore is rumoured to be on subs at USD 340 k, while Korea/USWC is said to be at USD 940 k. Although this isn’t the best we’ve ever seen, it’s definitely a development from yesterday. Singapore, on the other hand, has been as quiet as anything”, Affinity concluded.

 

Which Trade Routes Will Influence The Tanker Market Moving Forward (10/09)

Tanker owners are looking for new trends, which will shape up freight rates, hopefully towards bouncing upwards. In its latest weekly report, shipbroker Gibson said that “in the tanker market, there are many factors not directly related to shipping but which could still have a major impact on shaping up both crude and product tanker flows. The prime example of that is the US shale oil revolution. The resulting surge in US crude production not only enabled a spectacular growth in short and long haul crude tanker trade but also supported an ongoing strength in seaborne exports of US clean products. Large scale pipeline infrastructure projects would be another good example. In Russia, a successful completion of the 1st stage of the East Siberia Pacific Ocean (ESPO) pipeline, including the link into China mainland, limited the export flow of Russian crude from the Baltic and Black Sea ports but at the same time boosted demand for Aframax tonnage in the Far East. Once the 2nd stage of the ESPO line is completed, due in 2020, this will translate into even more barrels being exported from the Russian port of Kozmino, located on the coast of the Sea of Japan. In contrast, a looming pipeline crunch in the US from the Permian basin to the US Gulf threatens to slow the growth in US crude exports in the short term. However, several pipeline projects are scheduled for completion in late 2019/early 2020; which, once online, are likely to offer a big boost to crude tanker trade out of the US”.

According to Gibson “changes in regional refining capacity is also a critical factor that should never be ignored. In the Middle East, Saudi Aramco aims to start its new 400,000 b/d Jizan refinery later this year, while in Kuwait a new 615,000 b/d Al-Zour plant is pencilled to come online in 2020. Once these projects are fully operational, product exports are expected to increase substantially, as they did back in 2015/16 when a number of new regional refineries came online. This, however, also poses a threat to the Middle East crude exports, if barrels are diverted from export markets into domestic refineries. Will this be the case? Refining capacity in Asia continues to grow, supporting incremental demand for crude both from the Middle East and from further afield. We also are seeing a trend of national oil companies (NOCs) looking at refining projects in other countries, trying to secure the market for their crude. Earlier this week, Reuters reported that Saudi Aramco plans to deliver in October the 1st crude oil cargo to its joint-refinery project (RAPID) with Petronas in Malaysia. RAPID will contain a 300,000 b/d refinery and a petrochemical complex, with refinery operations set to begin next year. According to the same source, Aramco will supply 50% of the refinery crude oil, with the option of increasing it to 70%. As the Middle East oil companies build their presence in the downstream sector overseas, this suggests that the negative impact on the regional crude exports, following new refinery start-ups, could be limited”.

“In contrast, the future trade dynamics are likely to be very different in West Africa, following the start-up of the massive 650,000 b/d Dangote Oil refinery in Nigeria. The refinery is officially planned to start operations in 2020; however, the latest Reuters report indicates that the project could be delayed until 2022. Once the refinery comes online, it will have double negative implications for the tanker market. Crude exports are likely to come under downward pressure and, as Nigeria is a large importer of products, these are also likely to decline. Of all the factors described above, the new refinery in West Africa represents perhaps the biggest threat to tanker trade. Nonetheless, as US crude exports are expected to continue to grow in the medium term, this will help to mitigate the threat to dirty trade, and possibly offset it completely. West African product flows are still likely to change dramatically. However, if the Dangote Oil refinery proves to be a success, could we also witness a change in direction of the trade, with the surplus of Nigerian products being exported both regionally and across the Atlantic?”, Gibson concluded.

 

Largest VLCC Growth in Decades a Major “Roadblock” in the Tanker Market’s Long-Term Recovery (04/09)

A few rays of hope can be found in the upcoming prospects of the tanker market, such as the positive impact of the coming 2020 low-sulphur marine fuel rule, which is expected to create new and lucrative trade routes. However, overall, long-term tanker earnings are predicted to be tempered by an overwhelming tonnage oversupply, as a result of heavy newbuilding ordering activity. In its latest analysis, shipbroker Charles R. Weber commented that “this month, for the first time since December 2015, all three crude tanker size classes have seen average earnings exceed levels observed during the same month a year earlier. Examining earnings in this way factors for the high degree of seasonality characteristic to the spot tanker market and thus could potentially mark an important turning point in the economic cycle.

According to CR Weber, “breaking the 32‐month long losing streak did not come easily. In December 2015, the VLCC, Suezmax and Aframax orderbooksstood, respectively, at 17%, 23% and 18% of their existing fleets at the time. As the onslaught of these deliveries continue to be worked through, crude tanker carrying capacity has expanded by 11%. Greater fleet growth levels would likely have been logged, were it not for an unexpected rise in demolition values that, against several months with earnings frequently below OPEX, hastened the exit of a number of older units that would likely have continued to trade otherwise. A surge in demand that commenced in May appears to be factoring heavily into the positive turn. US crude exports have been a key contributor thereof, lending fresh demand across the slate of crude tanker size classes and presenting an important ton‐mile multiplier given the medium/long‐haul and extra‐regional nature of US crude export cargoes. VLCCs, for instance, have observed a 478% YTD Y/Y increase in demand to service US crude exports, which factors heavily into an observed 7% YTD Y/Y ton‐mile demand growth. The growth appears to be incremental as well and whereas VLCC ton‐miles contracted by 4% y/y during 1Q18, they grew by 11% y/y during 2Q18 and are poised to observe a 15% y/y rate of growth during 3Q18. The rise of US exports has exerted similar influence on Suezmax and Aframax demand. These classes have observed y/y demand gains in the USG region of 254% and 80%, respectively”.

CR Weber added that “US crude exports were not expected to rise to the levels they have until the end of the decade, meaning that the degree of export growth being observed is, from the perspective of 2018 at least, very much a wildcard event. Other factors influencing the improving spot earnings include rising crude cargoes in key Aframax markets, including regions that service Russia’s seaborne crude supply, which has been rising in recent months as their commitment to the OPEC/Non‐OPEC supply curbs that commenced in January 2017 started to wane even ahead of the relaxing of curbs this past June. Moreover, Aframax demand for lightering activities to service US crude exports is helping to keep the class’ supply in check. As we explored in the Weber Market Vision Report on 8 August, despite a number of planned and proposed projects to enable greater direct USG‐area loadings of VLCCs and Suezmaxes, few of these are likely to be completed anytime soon”.
Where to from here?
According to the shipbroker, “the demand trends that have enabled the crude tanker market’s bounce from 1H18 lows are unlikely to evaporate anytime soon. US crude exports remain at directional strength, benefitting all three size classes. A continuation of this trend is expected in intermediate‐term, before US crude production and exports level off early during the next decade. With these cargoes being heavily oriented to extra‐regional destinations, we expect to see greater instances of supply disparities between regional markets, maintaining rate volatility amid greater competition between the regional marketsfor tonnage”.
Meanwhile, “in the run‐up to IMO 2020 sulfur regulations, fuel oil cargoes are expected to start migrating towards complex refineries that can reprocess it to yield higher‐end products, creating new trades. Simultaneously, demand may also be stimulated by the projected refinery uptake growth to meet greater distillate demand to ensure adequate supply ofsulfur‐content compliant fuels. This could also create a crude storage play opportunity during 2H19 by creating a steep contango curve – as well as enabling fuel oil storage demand in the period where bunker suppliers destock the grade to make way for compliant fuels. Nevertheless, significant challenges remain. In the VLCC space, rising Middle East OPEC crude supply could bode poorly for the class by reducing the volume of Asian crude imports sourced from distant locations in the Atlantic basin, thereby threatening ton‐miles. Meanwhile, with the VLCC orderbook remaining high with 16% of the current fleet on order and deliveries thereof heavily distributed to 2019, we expect that the VLCC fleet will grow by 7.3%, which would represent the largest growth rate in decades. For its part, the Suezmax class is projected to grow by a further 2.9% during 2019 – and as the class remains the most supply‐side challenged of its crude tanker peers, any further growth will be difficult for the market to absorb. These factors, among others, temper the extent of earnings improvement we expect during the balance of this decade”, CR Weber concluded.

 

Is NAFTA a “Good Deal” for Tanker Owners as Well? (03/09)

The trade war is a new reality with which the shipping industry will just have to live with as it seems. However it can also create opportunities, or not, depending on the shipping segment. In its latest weekly report, the London-based shipbroker Gibson attempts to gauge the effects of the recent NAFTA “good deal” on the tanker market as well.

According to Gibson, “trading to and from the United States has been fairly challenging all year, with the market showing some of the worst returns available to product tanker owners. Gasoline imports into the US Atlantic Coast have been effectively flat since 2015, offering no real support to the product tanker market. However, exports of gasoline, jet and diesel have shown some growth this year, up by 145,000 b/d vs. the same period of 2017. In part, this has been facilitated by higher refining runs, which have been particularly strong of late, averaging at 97.3% over the past four weeks, with output of gasoline, diesel and jet up 280,000 b/d year on year. Gasoline consumption growth in the US is also slowing as higher prices dent consumer demand. Recently the EIA signalled that gasoline consumption would be flat year on year, which could be supportive for gasoline exports, primarily from the US Gulf. However, the agency predicts that diesel and jet demand will rise by 200,000 b/d this year, which could have implications for export volumes, particularly as winter approaches. Distillate stocks have been building in recent months but are the lowest for this time of year since 2014. In short, lower stocks and higher demand could see the domestic market compete with exports”, said Gibson.

The shipbroker added that “export demand will of course remain but demand patterns may evolve, and Trump’s new Mexican friends could prove a threat to petroleum product exports. Both Mexico and Brazil have been working hard to raise refinery utilisation to reduce import demand. Initially, these efforts seemed to be working, with Mexican refinery output reaching a nine month high in April. However, since then, various outages and operational setbacks have seen utilisation fall in July to a nine month low. So far 2018 has seen Mexican refinery runs down by 125,000 b/d compared to 2017, despite the efforts made to boost domestic fuel production. At the time of writing, some reports have emerged of further operational issues at the 330,000 b/d Salina Cruz facility. Such frequent disruptions have allowed US refiners to increase exports to Mexico over the first five months by a substantial 249,000 b/d”.

Gibson said that “the Brazilians have also made a concerted effort to reduce import reliance; however, oil products production fell to 1.679 million b/d in Q1. And whilst more recent data is not yet available, the outage at the 415,000 b/d Replan refinery has created another setback. Despite lower runs, exports from the US to Brazil fell by 27,000 b/d between January and May. However, if the outage at Replan persists, this trend could soon reverse. In short, the US will remain a significant exporter of refined products and a notable importer of gasoline into the Atlantic Coast. In terms of product tanker demand, higher refining runs in Latin America remain a threat, whilst in the short term lower distillate stocks ahead of winter and pending maintenance could impact export volumes. However, by 2020 the US will be well positioned to supply compliant fuels to the world, which could open up new trading opportunities for product tankers in the region”

Meanwhile, in the crude tanker market this week, in the Middle East “reasonable VLCC activity through the week but never enough to challenge ongoing thick availability, preventing Owners from being able to force the market, and for the most part they had to fight a defensive action to protect the previous rate-range. Another solid week of action will be needed to make any material change. Suezmaxes pushed up a little to the East as Owners showed increasing preference for West runs, or just to ballast away from the area. 130,000mt by ws 80 East and to ws 27.5 to the West as it stands, and will probably continue to stand next week. Aframaxes slipped, as expected, to 80,000mt by ws 115 to Singapore, and could slip further if demand remains so modest over the coming week”, the shipbroker concluded.

 

A record poor tanker market with a growing fleet is prolonging the crisis (31/08)

Demand

BIMCO expected the crude oil tanker market to continue its struggle from 2017, but the magnitude of it has been staggering, as evidenced by the worst freight rates on record. This is particularly true for crude oil tankers, but the oil product tankers are now set for a loss-making year too.

By 24 August, we note that year-to-date average earnings for the Very Large Crude Carriers (VLCC), Suezmax and Aframax crude oil tankers stand at USD 6,797, USD 11,337 and USD 10,438 per day respectively.

For LR2 (AG-Japan), LR1 (AG-Japan), MR and handysize oil product tankers, year-to-date average earnings stand at USD 8,961, USD 6,965, USD 8,741 and USD 5,239 per day respectively. All are a long way below profitable levels.

Noting that liquidity in the time charter (T/C) market is limited, it is still striking that the T/C market has been upside-down for more than a year now. Normally, short-term T/C rates (6-12 months) are higher than long-term ones (3-5 years). In depressed markets, it’s the other way around.

During March and April, quotes on 3- and 5-year T/Cs for a VLCC dropped, from USD 27,500/29,500 per day to USD 24,000/25,500 per day. That followed the trend of the 1-year T/C rate that had been gradually sliding from USD 27,750 in November 2017 to USD 19,000 per day in June 2018. For an industry-average VLCC, BIMCO estimates that USD 23,700 per day is needed to cover operating and capital expenditures.

Growing Chinese crude oil imports (up 5.8% during the first half of 2018) improved crude oil tanker demand, but obviously not enough, as other elements are pulling the market in the opposing direction. It remains a fact, however, that global oil demand is growing constantly, and so is global tanker demand.

Fortunately, the introduction of a tariff on 10 million tonnes of crude oil exports from the US to China was avoided at the very last minute. If China decides to source its import demand for sweet crude by going to West Africa, shorter sailing distances will hurt earnings. BIMCO does not expect crude oil to re-enter the trade war after it has been removed. But a combined 2 million tonnes of refined oil products became a part of it in early August, when an exchange of already proposed tariffs affected various goods worth USD 16bn on both sides.

One of the more spectacular trades seen recently has been a couple of VLCCs shipping oil products from the Far East into Europe on their maiden voyage – quite hurtful for oil product tankers, but a sure sign of the horrible crude oil tanker markets.

Supply

The continued severity of the market conditions has made owners dig deep into the oversupply of capacity. BIMCO now expects 19m DWT of crude oil tanker capacity to be demolished – up from 13m DWT in May – and 2.5m DWT of oil product tanker capacity is to leave the fleet, up from 1.5m DWT in May.

During the first six months of 2018, 13.1m DWT of crude oil tanker capacity has been demolished, a level equal to the total for the preceding 40 months. A change in that trend now seems to have developed, however, as only one VLCC was broken up in July, and little more that 1m DWT was taken away in total. BIMCO expects that there will be a cooling in demolition activity in the final six months of 2018, as the market is likely to deliver somewhat higher freight rates on the back of increased demand in the second half of the year.

Although scrap steel prices are high right now, returning about USD 17m to a VLCC owner when scrapping, this isn’t the deciding factor – freight rates and earnings are.

The slowdown in demolition interest appeared among oil product tankers one month earlier, and no oil product tankers left the fleet in June. BIMCO expects to see the 2017 demolition total exceeded soon and that 2018 will reach a six-year-high level of oil product tanker demolitions, despite the pace of it slowing down recently. During the first seven months, 1.8m DWT of oil product tanker capacity has left the fleet.

Fleet growth year to date has been muted by the massive demolition activity. The crude oil tanker fleet was 0.2% smaller by early August than it was at the start of the year. The oil product tanker fleet has grown 1.7% in the first seven months of 2018.

Our fleet growth forecast for the full year of 2018 is at 0.8% for the crude oil sector and 2.4% for the oil products sector.

After a surprisingly high number of new orders emerged during the challenging first half of the year, there were no new orders for crude oil tankers in June. Looking at BIMCO’s delivery forecast, a halt in contracting is long overdue. It is already clear that the industry must keep demolition activity high well into 2019, to avoid a worsening of the fundamental balance.

For oil product tankers, the supply outlook is better; moreover, the ordering of newbuilds in 2018 has been quite low – at a level not offsetting a potential recovery in the market when demand improves.

Figures from early August prove that the fleet growth has slowed considerable over the past year:

Crude oil tanker sector growing by 0.7%.

Oil product tanker sector by 0.8%.

BIMCO members can find easy-to-use graphics on fleet development for all sectors here

Outlook

For steady and positive demand growth, you need to look east of Suez. Crude oil throughput in the eastern refineries is constantly positive and growing. If you look to the west of Suez (Atlantic Basin in graphics), it gets volatile and unstable. This reflects the ongoing multi-year shift that we are experiencing on a global scale, where oil demand growth is now dominated by Asia, whereas demand in the US and Europe is only growing slowly.

A short-term rate recovery is not expected, as it is ‘maintenance season’ for the global refining industry in September/October – mostly the part of it located in the OECD countries (mainly the US, Europe, Japan and South Korea) and Russia – as they repair and prepare the facilities for the winter specifications of the refined oil products.

There is anecdotal evidence that there may be a significant premium on long-term time charters for oil tankers with a scrubber installed onboard, compared to similar ships without it. Two VLCC newbuildings fitted with scrubbers are being fixed at USD 35,000 per day for three years, with delivery in 2019. Rates for non-scrubber-fitted ships are being quoted at USD 24,000 per day.

From an operator perspective, chartering in a ship with a scrubber installed onboard is a hedge against rising bunker fuel costs after 1 January 2020. From an owner perspective, chartering out a ship with a scrubber installed means a significant premium on the T/C rate, which, in turn, pays for the scrubber.

Overall, global oil demand remains healthy. The International Energy Agency (IEA) expects growth of 1.4m barells per day (bpd) in 2018 and 2019, down from 1.5m bpd in 2017. Asia will be driving two-thirds of the incremental volume growth, even though it only accounts for 27% of the total demand today.

During the second half of 2018, BIMCO expects freight rates to go up from the very low levels seen up until now. Seasonal demand should support the market in Q3 and, especially, in Q4. For crude oil tankers to really enjoy solid earnings, however, patience is required, as overcapacity is currently significant. The fundamental balance could worsen in 2019 if demand growth does not pick up, as the fleet could grow by 2.5% unless extensive demolition activity continues.

 

VLCC Oversupply Still Plaguing Market (28/08)

Despite the occasional bleep, the VLCC market remains in deep trouble for the weeks to come, with oversupply evident in key routes and regions. In its latest weekly report, shipbroker Charles R. Weber talked about “observed strengthening rates through much of the week as part of a delayed reaction to last week’s strong activity and narrowed Middle East availability surplus This trend kept with the trend of delayed reflection of fundamentals changes in sentiment. Indeed, demand this week declined 22% w/w to 32 fixtures while a long list of previously “hidden” positions suddenly appeared as available through the first decade of the September Middle East program. Whereas a week ago the first decade of the September program appeared poised to conclude with just nine surplus units, that number has now jumped to 17 units”, said the shipbroker.

According to CR Weber, “this represents the largest surplus observed since the first decade of the August program and compares with a surplus holding at 14 units during August’s final two decades. Although still comparatively low against the 1H18 average of 27 surplus units, it proved too large to justify the extent of rate gains observed this week and after peaking during the first half of the week at YTD highs on some routes, they have since eased slightly. The rise in availability correlates partly to a rise in Middle East crude supply in June. With greater cargoes being sourced from the Middle East for voyages to Asia, interest from Asian buyers in Atlantic basin crude eased, leading to shorter ton‐mile generation. Although the rise in Middle East supply was initially positive, by quickly absorbing more surplus units, we have maintained that the longer‐term impact would be negative. Adding to woes, before the June commencement of stronger Middle East supply, fixture demand for US crude exports surged in May and temporarily prompted some speculative ballasts from the Middle East. Those units, which loaded during the final week of May and during June, are also now appearing on Middle East positions”.

Meanwhile, “on a positive note, VLCC demand on both sides of the Atlantic basin strengthened this week. The West Africa market observed 10 fixtures, representing a one‐month high and a 67% w/w gain while the Atlantic Americas observed 7 fixtures, also a one‐ month high and more than double last week’s tally. The fresh improvement of demand here should help to improve trade fundamentals going forward. Meanwhile, more generally, global crude destocking in recent months is likely to see stronger crude purchasing materialize in the coming weeks and months as refiners, who are operating at extremely strong rates, seek replenishments. After this week’s late easing, stronger rate losses may elude charterers during the upcoming week. After the UK’s bank holiday Monday, a return of participants to trading on Tuesday could be accompanied by an influx of second‐decade September cargoes sufficient to keep sentiment from weakening, if temporarily”, said CR Weber.

“Rates in the West Africa Suezmax market traded within a narrow band this week, observing minor losses early on that were subsequently pared by the close of the week to conclude unchanged. The WAFR‐UKC route concludes at ws63.75. Elsewhere, stronger VLCC rates have lent minor support to Suezmaxes in the Middle East market, where the AG‐USG route (excluding Basrah heavy crane requirements) were up 2.5 points to ws30. In the Americas, surging Aframax rates and strengthening demand for US crude exports supported stronger Suezmax rates. Demand to service crude exports from the USG are on course for a 37% m/m gain. The USG‐UKC route added 4.5 points to conclude at ws60 while the USG‐SPORE route jumped $150k to $2.7m lump sum. The upside did not extend to intraregional voyages; the CBS‐USG route was unchanged at ws72.5 as Suezmaxes remained uncompetitive to their smaller counterpart on the route on a $/mt basis, even after this week’s gains for the smaller class are accounted for”, the shipbroker noted.

Finally, “the Caribbean Aframax market observed strong gains this week as fundamentals tightened on strong MTD US crude export fixture activity (see graph below) and a rebound in intraregional demand this week. With another week to go, Aframax demand for US crude exports during August already matches the prior monthly record high set in October ’17 and thus is likely to set a fresh record. Meanwhile, some units previously exited the region speculatively amid an earlier TCE disparity between the Americas and Europe. Rates on the CBS‐USG route jumped 47.5 points to ws150 on this basis, placing TCEs on the route up 226% w/w to ~$21,859/day. Owners are likely to remain bullish through at least the start of the upcoming week and, failing a sharp decline in demand, further rate gains are likely to materialize. A surge in demand ahead of the Labor Day weekend could well accelerate and extend the trend. Further forward, a fresh recent decline in rates in some European markets could influence rates in the Americas down as tonnage reorients to the regional earnings disparities – keeping in the way the “seesaw” affect has been working between the two regions for the past several weeks, “CR Weber concluded.

 

Tanker Market Could Face Added Pressure From US-China Trade Spat (27/08)

As if tanker owners didn’t have enough on their plate already, the US-China trade war is actively damaging one of the most lucrative tanker trades. As shipbroker Gibson commented in its latest weekly report, “for nearly two decades spectacular growth in Chinese crude imports has been the key driver behind rising crude tanker demand. Even in recent years shipments continued to increase at a very impressive rate, despite slowing economic growth, up on average by 0.85 million b/d per annum in 2016/17. Robust trade was supported by strong demand from the independent refiners, stockpiling into commercial and strategic inventories as well as the decline in domestic crude production. However, the dynamics could be changing. According to China’s General Administration of Customs, total crude imports increased year-on-year by 0.5 million b/d between January and July 2018, down notably from growth rates seen over the previous two years. The gains in seaborne trade have been even smaller due to more crude being imported from Russia via the spur from the ESPO pipeline into China’s mainland. Analysis of vessel tracking data by ClipperData suggests that the country’s seaborne intake of crude increased by a little over 0.3 million b/d so far this year, just over a third of the gain seen between January and July 2017”.

The London-based shipbroker said that “there are number of factors behind this slowing trend. Many Chinese refineries recently went through heavy seasonal maintenance, which temporarily reduced demand for crude. In terms of fundamentals, economic growth in China continues to slow, while there is also a much greater focus on environmental concerns and energy efficiency. The decline in China’s domestic crude production is also slowing. According to the IEA, output is projected to fall this year by just around 0.05 million b/d, versus 0.1 million b/d last year and nearly 0.3 million b/d in 2016. Finally, there also have been suggestions of less appetite for crude from China’s independent refiners, despite sizable increases in crude import quotas this year. Changes in tax system that were enforced since March mean that independent refiners are no longer able to avoid paying consumption tax on sales of refined products – a measure which previously boosted the refiners’ profitability”.

According to Gibson, “for the tanker markets, slowing growth in Chinese crude imports has been mitigated by rising tonne miles. Total long-haul trade from Latin/South America continues to increase, despite falling volumes from Venezuela, with more barrels being shipped from Brazil and Colombia. More US crude being imported has been an even bigger support factor. According to ClipperData, between January and July this year, US shipments (on a delivered basis) averaged close to 0.35 million b/d, up by approximately 0.225 million b/d compared to the corresponding period in 2017. However, the growing trade spat between US and China clearly threatens this trade, despite Beijing’s decision to drop crude from the list of the latest round of retaliatory tariffs. Unipec announced a suspension on US crude imports for loading in August and September, while there is also no visible interest from other Chinese players. Reuters reports that Unipec will buy some US crude for loading in October, although it is not yet clear whether October cargoes will be delivered into China or resold into other countries. Many fear that the removal of US crude from the tariff list as a temporary measure and could be used as a negotiating tactic. It takes over a month for a tanker to sail from the US Gulf to China and there is no guarantee that tariffs on crude will not be introduced during the voyage”.

“Although these developments appear negative for tankers, China will have to source similar barrels from elsewhere. West African, North Sea crude or similar quality barrels in the Mediterranean could be a good substitute; there is already an increase in interest observed. In addition, those unsold US barrels, destined for China, will have to find a new home elsewhere, both short haul and long haul. As such, the loss of the US-China crude trade will have limited, if any, impact on tanker demand. The bigger concern remains, however: a slowing growth in total crude imports into the country”, the shipbroker concluded.

 

OPEC: Tanker Market (20/08)

Dirty tanker spot freight rates mostly showed negative developments in July. The general sentiment in the tanker market remained weak, as per the usual trend during the summer months.

On average, dirty tanker freight rates were down by 1% in July from the previous month. VLCC and Aframax classes registered lower rates, while Suezmax average freight rates remained flat, maintaining the weak levels seen a month before. This was a continuation of the decline seen in the past few months, with no recovery witnessed in July amid falling rates on all reported routes. VLCC rates dropped by 6% as the market in the Middle East and West Africa was weak, affected mostly by the persisting tonnage availability. Suexmax spot freight rates showed no recovery, standing at WS61 points in July. Aframax freight rates were mixed, though the average rate showed a decline from the month before, suffering from a drop in rates in the Caribbean. In general, limited activities and a long positions list continue to drive the losses in the tanker market, where vessels mostly operate with earnings at near operational cost.

The clean tanker market showed weak sentiment on both directions of Suez, as thin tonnage demand prevented rates from registering gains. Clean tanker rates dropped by 1% on average from the previous month.

Spot fixtures

In July, OPEC spot fixtures increased by 0.32 mb/d, or 2.2%, compared with the previous month to stand at 14.82 mb/d. Global chartering activities worldwide showed increases from the previous month, mainly as fixtures from Middle East-to-East increased by 4.8% m-o-m and Middle East-to-West fixtures increased by 2.5% m-o-m to stand at 2.19 mb/d in July. Outside of the Middle East, fixtures were down from last month by 2.2%.

Sailings and arrivals

OPEC sailings increased by 0.46 mb/d, or 1.9%, in July from a month ago and by 0.85 mb/d from a year before. Sailings from the Middle East also went up from last month by 0.46 mb/d.

According to preliminary data, arrivals at ports in the main importing regions of North America and West Asia showed increases from a month earlier by 6.5% and 3.0%, respectively.

In contrast, vessel arrivals in Europe and the Far East declined from last month by 2.0% and 2.5%, respectively.

Dirty tanker freight rates

Very large crude carrier (VLCC)
Following the gains registered in June, VLCC freight rates dropped on average in July from the month before, down by 6% from the previous month, to stand at WS39 points.

VLCCs had a fair amount of activity at the beginning of July mainly in the Middle East, however tonnage built up, causing freight rates to soften. Moreover, limited tonnage demand in different areas such as the US Gulf Coast (USGC) and West Africa put further pressure on rates.

VLCC freight rates on different reported routes showed declines in July, despite ship owners’ constant attempts to increase freight rates even by a few points. However, the VLCC chartering market in July was not supported, as tonnage demand was reduced from Chinese charterers and the market remained oversupplied with ships. Thus, Middle East-to-East freight rates dropped by 4% m-o-m to stand at WS49 points in July. West Africa-to-East freight rates followed the same pattern, reflecting a similar drop of 3% m-o-m, to stand at WS50 points. Freight rates for tankers operating on the Middle East-to-West route also dropped by 10% from one month before.

VLCC freight rates stabilized at the end of the month as chartering requirements for August loadings were handled, showing healthy tonnage demand at that point. Nevertheless, no firming trend was detected as tonnage oversupply persisted in different areas. Furthermore, declining bunker prices had no impact on freight rates, as these were already close to operational cost.

Suezmax
Similar to what was seen in the VLCC sector, Suezmax spot freight rates were mostly weak in July, ending the month flat with an average of WS61 points.

In West Africa, the Suezmax chartering market was active, however freight rates remained broadly unchanged as a result of high tonnage availability. Spot freight rates for tankers operating on the West Africa-to-USGC route rose slightly by WS1 point to stand at WS66 points.

Spot freight rates for tankers operating on the Northwest Europe (NWE)-to-USGC route dropped by 2% m-o-m, to average WS56 points in July. A constant availability of ships continued to prevent increases in freight rates in the Black Sea, despite high loading requirements in the area.

In the Mediterranean, Suezmax freight rates registered no significant gains, despite attempts by ship owners to push for higher rates as the Aframax market in the Mediterranean firmed.

Aframax
Aframax freight rates were mixed in July, with spot freight rates on most reported routes showing increases from the previous month. Nevertheless, these gains were offset by a significant drop in rates seen in the Caribbean. On average, Aframax spot freight rates dropped by a slight WS1 point from the previous month to average WS102 points.

Generally, Aframax rates softened in the Caribbean gradually at the beginning of the month, following US holidays, as a build in tonnage and low inquiries together created further downward pressure. Aframax freight rates registered on the Caribbean-to-US East Coast (USEC) route dropped remarkably, down by WS40 points m-o-m, to average WS98 points in July.

Rates in the Baltics and North Sea fluctuated dramatically, increasing by almost WS20 points and showing a swing at the beginning of the month before dropping afterwards and gaining again rapidly as a result of high activity versus limited tonnage supply at that point.

The lifting of force majeure at some ports led to higher rates in the Mediterranean, providing an opportunity for increased cargo liftings and tonnage demand. Nevertheless, rates declined later in the same region as cancellations of some fixtures affected rates negatively.

Additionally, operational delays at Italian ports supported the increase in rates. Therefore, freight rates for tankers operating on the Mediterranean-to-NWE route and the Mediterranean-to-Mediterranean route rose by WS18 points and WS17 points on average to stand at WS104 points and WS111 points, respectively.

Clean tanker freight rates

Clean tanker market sentiment saw differing trends on different routes in July, though mostly remaining weak. On average, clean spot tanker freight rates dropped by 1% from the month before to stand at WS125 points, mostly due to a decline in average freight rates on the West of Suez route, which declined by 5% m-o-m. Overall, clean tanker developments in different regions were best described as uneventful, showing mostly no changes in rates.

Rates in the East increased marginally following flat developments at the beginning of the month, indicating the beginning of a positive trend as the Far East market showed some improvements in freight rates. Middle East-to-East spot freight rates rose by 1% in July over a month earlier to average WS118 points, while the rate for tankers trading on the Singapore-to-East route went up by 9% m-o-m to average WS135 points. Overall, clean tanker developments in different regions were best described as uneventful, showing mostly no changes in rates.

NWE-to-USEC spot freight rates dropped by 4% in July compared with the previous month to average WS105 points. The rates for the Mediterranean-to-Mediterranean and the Mediterranean-to-NWE routes declined, each dropping by WS7 points, to stand at WS128 points and WS138 points, respectively.

 

Greek owners most likely to be affected by US Sanctions on Iran (14/08)

A significant increase in trade volumes can be seen following on from the lifting of US sanctions in January 2016. A seasonal pattern can be observed in ton-mile exports post January 2016, with total volumes rising in the Autumn months in preparation for higher Winter demand. However, given the volatile nature of the Iran-US relations following on from president Donald Trump’s threats to amend and then kill the Iranian nuclear deal, it can be observed that there is a significant drop in total ton mile exports towards the end of 2017, below that of the same period in the previous year.

Within 2018, we can see that the seasonality pattern is not repeated and Iranian total ton-miles exports reach a peak by May 2018 in line with President Trump announcing his decision to cease the participation of the USA in the Iran deal and to begin re-imposing sanctions following a wind-down period. This may indicate the market is anticipating significant deterioration ahead, which falls in line with the ending of the 90 days grace period that expired on 6th August 2018 and the upcoming November deadline by which time US sanctions would apply to Iranian ports, shipping and energy sectors, as well as the provision of financial services, including insurance.

The largest export volumes from Iran have consistently been going to China, yet a significant drop off can be observed in December 2017, despite this Chinese imports rebounded thereafter and have been largely stable which falls in line with China’s declaration that it will ignore US sanctions and continue doing business with Iran.

Greek owners still dominate exports, with 81 Greek tankers moving Iranian exports since 1st January 2018. Nonetheless the Iranian owner NITC supplies the most tonnage for Iranian exports for now, this is likely to drop off after the last grace period ends in early November this year. The draw of higher freight premiums for Iranian business appears to be quite attractive thus far, particularly in relation to more conventional voyages out of the Middle East. However, it remains to be seen how much risk appetite remains as the sanction regime picks up speed midway through the fourth quarter of this year.

 

Tanker Market Faces Further Headwinds As Trade War is in Full Swing (11/08)

A shift of tectonic proportions could be underway in crude and LNG trading, bringing equally big shifts in ton-mile demand for tankers. In its latest weekly report, Allied Shipbroking said that “with the “Trade war” tensions between the US and China still ongoing and seemingly looking to be escalating over the past week, 4Q2018 prospects for the tanker market have taken a serious hit. At the end of last week China’s state oil major announced that its trading arm had suspended oil imports from the United States due to the ongoing trade dispute between the two countries. Although for the time being this seems to be a temporary halt, the indications are for a complete reversal of the trend we had been following since the start of the year.

According to George Lazaridis, Allied’s Head of Research & Valuations, “with China having been the largest buyer of U.S. oil and with its trading volume having been initially expected to triple this year, the overall expectation was for a strong net gain in tonne-miles to emerge during the course of the year and for this to help pull in a fair amount of the excess tonnage that is currently being witnessed in the crude oil tanker market. In the wake of these new developments however it looks as though we may never see this positive trend materialize, while given the overall geopolitical tensions also being noted between the US and Iran, it is no surprise that the International Energy Agency issued a warning last month that global spare oil production capacity was at risk of being “stretched to the limit”.

Lazaridis added that “all this can be seen as good news for OPEC, which has been trying to gain an increased share of the market over the past couple of months, while hoping to do so without underpinning oil prices by an excessive amount. However, when it comes to the global trade of crude oil and the overall demand for tanker tonnage, these factors play as a significant dampener and essentially prolong the excessive glut in tonnage supply that has been witnessed during the past couple of years. At the same time, this negative trend may well be reversed to some extent, as expectations are for OPEC members and Russia to further intensify efforts in increasing the production volumes in order to meet the increased gap that will be left in the wake of all this”.

Allied’s analyst noted that “in the short run such targets will be hard to meet, however given the upward pressure being seen in the price of crude, we should start to see a gradual increase develop in the overall production capacity held. Not that this will prove to be an easy feat to achieve given that OPECs largest supplier and the country with the biggest excess production capacity, namely Saudi Arabia, is already finding it difficult to keep up with its pledged production increases as pointed by the slightly softer figures it quoted for the month of July. Even with China switching over to OPEC sources to cover the volumes they would have imported from the United States, the tonne-mile effect would not be covered”.

“While all the above does paint a fairly bleak picture, it does still seem that the crude oil tanker market should show an overall improvement over the final months of the year. The considerably slower growth development noted in the fleet has helped alleviate conditions, while the continued ship recycling activity noted in this sector coupled by the much more manageably newbuilding delivery schedule should help bring back some sort of balance in the market. Taking on top of this the fact that new regulations have essential put a break on new orders and have clouded the operational viability of older tonnage and you have the potential for a faster paced market correction in the making. As hopeful as this last point may sound, it does not take away from the fact that things looked to be much brighter at the start of the year compared to where we find ourselves today”, Lazaridis concluded.

 

McQuilling Services Projects Lower VLCC Demand Growth in 2018 (10/08)

McQuilling Services is pleased to announce the release of the 2018 Mid-Year Tanker Market Outlook Update.

The Mid-Year Tanker Market Outlook Update provides an outlook on the global tanker market in the context of global economic growth and oil fundamentals influencing tanker demand and vessel supply. The outlook includes a view on future asset values, time charter rates, market freight rates and TCE revenues for 23 major tanker trades and four triangulated routes across eight vessel segments for the second half of 2018 through the remaining four years of the forecast period 2018-2022.

2018 Mid-Year Tanker Market Outlook Update

Global oil demand is expected to grow 1.5% in 2018 to over 99 million b/d with significant gains projected in the middle-light end of the barrel. The longer-term outlook calls for 1.1% gains per annum through 2022 amid strength in jet fuel, LPG and naphtha.

Relatively flat crude supply growth in 2017 is likely to be followed with 1.2 million b/d of growth this year amid a significant expansion North American output. Come next year, additional crude supply in the Middle East is likely to stem from OPEC producers (ex-Iran), pushing global supply growth to 2.0 million b/d in 2019. Global crude oil supply growth is projected to add over 5.3 million b/d through 2022 with added support observed from Russia and Brazil, while Venezuela will remain pressured.

Global crude pricing benchmarks will face pressure next year with Brent expected to fall from an average US $72/bbl this year to US $70/bbl in 2019. On this basis, we expect global HSFO pricing to average US $386/mt this year and fall to US $345/mt the following year considering demand side impacts from upcoming global sulphur regulations (testing, inventory builds). Floating storage for fuel oil is likely to rise going forward, while excess Iranian crude will also likely be stored on floating tankers.

Crude and residuals transport demand is expected to total just over 10.8 trillion ton-miles in 2018, the highest recorded ton-mile demand. On average, mileage transited per ton by DPP tankers in 2017 measured 4,608 and thus far in 2018, we record similar levels (4,601). While mileage remains stable, actual transported volumes is showing a 1.5% rise in 2018 at just below 2.3 billion tons of crude and residual fuel loaded on tankers as crude intake at refineries is projected to reach 82.9 million b/d, up about 1 million b/d year-on-year.

Total VLCC demand in 2017 amounted to about 6.6 trillion ton-miles, up 5.5% from 2016 as the growth of Atlantic Basin exports offset stagnating demand from the Middle East to the Far East. In 2018, we project slightly lower growth of 4.6%, following a 2H resurgence of Middle East crude exports amid a shift in the OPEC compliance accord. The US will continue to add ton-mile demand for VLCCs, particularly if logistical infrastructure improves as crude supply rises. We estimate that US Gulf flows to the Far East will expand by 9.7% per annum through 2022 as the latter’s crude deficit expands by 1.8 million b/d over this period, although short-term pressure will likely stem from recent US-China trade disputes.

The future situation is less certain for Iran with the current US administration’s decision to re-impose sanctions. During the previous Iranian sanctions period, we identified OECD Asia and Europe as the likeliest to reduce or eliminate Iranian imports with up to 955,000 b/d at risk. Historical observations of cross-over between Iran and other Middle East producers is well established with Iraq and Saudi Arabia, projected to absorb Iran’s lost exports, particularly to Europe. Overall, our analysis of these fundamentals shows a 1.0% increase in the Middle East > Southern Europe Suezmax trade in 2018.

LR2 demand is projected to increase in 2018 by 1.1%, despite a relatively strong 3.1% increase in volumes. The average mileage for LR tankers has been steadily declining as the refinery configuration mismatch with product demand in key regions has been mitigated through expanding capacity in the latter. In 2018, the MR2 sector is expected to rise by 4.1% versus year-ago levels as the growth in US Gulf Coast exports to West Coast South America outpaces the declines observed in flows to East Coast South America, although this is projected to stabilize in 2019.

In 2018 and 2019, we project the DPP fleet to grow as a whole by 2.9% and 2.0% on an average inventory basis, when measured by absolute vessel count. For the VLCC sector, we anticipate average inventory growth to slow to an average of just 1.0% in the 2021/22 timeframe, while for the Suezmax and Aframax segments, an average of under 1.5% is projected from 2019-2022. Overall, CPP net fleet growth is projected to average 0.4% over the next two years and only 1.1% over the full five year projection period, although the5.5% annualized growth in the chemical fleet must be considered.

Newbuilding prices in 2018 are projected to increase 4.8% from 2017 levels, in-line with our January projections. Contract values are less sensitive to the prevailing earnings environment despite our call for time charter rates to decline in 2018. In 2019, we project VLCC contract values basis Korea/Japan to average US $90.8 million, while Suezmax orders are forecast to average US $61.3 million. On average, we are projecting a 3.4% increase year-on-year in DPP newbuilding values for 2019.

Freight rates for DPP tankers are projected to remain weak through 2019 due to supply side pressures. We forecast TD3C to average WS 47 in 2019 (2018 flat rate basis), before climbing to WS 54 in 2020 and WS 68 in 2022. On a TCE basis, our projection of bunker prices shows that TD3C will average US $16,100/day in 2019, falling to US $8,600/day in 2020 on the expectation of higher low sulphur bunker prices.

Freight rates for CPP tankers are projected to improve through 2020, with potentially steep upward support envisioned in 2019 amid a favorable net fleet growth situation. We project TC1 and TC5 to average WS 105 and WS 120 in 2019, respectively, with round-trip TCEs coming in at US $12,500/day and US $10,300/day, respectively, while a more favorable scenario is projected using triangulated routes for these tankers, up 28% and 44% for the LR2’s and LR1’s, respectively. For the MRs, the US Gulf >Caribbean trade is expected to average US $470,000 per voyage next year or US $15,700/day. On the benchmark TC2 voyage, our WS rate forecasts shows WS 140 for 2019, peaking at WS 147 in 2020 before trending to WS 146 in the final two years of the forecast.

 

VLCC Fixtures in the Middle East Pick Up (07/08)

Cargo supply for VLCC tonnage in the Middle East picked up considerably during the course of the past week. In its latest weekly report, shipbroker Charles R. Weber said that “rates in the VLCC market extended gains this week on sustained demand strength, which continues to moderate the extent of oversupply, allowing owners to command incrementally stronger rates. Lower coverage of cargo demand under COAs in the Middle East market implied a net gain in demand for spot units on a w/w basis even as total cargoes eased”.

According to CR Weber, “a total of 29 fixtures were reported, inclusive of 5 COA fixtures whereas last week 21 fixtures were concluded, including 7 COA fixtures. Demand in the West Africa market eased to five fixtures this week, though this came on the back of two consecutive weeks of very strong fixture activity. The Atlantic Americas saw demand ease after the recent regional demand surge; a total of five fixtures were reported, off four w/w. Surplus capacity has continued to ease as charterers progress in the August Middle East program and the month could potentially conclude with the lowest number of surplus units in 16 months. The July program concluded with 27 uncovered units while the first decade of the August program saw the number decline to 18 units. The second decade is now projected to conclude with 14 units and the final decade is poised for a further narrowing that could see the month conclude with 12 units”.

In its report, CR Weber added that “so far, rate gains have been moderate and hard‐earned but if the August program does indeed conclude with 12 units, we expect that the subsequent progression into the start of the September program will usher more concerted gains, in line with the delayed and exponential nature of the spot tanker market. In the Middle, rates on the AG‐China route concluded unchanged at ws55, having dipped to ws52.5 earlier in the week. Corresponding TCEs concluded up 7% on softer bunker prices at ~$20,080/day. Rates on the AG‐USG c/c route concluded up by four points to ws25. Triangulated Westbound trade earnings soared 44% to ~$25,299/day on stronger rates on both constituent routes. In the Atlantic Basin, rates in the West Africa market observed outsized gains as the usual lag behind the Middle East market meant that the region was in catchup mode this week. The WAFR‐CHINA route rose by 3.5 points to conclude at ws56. Corresponding TCEs rose 22% to ~$22,790/day. Rates in the Atlantic Americas remained firm on recent demand strength. The USG‐SPORE route added $400k to conclude at $4.0m lump sum”, the shipbroker noted.

In other tanker classes, in the Suezmax, “fixture activity in the West Africa Suezmax market cooled this week after two months of relative strength as charterers progressed into an August program with markedly less cargo availability. This comes after VLCCs, which fix further in advance of loading dates, busied to a two‐month high during the August program. Suezmax fixtures in the region this week tallied down 38% this week to just 8 – representing a nine‐week low. Rates on the WAFR‐UKC route concluded off one point to ws69. Rates in the Caribbean market were mixed with the CBS‐USG route unchanged at 150 x ws70 and the USG‐SPORE route unchanged at $2.40m lump sum, while the USG‐UKC route added 2.5 points to conclude at ws55”.

In the Aframaxes, “the Caribbean Aframax was stronger this week on robust demand throughout the wider Caribbean/USG region. As this quickly drew down vessel availability, rates firmed markedly through the final half of the week. The CBS‐USG route concluded with a 30‐point gain to ws125. The vast majority of this week’s fixtures were for intraregional voyages – and many of these were short‐haul ECMex‐USG voyages, which implies that any current supply constraints could ease in the coming week, and arrest the present rally”, CR Weber concluded.

 

Tankers: Higher Bunker Costs Will Lead to Increased WS100 of up to 17% (06/08)

With bunker costs now at an average of 30% higher compared to the comparative period of the past year, it’s inevitable that Worldscale Rates (WS), the standard used to determine tanker freight rates in benchmark routes, is bound to shift this year. In its latest weekly report, shipbroker Gibson noted that “the concept of Worldscale is not an easy principle to grasp, particularly for those outside the tanker industry. The task gets even more complicated as Worldscale flat rates are reset at the start of each year due to fluctuations in international bunker prices, exchange rates and port costs. On long haul routes, bunkers form the most significant component of all voyage costs and as such, major fluctuations in bunker prices could lead to a sizable change in WS flat rates (WS100). The picture is somewhat different for the short haul voyages. The shorter the distance, the less important the volatility in oil and bunker prices is; equally, this also means increased significance of changes in exchange rates, as this affects the USD equivalent of total port expenditure. For example, on the benchmark Aframax trade from Ceyhan to Lavera (TD19) port expenses last year accounted for just over 50% of total voyage expenditure”.

According to Gibson “the upward trend in oil prices has continued since last year, with international bunker prices firming by around $120/tonne since September 2017. Robust oil demand, declining crude inventories, an ongoing fall in Venezuelan crude production and concerns about future direction in Iranian crude exports all contributed to firmer oil prices, despite spectacular gains in US production and the recent pledge by OPEC and a number of non-OPEC countries to return their combined output to levels initially agreed in late 2016”.

The shipbroker added that “the bunker component that goes into the flat rate formula for next year is based on prices between October 2017 and September 2018. As such, we already have the majority of the data that will go into the 2019 calculations. Taking into account the actual bunker assessments since October 2017 and the latest bunker forward curve, international bunker prices (that will be used to set 2019 Worldscale flat rates) are expected to be around 30% higher compared to the corresponding period a year earlier. This suggests that WS100 in 2019 will increase by around 15-17% on long haul routes and by 9-13% on short haul trades. These changes will be in essence cosmetic, as increases in flat rates will be compensated by the corresponding decline in WS spot rates, without any effect on actual $/tonne costs. However, the picture for the actual freight costs could be quite different from the 1st of January 2020, when the global sulphur cap on marine bunker fuels goes into effect”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson noted that “VLCC Owners were blessed with an upturn in interest for modern units predominantly destined for China. Such persistent interest has helped Owners push levels on to 270,000mt x ws 54 being last done, but there is every likelihood that further gains will be realised as Charterers continue to pursue modern tonnage and availability diminishes. Voyages West also took a severe turn upwards, as the majority of Owners preferred to stay in the East, enabling Owners that would consider a Western voyage to push levels on to 280,000mt x ws 28 via the Cape. An active week for Suezmaxes and with a plentiful tonnage list, Charterers found the task easy in the early part of the week to find Owners willing to repeat last done of 140,000mt x ws 27.5 for European discharge. As the week has progressed, Owners showed some resistance and pushed rates closer to ws 30 and 130,000mt x ws 70 for Eastern destinations. Aframax rates in the East have been on the rise this week with 80,000mt x ws 120 on subjects for a Red Sea/East run. The Indonesian region is active, tight for tonnage and bunker prices are continuingly creeping up. Owners ideas for AGulf/East rates are also inching up. Fresh tests are needed, but AGulf/East is now close to 80,000mt by ws 102.50 level with further gains for owners on the horizon for next week”, the shipbroker said.

 

Tanker Market Could Rebound on IMO 2020 Rule (04/08)

By now, it’s no secret that the tanker market is in dire straits for quite some time. However, according to Teekay, an unlikely “knight in shining armour” could come in the form of the IMO 2020 rule, regarding the use of low-sulphur fuels. In its market outlook, the shipowner said that “looking further ahead, the Company believes the new IMO regulations on sulphur content in bunker fuels due to come into force on January 1, 2020, could be positive for tanker demand. Some of the potential impacts that would benefit the tanker market include an increase in crude tanker trade due to increased refinery utilization and throughput in order to produce more low-sulphur fuels; an increase in clean tanker trade due to the increased production of low-sulphur fuel and the need to deliver these fuels to global bunker markets; and floating storage demand for both clean products (building inventories of low-sulphur fuel prior to 2020) and dirty products (a need to store excess fuel oil post-2020)”.

In the meantime though, things are still pretty grim. “Crude tanker rates remained at cyclical lows in the second quarter of 2018 due to continued OPEC supply cuts and a further drawdown in global oil inventories. OPEC crude oil supply fell to 31.6 million barrels per day (mb/d) in April 2018, the lowest level in over three years. The decline in OPEC supply was due to both high compliance with crude oil supply cuts and plummeting output from Venezuela, where supply is at the lowest level since the early 1950s. Firm oil demand, coupled with OPEC supply cuts, resulted in a further decline in global oil inventories during the second quarter of 2018, with OECD inventories falling below the five-year average for the first time since 2014. The large drawdown of global oil inventories seen over the past 18 months has been negative for crude tankers, as it has reduced import demand”, Teekay said.

The shipowner added that “although the tanker market has endured a very weak first half of the year, the Company remains encouraged by underlying tanker market fundamentals. On the fleet supply side, the global tanker fleet experienced virtually zero net fleet growth in the first six months of 2018. A total of 15.7 million deadweight tonnes (mdwt) of vessels were removed from the fleet in the first half of 2018 while 15.8 mdwt of newbuildings entered the fleet. Looking ahead, the Company expects that fleet growth in the remainder of 2018 will remain low due to elevated scrapping levels and a shrinking orderbook for mid-size tankers. The Company is now forecasting approximately 2.5 percent net Suzemax fleet growth and 1.5 percent net Aframax/Long Range 2 (LR2) fleet growth in 2018 and approximately 1.5 percent net fleet growth in both fleets during 2019”.

Meanwhile, according to Teekay “global oil demand remains firm with forecast growth of 1.6 mb/d in 2018 and a further 1.5 mb/d in 2019 (average of IEA, EIA and OPEC forecasts). In response to this strong demand, and given that oil inventories have now fallen below five-year average levels, OPEC recently announced that it will increase oil production in order to keep the markets adequately supplied to prevent oil prices from rising too high. OPEC’s intention is to return to 100 percent compliance with production cuts, having been well above 100 percent through the first six months of the year. This implies an increase in OPEC crude oil production of up to 1 mb/d from current levels. An increase in OPEC oil production through the second half of the year would be positive for tanker demand, although uncertainty remains over the impact of a potential decline in Iranian exports due to U.S. sanctions, which could offset some of these gains”.

“In summary, the tanker market has gone through a period of very weak freight rates during the first half of 2018, due primarily to OPEC supply cuts and a drawdown in global oil inventories. However, the Company believes that an inflection point will be reached later in 2018 due to improving demand fundamentals and slow fleet supply growth. This is expected to lead to an improved tanker market, further boosted by positive demand developments ahead of the new IMO fuel regulations in 2020”, Teekay concluded.

 

Tankers: Will Canada Impact the Market (30/07)

With the crude tanker market facing oversupply issues, could a respite come from Canada? In its latest weekly report, shipbroker Gibson said that “the Federal Government in Ottawa very much has it’s back against the wall in trying to establish viable long-term security for Canada’s crude oil exports. Canada often falls under the tanker market radar because the majority of their exports go directly into the US. But Canada, the world’s 6th largest crude producer has long desired access to markets beyond the US, especially now it is presently staring down the barrel of the potential threat of US trade tariffs. Similar to the current tariff spat with China, the US last month moved ahead in placing restrictions on aluminum and steel imports from Canada. Relations between Washington and Ottawa have been strained since their first official meeting of the two north American leaders in Washington last year. That meeting dealt another blow to the North American Free Trade Agreement (NAFTA), which president Trump believes has harmed the US economically. The oil market has so far avoided the tariff conflict other than the threat by China to stop taking US oil production. Canada, in contrast, doesn’t have the luxury of being able to use oil as a bargaining tool. The country needs to keep the US ‘on side’ in the absence of any natural seaborne outlet, should the US impose tariffs. However, because of the ongoing economic crisis in Venezuela, and as a consequence the plummeting output, US refiners may turn to Canada’s Alberta oil sands as an ideal substitute as the grades are similar”.

According to the shipbroker, “of course, the Ottawa government also needs to seek alternative outlets for its long-term exports. This has been a persistent problem for successive Canadian governments and is unlikely to disappear anytime soon. This weekend the Federal Government looks set to become the official owner of the Trans Mountain pipeline expansion project after failing to find a private sector buyer. Since stopping construction work in April, Kinder Morgan had been working with the government to identify a buyer to ensure the project’s survival. Failure to find one means that the assets will be purchased by the government for C$4.5 billion, which excludes further construction costs. The extended pipeline project was intended to increase the capacity of the existing line from 300,000 to 890,000 b/d and run from Edmonton (Alberta) to Burnaby terminal (Vancouver), effectively providing increased export opportunities for Aframax tankers into the Pacific Ocean. From the very beginning the whole project has been blighted by objectors blocking every move by current owners Kinder Morgan”, Gibson said.

“One of the first decisions taken by president Trump, when he entered the White House, was to remove any government objections to the expansion of the Keystone XL pipeline, which would allow a new spur to carry an additional 830,000 b/d from Alberta to Nebraska. This decision also supported the president’s ‘America First’ policy, with the prospect of more jobs for Americans using American steel for pipework construction. So, the likelihood of using oil tariffs as a bargaining tool against Canada seems unlikely as this could end with the loss of American jobs on the project. Canadian output is expected to hit around 5.5 million b/d by 2030 (currently just under 4 million b/d). Also, Canadian heavy crude trades at a discount to West Texas Intermediate, which provides another good reason why crude will be exempt from any tariff war as both parties have more to gain from the current arrangements. Relations between the US and Canada may be a little strained at the moment; yet, Canada has a huge advantage over other potential providers not just through location and infrastructure but also the political stability of an old and trusted trading partner”, Gibson concluded.

 

New Fuel Directives and the Tanker Market (28/07)

The tanker market is reeling under the pressure of changing crude trade flows and tonnage oversupply, but could soon be faced with yet another peril. In its latest weekly report, shipbroker Intermodal noted that “we are now into the second half of 2018, which so far has not been a fruitful year for tankers. With 2020 quickly approaching we need to consider the implications arising from the new fuel directives. 2020 seems to be the year that there will be a noticeable increase in the cost of moving cargo, with the forces driving costs upwards being either scrubbers and/or the increased demand for cleaner fuels. The need for cleaner fuels will not only boost demand for product tankers though. Given the much higher crude oil quantities the production of these cleaner fuels requires compared to HFO, a boost in crude oil demand and a consequent support on crude tanker freight rates appears to also be in the cards”.

According to Mr. Dimitris Kourtesis, Tanker Chartering Broker with Intermodal, “the increase in fuel costs will definitely increase revenues but not profits. Therefore small owners with older, less efficient units, not capable of installing scrubbers, will be forced to either merge with larger companies, who have the cash flow to support financing, or in some cases will have to sell/scrap and exit the industry. This filtering process will separate companies that managed to evolve and endure through the cycle and concurrently will correct the oversupply of tonnage, which drives rates in some cases well below their operating expenses today”.

Kourtesis added that “vessels equipped with scrubbers or eco units will have a competitive advantage and owners will be able to fix periods at levels including a premium, as charterers will prefer to charter compliant and fuel efficient units. The market right now for a 1 year time charter, medium range non eco / non scrubber equipped tanker trading in clean petroleum products is around USD 13,000 per day. On the other hand, an eco/scrubber equipped unit would get approximately USD 14,500 – 15,000 per day for the same period. We can identify that the difference of USD 1,500 – 2,000 per day is the premium charterers are paying in order to be 2020 compliant and have efficient units under their time charter”.

According to the broker, “apart from Ship owners/operators and charterers, it’s also quite interesting to see how modern refineries are getting prepared for these changes. According to HSBC’s research on IMO 2020, four of the most technically advanced refineries, S-oil, SK Innovation, Reliance Industries and Repsol are further upgrading and investing in their plants. They target to eliminate their HFO production by early to mid-2020. Specifically, SKI will focus on refining only very low sulphur fuel oil (VLSFO). The goal of these refineries is to find themselves in a position where, come 2020, they have substantially decreased – or even better entirely eliminated – the production of HFO”.

“Mr. T. Veniamis on behalf of the Union of Greek Ship Owners, stated that Greek ship owners are working hard to comply with the 2020 requirements (0.5% sulfur cap). He also stressed the importance that these cleaner fuels are – aside from compliant – also safe for both the crew and the ship itself. To conclude, the general sentiment particularly for Owners with units up to MR size without scrubbers, is to patiently wait and plan day by day, as the investment of installing scrubbers on older units may not make financial sense given today’s fundamentals”, he concluded.

 

Tankers Could be in for some Respite Soon (27/07)

The tanker market could be on the verge of receiving some relief in the coming weeks. In its latest weekly report, shipbroker Allied Shipbroking said that “despite the fact that the tanker market still seems to be in the midst of a perfect storm, there are still strong indicators that better sailing days lay ahead. In the year to date earnings have followed much in line with the troubled levels that were being noted a year prior. The main difference was that this year we were starting to get “good vibes” as to the prospects of both trade and fleet development moving forward. In terms of trade, the steps that were slowly being taken by OPEC and Russia, namely to ramp up their production levels, were already starting to pay dividends on some routes”.

According to Allied’s Head of Research & Valuations, George Lazaridis, “at the same time the Fracking revolution in the US has already helped shift trade patterns in such a way that each extra tonne of crude oil being shipped on average adds for considerably increase in tone-mile against what it would be adding a couple of years back. Given that most of the foreseeable consumption growth is seemingly being generated from Far Eastern economies, the significance of this latter point gains further traction and weighting when looking at expectations of how trade will evolve moving forward. Just to put a few figures to mind, the Asian Pacific and African regions have shown a 31.1% and 32.1% increase in crude oil consumption over the past decade according to the latest figures provided by BP’s statistical review, while in comparison Europe and North America have shown a decrease of 9.1% and 5.3% during the same time frame. In the case of the Asian Pacific region this growth rate is ever more significant given that the region now holds a 35.6% share of global crude oil consumption (Africa on the other hand still takes up a mere 4.2%) marking it close to on par with the combined share of 39.8% taken up by Europe and North America”.

Lazaridis added that “the trend therefore seems to be ever more Eastbound for trade flow in this sector, while given that the US is now being poised as becoming a strong export player, the recent trend noted in terms of tonne-mile increases, is likely to further bolster over the coming years. On the other side of the equation, we had been witnessing a relative improvement in the overall crude oil tanker fleet development over the past 6 months. The total fleet of crude oil tankers has decreased by around 0.4% during the first 6 months of the year, mainly thanks to the extensive shiprecycling activity undertaken and the relatively “soft” newbuilding delivery schedule that was at hand. With this trend likely set to continue on for at least the near-term, especially in the case of newbuilding deliveries where things have eased off further, the freight market should find a relative balance even under the pessimistic scenario that we see a minimal growth rate emerge in terms of trade. Given that there are still a fair number of indicators pointing to an improvement in trade volumes for the near term, there should in theory be reasonable room for a fair spike in freight rates to take place in the final quarter of the year”.

“Granted that the recent trade disputes that have arisen between the US and China have dampened hopes by a certain degree, but the overall trend is still there and given that OPEC and Russia are still looking to be committed to their goal of increasing their production levels, this should help generate an ever-increasing flow of crude to the East. At the same time, it is important to take note that there still seems to be a wave of new refinery capacity set to come online in China (Asia’s largest consumer) while it is important to note that the countries oil refinery throughput had risen by 8.2% y-o-y in May”, Allied’s analyst concluded.

 

Tankers: Is There Hope from Brazil (24/07)

A potential recovery of Brazil’s crude exports could soon offer newfound hope for tanker owners. In its latest weekly report, shipbroker Gibson said that “for some time now, Brazil has been a major source of demand for the tanker markets, both from a crude export perspective and as an outlet for refined products (notably from the US). It’s fair to say that Latin America’s largest economy has had a pretty tough ride in recent years, having to contend with the oil price collapse and ‘car wash’ scandal. Things are, however, now looking better. Upstream, the nation has a continuous pipeline of new offshore oil projects scheduled to come online, whilst downstream, Petrobras is edging closer to achieving the foreign investment necessary to finish its stalled refining projects”.

According to the London-based shipbroker, “both upstream and downstream developments will have far reaching implications for the tanker sector. On the crude side, the main positive demand driver is that the growth in crude production is projected to accelerate, at least in the short term. However, so far in 2018, production growth has failed to meet expectations. Accelerating declines in mature fields have seen production in the Campos basin fall to a 17 year low according to a recent Reuters report. These declines have, to a certain extent, masked output increases from new projects, primarily in the Santos basin. Overall, slower production growth, field maintenance and mature field declines have seen crude exports running 300-350,000 b/d below 2017 levels over the first six months of year. Nevertheless, new project start-ups are expected to offset declines from mature fields in the coming years, with higher growth expected over the second half of 2018 and beyond. Recent IEA data suggests that Brazilian crude production will grow by nearly 900,000 b/d between 2018-2023. On the face of it, positive for crude exports from the country”.

Gibson said that “in recent months, utilisation of existing refining capacity also appears to be on the up. These higher refining runs have restricted crude exports, whilst at the same time negatively impacting product trades. Petrobras reported refined products output of 1.679 million b/d in Q1 2018, the lowest level since at least 2007. However, unofficial data suggests runs may have risen by 200,000 b/d since then, assuming a utilisation rate of 85%. Higher oil prices have forced the government to introduce fuel subsidies, making it more difficult for traders to import refined products, such as gasoline and diesel, into the country. This has of course negatively impacted the product tanker market, most notably those vessels loading in the US Gulf. The lack of export demand has been accentuated by similar developments in Mexico. Despite this, future downstream capacity additions in Brazil remain uncertain. Most newrefining projects in Brazil have failed to materialise. Petrobras has halted work at its 150,000 b/d Comperj plant, whilst the 130,000 b/d expansion at Abreu e Lima has also stalled. The company has been courting investors to assist in the commissioning of these plants, but even so, it is likely to be a number of years before any major capacity additions come online in the country”.

“To summarise, Brazilian crude exports are likely to recover from the lows seen over the first half of this year, as refining runs stabilise, oil field maintenance concludes and new production comes online. This will of course be positive for crude tanker demand; however, export growth could eventually be limited by refining capacity additions, if and when, these projects are commissioned. On the clean tanker side, much depends on whether higher refining runs can be maintained and whether the government continues to ‘actively’ manage the price. Nevertheless, Brazil will remain short on products for some time to come, even with any capacity additions, making South America’s largest economy dependent on clean product imports for the time being”, Gibson concluded.

Meanwhile, in the crude tanker market this past week, the shipbroker said that “the August VLCC programme took a little while to get underway but eventually the market moved through a more active phase that arrested the previous steady decline and allowed for a very slight rebound by the week’s end. That said, there remains very easy availability upon the fixing window and Owners will require sustained momentum to drive the market noticeably higher. For now, ws 49 for short East and ws 47.5 for longer runs remains the order of the day, with rare movements to the West still at sub ws 20 marks. Minimal Suezmax enquiry this week saw rates fall to ws 140 by ws 27.5 to the West and 130 x ws 65 for a straight run to the East. Little change expected in short but tonnage should start to ballast elsewhere to potentially more active areas”.

 

Tanker Newbuilding Prices On the Rise… but disconnect with steel prices grows on underwhelming activity (23/07)

Despite a less than positive period for freight rates in the wet sector, asset prices haven’t been all that doom and gloom. In a recent report, shipbroker Charles R. Weber said that “newbuilding prices for tankers have observed strong growth since the start of the year when examined on percentage terms. Assessed prices for VLCCs at competitive yards in South Korea and Japan, for instance, now stand at over $90m for the first time since 2015, while just as recently as the start of the year the assessment stood at $80m. The rise in prices comes despite the fact that ordering activity at tanker‐competitive yards remains muted across key marine segments, including tankers and bulkers. During 2017, vessels with a collective carrying capacity of 29.2 Mn DWT were ordered; although representing a near tripling of the capacity ordered during 2016, it remained well below levels observed between 2013 and 2014 – and the YTD pace suggests that 2018 will mark a pullback”.

According to CR Weber, “current commercial factors to incentivize new orders have been minimal. For tankers, a grossly oversupplied market with the orderbook still bloated from earlier ordering makes it difficult to substantiate for most owners. The notable exceptions include traditional owners undertaking fleet renewals and some speculative orders from new entrants based on desirable projected IRRs if earnings and values improve. The historical experience of many such plays previously, which largely failed to perform positively, has limited such orders. Many existing participants will likely take some solace in the fact that speculate ordering has declined in light of the modern fleet and large orderbook (the VLCC orderbook, for instance, represents 17% of the existing fleet, which itself exceeds demand by around 4%). The oversupply facing Suezmaxes is far greater. Prospective opportunities exist in other marine segments, but there too the interest has been minimal in comparison to prior instances of forward opportunities”, said the shipbroker.

It added that “given the extent by which steel prices have risen – and the associated impact on already challengingly thin margins facing yards – the newbuilding prices appear to be at a historically unprecedented discount. As compared with 2015, steel prices have risen by 73% while newbuilding prices have fallen 6%. In a more extreme comparison, the current VLCC newbuilding price of $90m is off 42% from the 2008 average price of $155.7m on nominal terms – or off 50% from the real (inflation adjusted) 2008 average price of $179.3m”.

“Generally, the state of the newbuilding market appears to have found a new normal where rapid and considerable newbuilding price gains are less likely to occur, absent a major positive impetus to earnings across the slate of marine segment – with a simultaneous positive forward view thereof – in the same way as occurred during the 2000s. After a period of strong expansion, yards have been rationalizing capacity to manage ongoing costs and better managing steel purchases to keep order prices low and attract new orders. Meanwhile, the dollar remains stronger than it was during the last decade, even after some giveback since the start of 2017. The strategy of keeping newbuilding prices low would appear to be a necessity, at least for tankers in the context of how the market has behaved over past 10 years. A VLCC ordered for $90m with 60% debt would presently require around $32,500/day to break even – and considerably more to achieve a desirable IRR through trading. By comparison, VLCC average earnings over the past year stand at just ~$16,767/day – and between 2009 and 2017, earnings averaged just ~$32,831/day”, the shipbroker concluded.

 

VLCC Market Finds it Hard to Catch a Break (17/07)

Tanker owners are finding it hard to catch a break these days, as a mere rise in freight rates is quickly compounded by increasing bunker costs and a lull in demolition activity, due to the monsoon season. In its latest weekly report, shipbroker Charles R. Weber said that “demand was muted across all key global VLCC markets this week, leading to a moderate softening of rates amid a corresponding rise in surplus availability. The Middle East market yielded 25 fixtures, off 39% w/w while demand in the West Africa market was off by five fixtures to just three this week and the Atlantic Americas observed three fixtures, or one fewer than last week’s tally. Stronger sentiment at the start of the week on the back of last week’s strong pace of demand in the Middle East and West Africa markets likely limited rate losses this week. Meanwhile, some benchmark routes are largely untested since mid‐week for requirements on normalized terms, which suggests that further losses could materialize when retested”.

According to CR Weber, “simultaneously, a degree of uncertainty remains around the extent of remaining July cargoes; thus far, the tally stands at 131, which compares with June’s tally of 136 and a 1H18 average of 130. Higher supply from regional OPEC producers would suggest a stronger July program, though the stronger apparent June supply possibly implies that the group’s upwardly revised targets are an affirmation of an increase that has already transpired. A reasonable expectation of five further July cargoes would yield an end‐July Middle East surplus of 27 units, once draws to West Africa are accounted for. This compares with 20 surplus units observed at the conclusion of the first and second decades of the July program and 24 units observed at the conclusion of the June program”.

In the Middle East, “rates on the AG‐CHINA route concluded off two points to ws51, with corresponding TCEs off 8% to ~$13,693/day. Rates on the AG‐USG c/c route were off 2 points to ws20. Triangulated Westbound trade earnings fell 11% to ~$14,670/day. In the Atlantic Basin, rates in the West Africa market followed those in the Middle East. The WAFR‐CHINA route shed two points to conclude at ws49. Corresponding TCEs were off 5% to ~$15,527/day. Rates in the Atlantic Americas declined to a two‐month low on sluggish regional demand and rising supply/demand imbalance. The USG‐SPORE route shed $150k to conclude at $3.30m lump sum. As inquiry remains muted, further rate losses could materialize during the upcoming week”, said CR Weber.

Meanwhile, “softer demand in the West Africa Suezmax market saw rates slip modestly. A total of 12 fixtures were reported, or five fewer than last week. Meanwhile, availability remained ample. The WAFR‐UKC route shed 3.5 points to conclude at ws69. Meanwhile, the Black Sea market was more active this week leading to a small gain in rates there. The BSEA‐MED route added 2.5 points to conclude at ws87.5. In the Americas, rates on the CBS‐USG route were steady at 150 x ws75 as were those on the USG‐UKC route at ws52.5. Rates on the USG‐SPORE route shed $50k to conclude at $2.40m lump sum”, CR Weber noted.

Finally, “rates in the Caribbean Aframax market continued to correct this week, with the trend accelerated by a number of failed fixtures early during the week and a lull in inquiry throughout. Just nine reported fixtures materialized, off by a third from last‐ week’s tally and 44% fewer than the YTD weekly average. The CBS‐USG route shed 10 points to conclude at ws105 while the USG‐UKC route lost five points to conclude at ws77.5. Meanwhile, a fresh strengthening in demand in European markets saw rates on key routes there surge. The NSEA‐UKC route added 10 points to conclude at ws122.5. In the Mediterranean market, steady elevated demand for Ceyhan loadings were augmented this week by a number of Black Sea cargoes, which drew on Mediterranean tonnage, due to the smaller class’ $/mt discount. The MED‐MED route added 50 points to conclude at ws135 (with TCEs rallying from ~$2,196/day a week ago to ~$21,923/day presently)”, the shipbroker concluded.

 

Baltic Exchange: Rates Easing in the Larger Classes, but Aframaxes Return to Higher Ground (17/07)

VLCC

Charterers have not been under pressure in the ME Gulf as they have been drip-feeding enquiry into the market and this has led to rates easing, with CNOOC able to fix 270,000mt to China at WS 47 in contrast to WS 48/50 region last week. Likewise for US Gulf discharge, P66 paid WS 18, Cape/Cape, for 280,000mt cargo. West Africa/China eased 2.5 points, with CNOOC taking ‘Argenta’ for 260,000mt cargo at WS 49.75. In the US Gulf, SK paid $4.2 million to South Korea, down $245,000 since last week. In the North Sea Unipec paid $4.65 million to China.

Suezmax

Rates in the 135,000mt trade from the Black Sea/Med were steady at WS 85, although there was talk of Trafigura paying WS 90 for 23 July load. A trip to Korea went at $2.75 million while Litasco paid WS 56 to US Gulf. In the Mediterranean, Irving paid WS 60 for 135,000mt from Sidi Kerir to Canaport while Vitol agreed $2.0 million for Libya to Singapore. Repsol fixed ‘Aegean Star’ for 135,000mt Zawia/UKC-Med at WS 71.5-75 respectively. In Nigeria, rates came under downward pressure, with WS 70 agreed to Wilhelmshaven and Cepsa also agreed WS 70 to Spain.

Aframax

The market turned dramatically this week and Libya announced force majeure had been lifted leading to a number of early cargoes there. Trieste has two berths out of use until 23 July and with delays and a thinner tonnage list, the market now sits at around WS 125 from Ceyhan, up around 45 points from a week ago. Libya load was fixed at WS 135 before climbing further to WS 147.5, while Black Sea was fixed at WS 127.5 before Oilmar took Arcadia tonnage at WS 140, all basis 80,000mt cargo. In the Baltic the market to the continent gained 10 points to WS 95 for 100,000mt and it was a similar story in the 80,000mt cross North Sea market with rates up 10 points to WS 122.5.

The 70,000mt Caribbean and EC Mexico/upcoast market fell a further 10 points to WS 102.5.

Clean

In the 75,000mt from ME Gulf to Japan market, rates firmed five points to WS 105 level with the LR1 market unchanged at WS 120.The 37,000mt Cont/USAC trade saw steady enquiry but a healthy tonnage list saw rates ease five points to WS 100. The 38,000mt backhaul market was steady, hovering between WS 87.5/90 region.

 

Tanker Market: US Oil Exports At the Epicenter of Trade Shifts (16/07)

The escalation of the trade war between the US and China is about to bring significant changes in crude ton/mile demand as US crude freights could soon be moving away from China and heading towards India, South Korea, Thailand and Taiwan. In its latest weekly report, shipbroker Gibson said that “when Donald Trump decided to run for the US Presidency, “America First” was the overriding theme of his campaign. This was reiterated in his inaugural address, when he was sworn into office in January 2017. Within days of entering the Oval office, the president immediately set about introducing his ideas to protect US jobs by implementing trade tariffs. Initially steel was high on the president’s thoughts but at that time he also proposed a “border adjustment tax” (BAT); which, if implemented, would have added 20% to the price of imported crude and products. Since then, things have gone very quiet until the recent escalation of the trade war with China, which has witnessed heated exchanges between the two nations, resulting in retaliatory measures on a variety of traded goods”.

According to the shipbroker, “as the tariff war escalates, the latest commodity to be implicated in a possible ‘tit for tat’ retaliation, is China’s threat to its purchases of US crude. The Beijing government has threatened to impose a 25% tariff on US crude oil and oil products after the trade war took a turn for the worse in recent weeks. This would make the purchase of US crude uncompetitive in China, forcing the nation to seek other suppliers. US government data (EIA) shows crude exports to the country have been in the range of about 330,000 b/d over the 1st quarter of 2018, accounting for about 20% of total crude exports. Results for the 2nd quarter are anticipated to show further gains. US crude is a good fit for China because of the decline in their domestic production and the quality of the crude which is purchased at a discount to Brent. The Chinese independent refiners are expecting tariffs to be imposed on US crude and are likely to look towards OPEC members in the Middle East and West Africa to fill the gap. Earlier in the week Reuters reported some 14 million barrels of US crude oil on the water, with China listed as the destination through August. Interestingly but not surprisingly, LNG has been excluded from any retaliatory measures. China’s growing demand to substitute LNG for coal led to a very tight market over the winter, with shortages in supply. So, Beijing is being very selective in their tariff countermeasures”.

Gibson said that on the face of it, the loss of US barrels to China could have a serious impact on tonne mile trade from the Atlantic Basin, given also the potential threat to Venezuelan crude supply. As we have highlighted in previous reports, the long-haul trade Caribs/US Gulf to the Far-East have underpinned the VLCC market this year. However, should China follow through with its warning to slap on tariffs, this could place downward pressure on the WTI benchmark, widening the discount to Brent, which in turn would make US oil more attractive to other buyers. Thailand, Taiwan, South Korea as well as India may be more than happy to tap into available barrels, particularly with the risk of the loss of Iranian crude and the potential failure of Venezuela to meet its supply commitments. In fact, US crude exports to India hit record levels in June. Europe could also increase their purchases, which might open up further opportunities for crude tanker trade. So, the threat to the tanker market may not be as serious as some have feared. The US will continue to export crude and Chinese refiners will turn their attention to OPEC members to keep the flow going”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “another month of recent record VLCC spot volume yet the market has gone down….supply is the ongoing challenge and Owners will be in need of disruption to the flow of that in order to convert the demand into noticeably higher rates. Currently, levels stand at little better than ws 47.5 to the East for modern units with rates to the West back into the high ‘teens’. Suezmaxes drifted sideways, and then a little further downwards on very thin interest. Rare runs to the West were especially hard fought over to drag those numbers towards ws 27.5 with rates to the East at down to ws 65. Aframaxes became a little tighter to allow rates to creep up a touch to 80,000mt by ws 102.5/105 to Singapore but ballasters are on the way and there’s no further steam to come”, said the shipbroker.

 

Tankers: Slight Improvement in Market Sentiment During June (14/07)

In its latest monthly report, OPEC commented on the tanker market, that during June, crude oil tanker market sentiment strengthened slightly as average spot freight rates increased on most reported routes, albeit at varying levels. On average, dirty tanker freight rates were up by 3% from the month before. “Average spot freight rates for VLCC and Suezmax in June rose by WS5 points and WS2 points, respectively, from the previous month. Aframax rates remained flat. Despite a high number of fixtures seen in the VLCC market, average dirty spot freight rate gains were limited, as the gains, registered mostly in the East, were offset by the high spot vessel supply, with the excess of ships estimated at 20%. Suezmax and Aframax freight rates benefited from the firm market in the Caribbean. However, a decline in loading requirements in the Mediterranean led to a flattening in the average rates. Clean tanker spot freight rates also evolved negatively in June as medium range (MR) tanker freight rates declined on all routes bar one; the only exception being Middle East-to-East fixtures”, OPEC’s analysis stated.

Spot fixtures

Global spot fixtures increased in June by 4% m-o-m. The gains came mainly on the back of higher fixtures registered for all reported destinations bar one. The exception was for fixtures registered on the Middle East to-West, which dropped by 0.04 mb/d. For the other destinations, namely OPEC, Middle East-to-East and outside of the Middle East, the increase was 7%, 8% and 9%, m-o-m, respectively

Sailings and arrivals

OPEC sailings rose in June, increasing from the previous month by 0.4%. The same increase was also registered on a y-o-y. According to preliminary data, arrivals to North America and West Asia increased by 1.3 mb/d and 0.09 mb/d, respectively, compared to the previous month. Arrivals to the Far East and Europe declined by 3% and 4%, respectively, compared to the previous month.

Dirty tanker freight rates

Very large crude carrier (VLCC)

VLCC spot freight rates started the month of June with stable activity as a steady flow of loading requirements were seen on all major trading routes. This, combined with a relative tightening in the vessels supply mainly in the East, gave support to freight rates, although gains were minor. The VLCC market saw increased activity thereafter, much of it on the USGC-to-Caribbean routes. In the Middle East and West Africa, tonnage demand increased during the month. Nevertheless, freight rate improvements were minor as the tonnage availability remains high.

Tonnage excess was at 20%, thus not allowing freight rates to register any significant or continuous gains. The absence of major delays or weather disruptions also put further pressure on tanker freight rates, in general. On average, VLCC spot freight rates rose by only WS5 points in June, compared with a month before, to stand at WS41 points. VLCC Middle East-to-East spot freight rates rose by 16% m-o-m in June to stand at WS51 points. Similarly, spot freight rates registered for tankers trading on the West Africa-to-East route rose by 15% m-o-m to average WS52 points. VLCC spot freight rates on the Middle East-to-West route also showed an increase from one month before, up by WS3 points to stand at WS22 points. This was primarily due to slightly improved tonnage demand.

Suezmax

Average spot freight rates in Suezmax saw slightly thinner gains than the VLCC sector in June, with a rise of only 3% on average compared with the previous month, to stand at WS61 points. Suezmax freight rates increased slightly despite the continuous over supply of ships. In the Black Sea, the Suezmax market was mostly quiet and inactive. While in the Caribbean, Suezmax reflected higher demand, partially due to support from a firming Aframax market. Freight rates were not supported by demand from the East as most fixtures, mainly in West Africa, were fixed for discharge in the West, mainly Northwest Europe (NWE). Suezmax freight rates towards the end of the month were steady, holding the moderate gains that had already been achieved. The clearance in the overhang of vessels in West Africa supported freight rates there. Freight rates registered for tankers operating on the West Africa-to-USGC route increased by 5% to WS65 points, compared to the month before. Spot freight rates on the NWE-to-USGC route ended the month with a slight increase of WS1 point to stand at WS57 points.

Aframax

Aframax average spot freight rates were flat in June as a result of mixed performance from different routes. Spot freight rates in the Caribbean showed notable gains from the previous month, supported by requirements for lighterage operations and transatlantic loading. On average, Caribbean-to-US East Coast (USEC) spot freight rates showed growth of 26%, to stand at WS137 points, compared to May. Aframax freight rates on the Indonesia-to-East route also rose, albeit slightly, up by 1% m-o-m, to average WS95 points.

In the Mediterranean, an increase in the number of ballasters in the area caused spot freight rates to drop, reversing the gains achieved in the previous month. Furthermore, limited inquiries drove the freight rates down, and cancellation of orders on the back of force majeure in some ports also added to the length of the tonnage list. Therefore, spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes dropped by 15% and 14%, respectively, from the previous month, to stand at WS93 points and WS86 points.

Aframax rates in the North Sea and the Baltic reached a bottom at the beginning of the month, as a result of constant pressure from charterers. For the remainder of the month, rates in the area remained at low levels, despite improvements, as a result of the uncertainty surrounding the itineraries of some vessels, due to some delays.

Clean tanker freight rates

Clean tanker spot freight rates dropped in June as freight rates edged down on most reported routes, compared to the month previous. In the East of Suez, long-range (LR) freight rates at the beginning of June generally maintained the same low rates witnessed the previous two months. Freight rates for medium-range (MR) vessels in the East remained primarily unchanged as the market was mostly quiet, with a limited amount of inquiries, in general. Nevertheless, spot freight rates in the Middle East did see minor growth, as rates for tankers operating on the Middle East-to-East route rose by 4%, to average WS117 points, which was the only positive average gain in June. MR vessel spot rates in the Far East, mainly on short haul voyages, dropped steadily. This led to rates for the Singapore-to-East route dropping by 7% to average WS124 points, compared with the previous month.

In the West of Suez, the product tanker chartering market was mostly uneventful, with rates for different segments of the market declining. Spot freight rates softened on all reported routes in the West of Suez as activity levels were depressed. The MR tanker market had a positive performance during the first week of the June, but the positive momentum faded rapidly as the spot tonnage availability built. Spot freight rates in different key loading areas were under pressure in June, including the NWE, the Black Sea and the Mediterranean. On average, freight rates for tankers trading on the NWE-to-USEC route dropped by 20%, or WS27 points, to average WS109 points. Freight rates seen on the Mediterranean-to-Mediterranean and Mediterranean-to NWE routes fell by 4% each, to average WS135 points and WS145 points, respectively.

 

Tanker Market: Ships’ Prices Start to Follow Freight Market Rates to Lower Ground (07/07)

Where there’s crisis, there’s also opportunity. As such, prices for tankers are starting to face further downward pressure, which could prove to be beneficial to cash-rich investors. In its latest weekly report, shipbroker Intermodal said that “the tanker market is undoubtedly passing one of its’ roughest times over the last years. T/C rates have fallen to very low levels and as a result the resistance that vessels were showing to further decrease on asset prices has started to show signs of cracking. The correction on prices has been evident on mostly larger tonnage”.

According to Intermodal’s Konstantinos Kontomichis, SnP Broker, “on the VLCCs, which are 15-yrs old we have witnessed a large correction on asset prices, which was most pronounced during q2 of 2017. To put things into perspective the “GOOD NEWS” (319,430dwt-blt ’02, S. Korean) was sold to New Shipping in May 2017 for $21.0m, while the price for similar aged unit today remains at the same levels. An example of this is the “ROKKOSAN” (300,257dwt-blt ’03, Japan), which was recently sold to Greek buyers for $21.0 million”.

Kontomichis noted that “in the Suezmax sector, similar price elasticities are also explored. The 12-yr old “EUROGLORY” (166,647dwt-blt ’05, Croatia) was sold to Eurotankers in June 2017 for $20.5m, while the 13-yrs old sisters “UNITED KALAVRYTA” (159,156 dwt-blt ’05, S. Korea) and the “UNITED LEADERSHIP” (159,062 dwt-blt ’05, S.Korea), were sold to Greeks in May 2018 for region $18.0m”.

“In the Aframax sector we have noted a similar situation with regards to asset prices. However the number of transactions is greater compared to larger segments. This specific size has traditionally attracted the interest of the buyers looking at the bigger tonnages (Vls, Suezmaxes and Afras). Despite the big interest on the specific segment and the competition amongst buyers, asset values remained steadily negative. The “EUROFORCE” (106,361 dwt-blt ’02, Japan) was bought by Eurotankers on February 2017 for $11.5m, while on April 2017 both “BULL SUMATERA” (106,560 dwt-blt ’02, Japan) and the “KALIMANTAN” (106,548 dwt-blt ’02, Japan) were bought by Indonesian buyers for $10.5 each. On the contrary within April 2018 the “GENER8 DEFIANCE” (105,538 dwt-blt ’02, Japan) sold for $10.2m and two weeks ago the “KRASNODAR” (115,605 dwt-blt ’03, S.Korea) was sold for $9.5million.”, Intermodal’s broker said.

He added that, “the MR prices showed the biggest resistance. For a long period of time, sellers of 13-yrs old Korean/Japanese build MRs were declining offers below $10.0. An example is the “BORA” (46,718 dwt-blt ’04, S. Korea), which bought by Unibros during March 2017 for $11.4. The same prices have been noticed during q4 2017. The ex-“SEAWAYS ANDROMAR” (46,195 dwt-blt ’04, S. Korea) and the ex-“SEAWAYS ARIADMAR” (46,205 dwt-blt ’04, S. Korea), were sold to different Greek buyers for $11.2m each. However the picture is changing in 2018. The pressure and the low expectations in wet market have caused a reduction in asset values to levels below $10.0. Within June we have witnessed the below deals: The “ENDEAVOUR” (46,101 dwt-blt ’04, S. Korea) was sold to Greeks for $9.8m and the “BIENDONG MELODY” (45,937 dwt-blt ’04, Japan) was sold for $9.0m”.

According to Intermodal’s broker, “it is clear that the current asset prices are at a 2-year low. How much further down they can go remains to be seen. Tankers at current prices are definitely the segment that owners and investors should be looking at. While no one is a prophet, you can’t go wrong with the age-old adage of “buy low; sell high”.

 

NORDEN’s tanker business continues to grow: Increased focus on short-term chartered tonnage ensures quick adaption to market conditions (07/07)

NORDEN expects the product tanker market to significantly improve in the coming years. Therefore, the expansion of the tanker business continues. The first quarter saw a further increase of 1,965 ship days on charter capacity as NORDEN increasingly focuses on short term charters of typically 1-3 years and the possibility to extend the term. The key word is agility – i.e. being able to quickly adapt to current market conditions, which is easier with short-term chartering. The increased focus on short-term chartered tanker tonnage coincides with increasing newbuilding prices making long-term chartering more expensive. Increased focus on short-term chartered tonnage ensures quick adaption to market conditions

In 2017, NORDEN’s tanker fleet including purchase and short-term and long-term charters increased by a total equalling 71.5 ship years.

2 secondhand MR Vessels

Following the first quarter, Asset Management, which is responsible for tanker tonnage, has also bought tonnage in the form of 2 MR product tankers each with a loading capacity of 51,000 tonnes. The vessels were built at the STX yard in Korea, which has several times delivered new tankers for NORDEN. With these two vessels, which will be named NORD SKATE and NORD STINGRAY, NORDEN owns 23 tankers – 13 MR vessels and 10 Handysize vessels. To this should be added (at 31 March 2018) 33 chartered vessels which brings the NORDEN fleet to a total of 56 product tankers. Senior Chartering Manager Mads Pilgaard, Asset Management, says that purchase took place while prices for secondhand MR vessels were historically still relatively low. “The timing is good and by investing in MR vessels we get the best possible balance between risk and return compared to NORDEN’s other business areas,” said Mads Pilgaard.

NPP beats the market again and again

The commercial operation of NORDEN’s product tanker fleet lies with Norient Product Pool (NPP) which is owned 50/50 by NORDEN together with the Cypriot Interorient Shipmanagement and which has beat the market quarter after quarter – in the first quarter of 2018 by 7%. The NPP fleet counts 84 vessels (at 31 March 2018). CEO Søren Huscher’s expectations for better market conditions are based on several indications. ”The International Energy Agency predicts a 1.5% growth in demand for 2018. Based on the current low rates, scrapping is expected to proceed on a high level whereby we will see a significantly lower increase in vessels as opposed to earlier years. And in 2020 when the vessels must use low-zulphur diesel, diesel oil may play an important role as fuel for vessels which could create an imbalance in the supply market with increased need for transport of diesel fuel. This could mean increased rates”, says Søren Huscher.

 

Product Tankers Enter Challenging Market Conditions’ Mode (03/07)

The product tanker market is up against some challenging conditions and owners are likely to have to be more patient in the wake of some not favorable conditions. In its latest weekly analysis, shipbroker Charles R. Weber commented that “Product export volumes from PADD3 (USG) bound for Brazil have been trending directionally lower over the past year with the MTD pace suggesting a fresh low. The decline comes amid growing structural headwinds plaguing an economy prized for being one of the world’s fastest growing during the 2000s and early 2010s. A four‐day industrial action staged by the country’s truck drivers during late May appears to have heightened these issues – as the product tanker market will no doubt have noticed over the past month. Protesting against rising diesel prices and their impact on profitability, the action prompted the state to offer new fuel subsidies to lessen the burden. In an additional concession aimed at ending the crippling strike, at least one tax on diesel was abolished altogether. Separately, Petrobras was forced to extend a reduction of fuel prices, in a major blow to the autonomy the company won over its pricing just two years ago”.

According to CR Weber, “following the truckers’ lead, Brazil’s oil workers commenced a subsequent strike at the tail‐end of May, which reportedly curtailed and/or halted activity at the company’s refineries and rigs.  Brazil’s Supreme Court declared the strike illegal and the union representing the oil workers thus recommended that it be halted the day after it began. Notionally, the fresh diesel price subsidies and tax reductions together with the brief halting of refining activity would be supportive of product tanker demand by stimulating diesel demand and imports. However, any short‐term positives are more than offset by the strongly negative implications these two industrial actions had on Brazil’s already faltering economy and structural demand for refined products in the country thereof”.

Meanwhile, “adding to the woes observed by the Atlantic basin’s product tanker market in recent weeks – which have seen benchmark Atlantic earnings drop to a record low – these actions came on the heels of a strong run in demand to service cargoes from the US gulf coast area to the combined Brazil‐Argentina range during May. As a result, trades into the country have been reduced as traders seek to take stock of the supply/demand positioning. These routes are considerably longer‐haul than those to more common Caribbean and Eastern Mexico destinations – and also inefficient, requiring an onward long‐haul return ballast with no clear triangulation – making them key to reduced availability and thus earnings”, the shipbroker said.

CR Weber also said that “heaping yet more woes to the sour product tanker environment, the sugarcane harvest that commenced in April is seen as heavily supportive of ethanol production.  Reports indicated that April and May output was at a strong y/y gain with the recoverable sugar content of the crop at its highest level since 2007 while the least proportion thereof was bound for edible sugar. Indeed, hydrous ethanol (non‐edible) production between 1 April and 31 May was up 80% over the same period during 2017.  Hydrous ethanol (E100), is heavily used in Brazil’s transportation sector with the majority of the national automobile and light truck fleet being flex‐fuel and interchangeable between running on gasoline and ethanol (and mixes thereof) as economics and supplies permit.  Reports suggest that the crush crop yield may be less positive as the harvest progresses, but even as emerging guidance from key producers for the season is for output reduction, guidance on hydrous ethanol yield thereof remains in strong y/y territory of 40%+”.

“Our view is that in light of the strong sugarcane crop, the May strength in CPP imports from the USG and the souring nature of Brazil’s economy (hastened by industrial action), PADD 3 export volumes to Brazil may continue to prove disappointing in the near‐  and intermediate‐term. A one‐day strike by Argentina’s truckers seeking higher wages earlier this month only further sours expectations for US exports to the combined Brazil‐Argentina range. Displaced volumes are likely to be mixed in their destination reorientation between Europe (where imports from the US have shown fresh strength in recent weeks) and other destinations on the Atlantic coast of Central America and the Caribbean. Mexico is among the likely recipients, given the directional decline of its refinery processing though recent modest improvements thereof have temporarily challenged imports on a corresponding reorientation of inventories. Given the efficiency implications of triangulation for trades to Europe and the extremely short‐haul nature of trades to Central America and the Caribbean, neither scenario is entirely positive for MR tankers”, CR Weber concluded.

 

VLCCs “Eating Up” Product Tankers’ Cargoes (02/07)

As “slim pickings” is the norm in the wet markets this year, competition for cargoes in beginning to emerge across various classes and even between dirty and clean tankers. In its latest weekly report, shipbroker Gibson said that “it’s not unusual for newbuild crude tankers to carry clean cargoes on their maiden voyage. However, with the crude tanker market in a depressed state of late, charterers have sought to take advantage to secure competitive freight costs on product flows from East to West. This activity has had a profound effect on the product tanker market. So far this year at least three VLCCs have loaded East of Suez and sailed into the Atlantic Basin. Not only does loading a VLCC (or Suezmax) take out product tanker demand in the load region, it also impacts on tanker demand in the discharge region.

According to Gibson, “this year when the Maran Aphrodite and New Eminence loaded gasoil in China and Malaysia, they collectively took a potential 11-15 MR cargoes out of the Asian product tanker market, negatively impacting regional tanker demand. However, this was not the only impact, as soon as these vessels started signalling Europe as their destination, the European gasoil market started to react. Eventually, as these vessels moved closer towards discharge, the impact on regional gasoil pricing would have impacted trading activity in the Atlantic and thus product tanker demand, contributing to lower flows from other key supply regions such as the US and Middle East. The result could be another 11-15 MR cargoes also lost in the Atlantic market, doubling up the negative demand factor. Of course in reality, some of the demand loss will be offset by regional distribution of the imported product, although much of these is likely to be distributed by smaller tankers, barges, pipelines and trucks. Interestingly, it’s not just been flows from China and Korea, which have started to impact the market this year. Earlier in June the DHT Stallion loaded gasoil, which originated from Jamnagar via three STS operations off Fujairah. Without the involvement of this VLCC, the charterers would have most likely employed three LR2s to ship the product to Europe. Instead, these tankers opened in Fujairah after a short voyage, contributing to the regional tonnage list”.

“Beyond VLCCs, Suezmaxes have also proved popular for moving gasoil cargoes from East to West on their maiden voyages, particularly out of the Middle East and India. And even when these cargoes are not moved on newbuild crude tankers, the ever looming presence of these vessels continues to influence freight. With 130 VLCCs and Suezmaxes set to deliver between now and December 2019, the crude orderbook remains substantial. Provided the crude sector remains under pressure, these tankers will continue to be used where the economics make sense, capping the product tanker markets potential. Product tanker owners will therefore need to hope for a better crude tanker market and wait patiently for the relentless pace of new crude tanker deliveries to come to a cyclical pause”, the shipbroker concluded.

Meanwhile, in the tanker market this week, in the Middle East, Gibson said that “VLCC Charterers maintained an easy pace through the week, thereby continuing to massage the market lower with rates to the East dipping to below ws 50 for even modern units, and rare runs to the West at close to the ws 20 mark once again. There could be a little further to fall, but there’s still plenty to do upon the July programme, and any uptick in fixing pace would harden sentiment once again. Suezmaxes show little material rate change over the week. Activity remained quite steady, but never sufficient to lead to any pinch points, and Owners will be relying upon other load zones to help out next week. Aframaxes started brightly to reach 80,000mt by ws 100 to Singapore, but all too briefly, and a slow end has led to downward pressure which will take rates down towards ws 90 over the next period”.

 

Tanker Market: European Imports of Iranian Oil Bound to Continue (30/06)

The tanker market is bound to witness a shift of cargoes from Iran as the country is entering a new round of US-imposed sanctions this time around. In its latest weekly report, shipbroker Intermodal said that “after the abolishment of the trade embargo against Iran, there was a lot of optimism from the country’s side, as after quite some time a number of companies started demonstrating interest for oil and gas investments there”.

According to Intermodal’s Oil Products Analyst, Mr. Apostolos Rompopoulos, “the start was rather encouraging as in January 2016, with production increasing from 2.8 million barrels per day to 3.5 million barrels per day, reaching 3.83 million barrels per day in August 2017. High field pressure was temporary and production was not maintained at high levels. Additionally, it is worth mentioning that crude oil exports increased from 2.5 million barrels per day in October 2016 to 2.61 million barrels per day in April 2018. This however was caused due to stored oil and not from new production, which would have been the ideal case”.

Rompopoulos also noted that “during the 2010-2016 period, there were already many oil fields that had started entering the maturity phase and could not maintain satisfactory pressure to pump oil. So when the sanctions were first introduced, things became even tighter for the country. NIOC could not find a way to maintain fields at a solid productive capacity. Together with the fact that the oil revenue was declining, NIOC was eventually obligated to shutter oil wells in multiple fields due to lack of required funding”.

Rompopoulos added that “what I would like to highlight here is that even before Trump’s sanctions, Iran found it difficult to approach foreign investors and companies to work together with NIOC. What Iran really required once the sanctions were lifted was foreign investment and foreign expertise to revamp its oil and gas production infrastructure. As a means of enticing foreign companies to invest and work in Iran, the country’s Oil Minister, Bijan Namdar Zangeneh, sought to offer new oil contracts with more lucrative terms compared to those prior to the sanctions. Nevertheless, those new contracts never materialized. When the new sanctions arrived in May 2018, Total, the only foreign oil company that had actively pursued investment in Iran, announced that it would drop the project on the South Pars 11 gas field”.

“In contrast to the above, we noticed a rare export from Khrag island to Chile after 16 years according to refineries’ records; (MT “MONTE TOLEDO” 140 NHC 24 MAY KHARG/CHILE). Spain’s Repsol purchased 500,000 barrels of Pars Oil on a spot basis. Pars Oil, co-loaded with Iranian heavy grade is a new grade produced in the West Karoun block. This specific trade shows Tehran’s willingness not only to raise oil exports but also to expand trade with Europeans”, Rompopoulos said.

“To conclude, Iran is expected to focus on the improvement of its oil production as well as continue seeking new business allies in order to survive the newly introduced sanctions form the U.S. At the same time European powers are also expected to keep supporting Iranian oil exports and continue purchasing Iranian crude, simply because they wish to keep the nuclear accord with Tehran alive”, Intermodal’s analyst said.

 

Tanker Fleet Rebalancing and Expected Increase in Oil Supply Bode Well for the Tanker Market Moving Forward (28/06)

The tanker market could be set for an improved second half of the year, as there is a series of factors currently working in its favor. In its latest weekly report, Allied Shipbroking said that “a sharp rise in the price of crude oil was to be seen on Friday, its biggest daily gain in two years, as OPEC reached a deal to raise output. Despite the fact that the deal that has been in the works for some time now with the purpose of cooling down the recent hike in prices, many seemed to be relieved by the announcement, feeling that the increase in production did not go as far as most had anticipated and that most of the of the rise will be going partly to compensate for production outages in countries such as Venezuela. The production increase is roughly said to reach up to 1 million barrels a day collectively, while Russia is also onboard with the decision. Additionally, we have been seeing a fair number of speculators cutting back on their bullish bets on crude, pushing crude oil futures and options to their lowest point in nearly eight months”.

According to Mr. George Lazaridis, Head of Research & Valuations with Allied Shipbroking, “this announcement for an increase in oil production levels comes at a point when the tanker market seems to be finally finding some stability. Rates managed to show some considerable improvement over the past week, especially for the larger VLs and Suezmaxes, while it looks as though there could be some further improvement in sight before we even start to see the production hikes take shape”.

Lazaridis added that “at the same time, it is important to note the developments we have seen in the crude oil tanker fleet since the start of the year. Over the course of the year the fleet has stayed relatively on par having decreased by 1 vessel or 0.04%. For comparison, during the same time frame back in 2017 the fleet growth rate had reached 3.27%, while it finally closed off the year with a rate of increase of 4.23%. Given that the second half of the year is expected to go much the same way in terms of fleet development as what we have witnessed during the first half, we should be set for a fair rebalancing between demand and supply in the market”.

Allied’s analyst also said that “adding to the mix this recent increase in production and the boost in trade it could drive given the fact that it comes at a time of rising global demand, we should see a fair improvement in trade volumes over the coming months. This should translate into a fair strong growth rate for trade for the year as a whole, while it goes without saying that most of this increase is to be noted over the next six months which should mean for a fair improvement in the freight market for crude oil tankers. However, it hasn’t been all great news of late. One of the most promising developments of late, namely the increasing trade flows that have been witnessed between the US and Far East could be set for a major set back. The recent trade friction between the US and a number of its trading partners in the Far East does leave for a possibility of serious retaliatory action, something that could well take the form of a cutting back of crude oil imports from the US. Albeit that volumes from the US are still relatively small compared to the total global trade, their tonne-mile effect is worth taking note. At the same time, given the drop in crude oil prices that should in theory take place from this increase in oil production, the price arbitrage that typically drives this trade would sufficiently diminish. A scale back in this trade therefore would have a negative effect that would be sufficient to dampen the part of the boost that one would expect. To what extent remains to be seen as there are a fair amount of variables still in play”, Lazaridis concluded.

 

New shuttle tanker beats the emissions clock (28/06)

The winds of change are blowing for the shuttle tanker sector. This is thanks to a new, innovative concept jointly developed by the world’s largest shuttle tanker provider, TEEKAY, and Wärtsilä.

“Compared with a conventional shuttle tanker, this new concept will eliminate Volatile Organic Compound (VOC) emissions from cargo. While the NOx from the engine exhaust will be reduced by 84%, which is well below IMO Tier 3 levels, the SOx emissions will be practically eliminated, and finally the particles will be reduced by more than 96%, thus resulting in an astonishing reduction of emissions,” explains Stein Thorsager, Sales Director, Wärtsilä Marine Solutions.

TEEKAY, which has already placed four orders for this new shuttle tanker, is one among many shipping companies betting on this concept to weather the future. The key attraction for many of them is the new, innovative, overall fuel efficiency concept with electric propulsion and dual-fuel generating sets. Wärtsilä’s VOC recovery plant is also an important environmental aspect to ship owners and charters.

The new shuttle tanker concept creates both economic and environmental benefits for owners. Photo: Wärtsilä

A multi-tasking VOC recovery plant

For the uninitiated, a shuttle tanker is a vessel that is used to transport oil from offshore fields to onshore land terminals. A conventional shuttle tanker releases large amounts of VOC into the atmosphere during loading and transportation of crude oil. Studies estimate that about 3300 tons is released into the atmosphere, yearly, for every offshore loading in the transport of crude oil. These need to be captured by VOC recovery plants to reduce emissions.

Wärtsilä has designed a futuristic take on the VOC recovery plant that will prepare shuttle tankers to meet further emission regulations expected in 2030.

“The Wärtsilä VOC recovery plant uses compression and cooling phases to liquefy the heavier hydrocarbons to Liquid VOC (LVOC) that is stored in a tank on the deck of the vessel. The lighter hydrocarbons that are not liquefied, which mainly comprise methane gas, will be burnt in a gas turbine for electricity generation, chosen because of the two times better efficiency than the traditional use of boiler with steam generator,” explains Thorsager.

It doesn’t end there. Wärtsilä and TEEKAY’s new shuttle tanker design also allows the LVOC to be used as fuel for the tanker. By replacing the traditional two-stroke propulsion engine with four-stroke dual-fuel engines for electric propulsion system, Wärtsilä developed the possibility to mix LNG and LVOC and use this mixture as fuel for the engine.

“So far, the LVOC was considered a waste product. After the engines were changed from two-stroke to four-stroke, we developed and tested the possibility of mixing LNG with LVOC in gas form as potential valuable fuel for our engine. TEEKAY can now use 100% of the recovered LVOC as fuel for electric power generation where LVOC is mixed into LNG at a mixing rate of up to 30% LVOC,” says Thorsager.

Reliable power distribution

TEEKAY’s major requirement from Wärtsilä for the new shuttle tanker was also a reliable power distribution for the vessel.

The tanker uses Wärtsilä’s low loss hybrid systems (LLH) to help reduce fuel consumption and increase savings and overall system efficiency. The LLH power distribution model also limits the impact of a failure during dynamic positioning of a vessel. The LLH will only lose 25% of its power and one thruster as compared with conventional power systems that lose 50% of the installed power and several thrusters.

The installed batteries will handle the dynamic load variations and hence give the engines a stable load. Therefore, they can operate in a higher load area without risking the start-up of additional generators due to transient load variations. This shuttle tanker is the first ship of this size using batteries for improving efficiency during transit operation.

More orders in the pipeline

“The new shuttle tanker concept is now seeing interest from various shipping companies across the world,” says Thorsager.

Speaking of what TEEKAY’s orders did for Wärtsilä, Thorsager says “it created an acceptance and recognition of Wärtsilä by both customers and builders as a reliable provider of complete systems and services.” This, he believes, reflects Wärtsilä’s role as a truly lifecycle service provider rather than an equipment provider.

“We have a large product portfolio and by integrating products together we are building systems and providing added value to the customer. We are also reducing the risk for the builder since Wärtsilä is taking the overall functional responsibility of the systems. So, owners will now have fewer vendors to follow up with to ensure that their vessels are performing and operating in accordance with expectations. With the digital offering such as online real time ship monitoring system, Wärtsilä has a powerful after sales offering to any ship owner,” he says.

Wärtsilä has also signed contracts with Malaysian-owned AET for two shuttle tankers with a different engine configuration, but with the same VOC recovery systems on board. Thorsager foresees new vessels with Wärtsilä’s VOC installations navigating the Norwegian part of the North Sea in the coming years. In addition to new business which will demand new vessels, he also sees new vessels emerging as a consequence of the renewal program of existing fleets.

 

The VLCC Market “Roars” Back in Anger (26/06)

Long have tanker owners wished for a week like the one which we’ve just put behind us. In its latest weekly report, tanker market specialist, Charles R. Weber commented that “VLCC rates rallied strongly this week on a strong concentration of demand at the start of the week that coincided with the return of some participants to the market following the Eid holiday. This burst of demand coincided with strong draws on Middle East positions to service West Africa demand, making the market appear even more robust.  Moreover, though the overall availability profile remained widely in excess of demand, the number of competitive units became markedly tighter, leading to a wider rate spread between competitive and disadvantaged units.

Overall, the Middle East fixture tally was not greatly changed from last week: 28 fixtures were reported, representing a weekly gain of one. In the West Africa market, the tally remained lofty with seven fixtures representing a weekly gain of one but also representing a two‐month high. Elsewhere, demand in the Atlantic Americas collapsed this week with just two fixtures reported – and no fixtures to service US crude exports materializing. This follows an earlier trend of charterers reaching farther forward on dates than normal, which would be expected to yield fewer cargoes on a normalization thereof, though uncertainty surrounds forward demand for US crude from Chinese buyers following plans announced by Beijing last week to apply a 25% tariff on US crude oil, following similar action from Washington. Though no firm sanctions have been applied, the absence of VLCC fixtures for USG loading this week is being seen by some participants as ominous”.

According to CR Weber, “though the supply/demand position has improved over the past month, the fundamentals positioning suggests that this week’s rate gains are out of step. We note that there are 20 surplus units projected for the conclusion of July’s first decade.  Though down from the 24 surplus units observed at the conclusion of the June program (and well off from the 38 surplus units seen at the conclusion of the May program), a lower surplus of 16 units was observed briefly during June’s second decade. Historically, a 20‐unit surplus has guided AG‐FEAST TCEs to about $15,000/day; these routes are presently averaging ~$24,604/day. Indeed, the market concludes the week at a standoff and while positive pressure remains, a pause by charterers late this week may hasten a correction”.

The shipbroker added that in the Middle East rates on the AG‐CHINA route rose 7.5 points to conclude at ws55.5. Corresponding TCEs surged 62% to conclude at ~$20,499/day. Rates on the AG‐USG c/c route added 6.5 points to conclude at ws24. Triangulated Westbound trade earnings rose by 31% to ~$25,042/day. In the Atlantic Basin, rates in the West Africa market followed those in the Middle East. The WAFR‐CHINA route added seven points to conclude at ws55. Corresponding TCEs jumped 49% to ~$22,328/day. Rates in the Atlantic Americas remained firm on the wider improvement of VLCC sentiment. The USG‐SPORE route added $50k to conclude at $4.0m lump sum”, CR Weber concluded.

 

Tanker Market and Chinese Independent Refiners: Is there Hope? (25/06)

It seems that the added influx of crude oil cargoes in China, as a result of the increased power of the so called “teapot” refiners is bound to wane. In its latest weekly report, shipbroker Gibson noted that “it has been three years since the Chinese government first allowed the independent refiners to directly purchase crude oil on the open market, provided they met certain conditions. These independents became dubbed “teapot” refineries because of their small size compared to the giant state operated facilities. One of the main conditions imposed on the teapots was to abolish crude distillation units that had a capacity under 2 million tonnes/year (40,000 b/d) as they were deemed too small and inefficient. In 2015 the teapots accounted for about a fifth of China’s refining capacity. At the beginning, eleven independents were licenced to import just over 49 million barrels of crude in the first year of operation. Initially, there were concerns surrounding their creditworthiness, in particular their ability to open letters of credit for payment for cargoes. Traders were also cautious when dealing directly with the teapots as these companies did not have state backing. To get around these sort of problems, many of the teapots formed a consortium to co-ordinate purchases, buy in bulk and lower their costs”.

According to Gibson, “by the end of 2016, nineteen refiners had been granted permission to import nearly 74 million tonnes (1.5 million b/d) as total Chinese imports of crude rose to 7.63 million b/d. During the same period, the independent refiners were granted quotas to export refined products thus further increasing their status. However, by the spring of 2016, increased crude purchasing power resulted in chaotic buying that led to severe port congestion and higher storage costs in the Shandong region, the home to most of the teapots. To resolve this problem, the consortium of independents signed an agreement to source barrels through Unipec. As a concession, further streamlining of the smaller capacity units to reduce the independents crude imports was agreed”.

However, according to Gibson, “in 2017 more independent refiners (32 in total) were allowed to raise their import quota to 102 million tonnes/year (2 million b/d) but again with further concessions to cut small refineries. This time the government put in more stringent checks to enforce closures before awarding import quotas. The government also approved several new major independent refinery projects and in May 2017, signed a joint development project between state owned Norinco and Saudi Aramco to build a 300,000 b/d refinery in northeast China. During 2017, China’s crude imports increased to 8.43million b/d”, said the shipbroker.

“By 2018, the government, as part of their aim to tackle environmental issues, announced even tighter regulations and taxation on the independent refiners and blenders in an effort to weed out small operations and deal with tax evading players. Outright closure of refineries with capacities under 2 million tonnes p/a would be implemented should the independents fail to meet the new guidelines. In March, it was announced that the teapots were getting ready to start buying ethanol to blend with fuel to meet the governments regulation that by 2020, gasoline must contain 10% ethanol. Yet, another example of how quickly the teapots re-invented themselves in order to deal with changes in the refinery sector. China’s largest independent refiner Dongming Petrochemical has already obtained permits to start ethanol blending. However, trouble could be brewing for China’s independents from several directions. The Beijing government have introduced new tax rules and shrinking diesel demand coupled with higher crude prices are beginning to threaten their survival and profits are being pressed for the first time since their meteoric rise. The independents will also be caught up in the crossfire of the trade tariff war between the US and China. According to Reuters, the teapots are losing money and market share, several have already shut for maintenance to cut exposure to the market, and some may shut for good. So, could these latest setbacks be just “a storm in a teacup” or could we be witnessing the demise of their power? So far, they have managed to overcome every other obstacle thrown at them”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “VLCC excitement at last….Charterers cast aside the holiday opportunity to smoothly move onto fresh July programmes, and instead pushed a wave of cargoes into the marketplace that thirsty Owners quickly responded to by driving rates up to ws 57.5 to the Far East and to ws 24.5 to the UKCont via Suez. Good things don’t tend to last long, however, and as there remained continuing reasonable/easy availability, Charterers then largely held back from chasing onwards and the market began to retreat once again. Next week’s fortune will again be dictated by the pace, rather than purely supply. Suezmaxes found reasonable shorthaul attention but that made little difference to the majority seeking longer runs. Rates to the West operated at little above ws 30 with ws 70/72.5 again the marks to the East. No big change likely. Aframaxes tightened over the week but as yet haven’t converted that into rates above the previous 80,000mt by ws 95 level to Singapore. That should change somewhat over the coming period and moderately higher numbers are to be expected”, it concluded.

 

Tanker Market Still Looking for Recovery Signs (19/06)

The tanker market has dug itself a hole, it’s now struggling to get out of. The past week didn’t bring any sort of respite. According to the latest weekly report from Charles R. Weber, “VLCC rates continued easing this week despite a fresh increase in demand as the Middle East surplus increased at the conclusion of the June program.  In isolation, however, rates in the Atlantic Americas posted further gains on a sustaining of strong regional demand and a growing disconnect with natural positions. The Middle East market observed 27 fixtures, representing a 29% w/w gain. Moreover, the number of this week’s fixtures covered under COAs declined, yielding a markedly more active pace”.

“Meanwhile, draws on Middle East tonnage to the Atlantic basin remained elevated, with the West Africa marked yielding six fixtures, unchanged from last week’s tally. These factors likely prevented rates from observing greater losses from a rise in available tonnage. After the May program concluded with a multiple‐year high surplus of 38 units, the June program initially saw the number ease on stronger Atlantic basin draws to the West Africa and Americas markets. By the end of June’s second decade had declined to 16 units but a fresh buildup has materialized at the end of the June program and we project that the month will have concluded with 25 surplus units. Though still considerably fewer than May’s tally, the number is largely on part with the average during March and April, when AG‐FEAST TCEs averaged ~$10,400/day. These presently stand at an average of ~$14,212/day. The specter draws on tonnage to the Americas could mitigate some downside in the near‐term, though absent a fresh reduction of the surplus during July’s first decade, we expect that rates may be poised for more substantial weakening”, CR Weber added.

In specific benchmark markets, in the Middle East, CR Weber noted that “rates on the AG‐CHINA route eased, losing one point to conclude at ws48. Corresponding TCEs were off 4% w/w to ~$12,663/day. Rates on the AG‐USG c/c route fell one point to ws17.5. Triangulated Westbound trade earnings rose 0.1% to ~$19,120/day”. Similarly, in the Atlantic Basin, “rates in the West Africa lagged those in the Middle East.  The WAFR‐CHINA route was unchanged, accordingly, at ws48. Corresponding TCEs rose 2% to ~$14,972/day. Rates in the Atlantic Americas rose on a strong regional demand profile and declining natural positions though by the close of the week softer Middle East rates saw Americas rates pare some of their earlier gains as speculative became more financially viable. The USG‐SPORE route added $50k to conclude at $3.95m lump sum, having earlier reached $4.00m lump sum”, the shipbroker noted.

Meanwhile, in other classes, “rates in the West Africa Suezmax market observed a modest rebound this week on the back of a fourth‐consecutive week of strengthening regional demand. A total of 12 fixtures were reported – one more than last week and one more than the YTD weekly average. Rates on the WAFR‐UKC route added 2.5 points to conclude at ws67.5. Rates in the Americas were unchanged amid sustained elevated demand.  The CBS‐ USG route was unchanged at 150 x ws70 while the USG‐UKC route held at 130 x ws55 and the USG‐SPORE route was steady at $2.50m lump sum. Demand in the Middle East was at a three‐week high, which saw rates strengthen. The AG‐USG route added 5 points to conclude at ws32.5”, said CR Weber.

Finally, “the Caribbean Aframax market saw rates ease from recent highs though they remain at relative strength. The CBS‐USG route shed 2.5 points to conclude at ws142.5 (basis Venezuela loading) while the USG‐UKC route was unchanged at ws95.  Given that this week was relatively inactive and that more units will appear on positions at the start of the upcoming week, the pace of losses may be set to accelerate.  Still, the extent of extra‐regional demand observed recently implies that rates will remain lofty relative to the norm observed during the first five months of this year amid slower availability replenishment. Aframax rates in the North Sea and Baltic markets observed a strengthening this week in‐line with recent ton‐mile demand gains. The NSEA‐UKC route added 10 points to conclude at ws110 while the BALT‐UKC route jumped 20 points to ws100. Similarly, Mediterranean rates saw strong gains with the MED‐MED route adding 20 points to ws105”, the shipbroker concluded.

 

Tanker Market: An OPEC Crude Production Rise Will Improve Shipowners’ Sentiment Says Shipbroker (18/06)

The tanker market is about to receive some new direction towards the end of the week, should OPEC’s summit changes the current status quo in oil production. In its latest weekly report, shipbroker Gibson noted that “the current dynamics in the oil markets are very different to the conditions seen just a year ago. Back in June 2017, OECD crude stocks were firmly stuck at their record high level for this time of year. By April 2018 inventories declined below the five year seasonal average, providing clear evidence that the cutbacks in OPEC/non-OPEC production have proved effective in clearing the overhang of crude oil supply. The situation was also helped by the unintentional decline in output in a number of OPEC countries, most notably in Venezuela. Not surprisingly, oil prices have firmed notably. Brent crude is now trading around $75/bbl, after briefly touching $80/bbl last month, following the US decision to reimpose sanctions on Iran. Several sources within OPEC have raised the possibility of modifying the current output arrangement, which will be discussed and decided during the upcoming meeting between OPEC and non-OPEC states next week”.

“Of course, any increases in crude production will translate into more cargoes in the market. The key questions are by how much and where from. Some have cited that output could quickly increase by 1 million b/d, although this largely remains speculation. Primarily, only the Middle East countries and Russia have the capacity to increase production meaningfully, with the majority of the potential gain coming out of the Middle East. If that is the case, VLCCs could be the main beneficiaries, particularly, if most of incremental barrels are traded to the Far East. Higher Russian output would mainly aid the Aframax market, the default tanker size trading out of the Baltic Sea and one of the preferred options for trading Russian crude out of the Black Sea”, said Gibson.

According to the shipbroker, “however, it remains to be seen whether the potential increase in OPEC/non-OPEC crude output will be sufficient to have a meaningful positive impact on tanker earnings taking into account the large surplus capacity, following the relentless fleet growth since early 2016. Also, we should not forget that some if not most of the potential gain in production will simply be replacing barrels that have disappeared from the tanker market over the past few months alone. Since January 2018, OPEC total crude supply has fallen by nearly 0.5 million b/d, due to the accelerating decline in Venezuelan output and smaller falls in a number of OPEC countries in West and North Africa. At the same time, a notable decline has also been observed in Russian crude exports out of the Baltic Sea this year, following the expansion of the ESPO pipeline branch into China’s interior”.

Gibson noted that “going forward, there is of course a possibility of a further drop in Venezuelan crude production. There is also the risk of a fall in Iranian production, after US sanctions take effect. As such, there is a large element of uncertainty surrounding the future path. There is, however, one thing that we are more confident about. Should OPEC and its allies agree to boost production, then owners sentiment is also likely to receive a similar boost; which, as we all know very well, is not a factor to be ignored in the shipping market”, the shipbroker said.

Meanwhile, in the crude tanker market this past week, Gibson said that “a repeat one paced performance for VLCCs this week with rates a little squeezed to just under ws 40 for older units to the East and more modern units to ws 47 with levels to the West stubbornly under ws 20 for all destinations. The June programme is now effectively closed out but July schedules are likely to be a little delayed by the current Eid Holiday, and an early week Holiday in China will further disrupt a smooth entry into next week. Suezmaxes pushed and pulled on cargoes to the West but the upshot was for the market to end at the underside of ws 30 there, and to around ws 70 to the East. Availability looks easy enough to prevent any near term break-out from that. Aframaxes became busier but not sufficiently to push rates beyond their previous 80,000mt by ws 95 marks to Singapore, though there remains potential into next week”, the shipbroker concluded.

 

Tanker Markets Find No Respite in May (16/06)

In its latest monthly report this week, OPEC said that in May, weak dirty tanker market sentiment continued, despite spot freight rates mostly showing gains from the previous month across a number of routes. Vessels of different sizes, in both clean and dirty sectors of the market, saw relatively positive developments. These came despite the market still suffering from limited activity prior to the arrival of the summer months. The increase in vessel supply, however, which has been persisting, prevented significant gains. On average, dirty tanker freight rates rose by 19% from the previous month, while average clean spot freight rates remained flat. Both dirty and clean spot freight rates showed some increases on certain routes in May, on the back of enhanced activities, tonnage list tightening, and port and weather delays. However, rate gains in both sectors were only relative and were insufficient to compensate for the losses caused by the increase in operational cost, as bunker prices in all ports went up.

Spot fixtures

According to preliminary data, OPEC spot fixtures dropped by 0.5% in May, compared with the previous month, to average 13.48 mb/d. Global spot fixtures rose by 3.8% m-o-m, to average 20.34 mb/d. Fixtures on the Middle East-to-East route were up by 3.4% m-o-m, while on the Middle East-to-West routes they declined by 12.7% m-o-m. Outside of the Middle East, chartering activities were marginally higher than the previous month, but only by 0.2%.

Sailings and arrivals

OPEC sailings rose slightly by 0.02 mb/d, or 0.1%, in May from the previous month, reflecting a minor gain of 0.8% from the year before. Middle East sailings remained almost flat from the previous month, showing a marginal drop of by 0.01 mb/d, however, they remain higher from the previous year by 0.38 mb/d. According to preliminary data, arrivals at ports in different areas showed mixed movement. Arrivals in West Asian, European and North American ports showed a decline in May from the previous month by 0.5%, 4.1% and 8.3%, respectively. Vessel arrivals in Far Eastern ports, however, were the exception, as they showed an increase from the previous month by 7.6%

Very large crude carrier (VLCC)

VLCC spot freight rates were mostly weak in May, despite showing some relative gains, which came on the back of an active start to the month. VLCC spot freight rates rose on key trading routes, but earnings in the market showed no major enhancements, as the increase in rates remains limited. Combined with increasingly higher bunker prices, this kept market returns subdued. VLCC spot freight rates increased, though they were limited by the overhang of ships seen during the month. The ongoing low level in rates, along with the increase in operational costs, pushed ship-owners towards resisting the low rates as market returns became insufficient. Therefore, although VLCC spot freight rates showed minor average gains in May, these remain far from being able to compensate the increase in bunker prices. VLCC spot freight rates for tankers trading on the Middle East-to-East routes rose by 7% m-o-m, to stand at Worldscale (WS) 44 points. Spot freight rates on the West Africa-to-East route followed the same pattern, showing a similar increase by 8% m-o-m, or WS3 points, to stand at WS45 points. In contrast, Middle Eastto-West freight rates dropped on average, though slightly, by 4% m-o-m, or WS1 point, to stand at WS19 points. Freight rates for VLCCs in the transatlantic increased in May as tonnage availability tightened. Nevertheless, the higher rates encouraged vessels to ballast to the region, which eventually increased the availability there, ending the rise in rates.

Suezmax

Average spot freight rates in Suezmax went up in May showing some positive developments from one month before. This increase came despite the market having suffered from high vessel supply versus limited tonnage demand. The Suezmax market started the month with high activity in different regions, including the North Sea and Black Sea, which led to the clearance of the tonnage list, and a surge of activity in West Africa along with a temporary tightening in vessel supply. This allowed owners to push for higher rates. However, that did not last for long. The chartering activities slowed down and the rates softened afterwards, when all requirements were covered. Eventually, spot freight rates for tankers operating on the West Africa-to-US Gulf Coast (USGC) route rose by 16% m-o-m, to stand at WS62 points in May. Spot freight rates for tankers operating on the Northwest Europe (NWE)-to-USGC route went up by 17% m-o-m, to average WS56 points. Average rates in the USGC increased as a result of steady activity and weather delays. Nevertheless, Suezmax rates on both routes showed a decline compared with the previous year by 18% each. By the end of May, Suezmax was chosen occasionally as an alternative to Aframax, which showed rates firming at higher levels.

Aframax

Similarly to other dirty tanker developments, Aframax spot freight rates rose in May, compared to one month before. They reached a higher level than seen in other classes, showing an average increase of 25% m-o-m. Aframax had a slow start in the beginning of the month, with rates showing no significant changes from April, mainly in the North Sea and the Baltics. The situation varied across different markets at that point, while in the Black Sea and the Mediterranean, the tonnage list was balanced. The increase in spot freight rates was needed substantially to compensate the higher operational costs. Freight rates for tankers operating on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes went up by WS31 points and WS27 points from the previous month, respectively, to average WS110 and WS101 points.

Spot rates in NWE increased m-o-m, as a result of the resistance of ship owners to lower rates in light of rising low sulfur bunker fuel oil (LSFO) prices, which exceeded more than $620/mt. This made voyages at lower rates not feasible, despite limited improvements in activity levels. Moreover, the improved sentiment in NWE came on the back of ullage delays in Rotterdam and an increase in replacement requirements. The Caribbean’s tonnage list cleared at the beginning of the month as a result of continuous activity. This led to rates firming with average spot freight rates increasing on the Caribbean-to-US East Coast (USEC) route by 12% m-o-m, to stand at WS109 points. Similarly, Aframax freight rates to eastern destinations showed another increase. The Indonesia-to-East route rose by 12% m-o-m, to average WS94 points.

 

Tanker Recycling on Record-Breaking Year (14/06)

The decommissioning of a significant part of the tanker fleet is about to alleviate the current oversupply issues, as evidenced by the record-breaking pace of demolition activity this year. In its latest weekly report, Clarkson Platou Hellas commented that “with the end of an eventful week in Athens for the bi-annual Posidonia, Owners, Cash Buyers and other industry players were able to come together and discuss what has been an active first half of the year in the recycling market. With the main topic of discussion still being tanker units, it currently looks to be a record year for tanker recycling and many questions and discussions were being raised for this sector which should ensure the supply for these types of units to continue and interestingly, the topic of ‘green recycling’ was evident.

The market has remained stable again this week and some positive prices have even been witnessed with some potential rising sentiment returning. These prices can be further attributed to the increase in bunker prices and may entice more owners to consider leaving further bunkers on board for Buyers, knowing it could become more beneficial in the price received. Although there remains some uncertainty with another week of Ramadan (and Eid thereafter) still to commence, end of June will provide a better understanding of where the market actually lies and how the recyclers view the domestic markets. At present, the market appears to be simmering but the question is which way will we turn?”, wondered the shipbroker.

Meanwhile, in a separate note, Allied Shipbroking said that “the balance on the ship recycling side continues to show a relatively bullish face, with activity keeping fairly firm while quoted prices from cash buyers are still holding at relatively strong levels. We are still seeing a fair amount of volume being fed from the tanker side, while again this week we noted yet another VLCC being picked up. The Indian Sub-Continent has managed to upkeep its levels, while we have even managed to see some high spec units achieve relatively aggressive prices. It looks as though appetite is still there, despite being at the start of the monsoon season. At the same time, downward pressure has been felt from the negative track being seen on the foreign exchange front, with the US$ having gained considerable strength these past weeks. At the same time, there has been a fair amount of speculative buying that has taken place, largely in part due to the budget announcements that were taking place this past week. There is a fair amount of indication now that buying appetite will gradually start to subside over the coming days, though given the current market momentum being seen, it is likely that prices will continue to hold a fair amount of support for now”.

Similarly, the world’s leading cash buyer, GMS added that “with much of the shipping fraternity engaged in Posidonia festivities in Athens last week, in addition to the ongoing month of Ramadan and upcoming Eid celebrations in Turkey and the Indian sub-continent, activity and levels were expectedly more subdued this week. Despite that, at least two FSU sales did manage to register at firmer numbers, perhaps the result of some over exuberant celebrations during Posidonia. Meanwhile, after filling up their plots with over 10 VLCCs from various Cash Buyer hands, Pakistan has slumped alarmingly of late. A worrying currency depreciation to the tune of about 6% coupled with the imminent imposition of the 5% sales taxes announced during the recent budget, hint at a certain panic that seems destined to set into a previously bullish Gadani ship recycling sector and any further sales (especially those at numbers similar to the recently bullish levels) seem highly unlikely, at least in the near future.

Nevertheless, the Bangladeshi and Indian markets continue to impress with Chittagong buyers having awoken from their mid-summer lull and increasingly keen to acquire units once again, as the Indian market continues to dominate the market rankings with the firmest levels on offer. The overall rise in local steel plate prices in India has also seen Alang regain its position as the top placed sub-continent market – particularly for mid-sized specialist units such as reefers, LPGs and offshore untis, of which, there have been a number of fixtures of late. With the number of available candidates starting to dwindle, we anticipate it will likely be a quieter summer / monsoon period ahead for sub-continent yards, as the plethora of units sold so far this year starts to gradually be absorbed by the markets, ahead of an anticipated busier fourth quarter of the year”, GMS concluded.

 

Crude Tanker Market Waiting for News on the Oil Price Front (12/06)

A few years back, when oil prices were tumbling down, there was a sense of optimism among ship owners active in the tanker market, as there was the expectation that lower prices would yield more demand. This time around, an opposite scenario, coupled with geopolitical tensions around the world, seems to be developing. In its latest weekly report, shipbroker Intermodal noted that “as observed last month the price of oil hit its highest level since November 2014 reaching $80 per barrel. Global oil demand growth for 2018 was slightly revised from 1.5mb/d to 1.4mb/d, bearing the effect of higher oil prices. The geopolitical turmoil has caused elevated concerns over potential disruption to supplies. The decision of the U.S. President Donald Trump to withdraw from the nuclear deal and re-impose sanctions on Iran caused markets to price in the impact of deteriorated Iranian crude exports. In particular, Iran produces about 2.4m barrels a day accounting for 4% of global oil supplies. However, the European Union is firm on keeping the agreement alive and not to pose sanctions on Tehran. Further, the IEA has stated that they would examine whether other producers would step in and offset a disruption to Iranian exports”.

According to Intermodal’s Katerina Restis, Tanker Chartering, “accordingly, last week Saudi Arabia and Russia announced that OPEC and other members intend to lift supply and revive oil production, to make up for impending losses from Venezuela and Iran diminished output. In reaction to such announcement last week oil prices declined with notable the longest run of losses since February, 2018. Respectively, with projections of oil supplies shrinking and trembling prices, the two nations consented to restore some of the oil output they had freeze”.

Restis added that “OPEC and Russia produce more than 40% of the world’s oil. As per analysts and various producers inside OPEC, reaching an agreement in the upcoming OPEC meeting in Vienna seems challenging. It is argued that Saudi Arabia and Russia have nothing to gain from reduced output, and plenty to lose if oil prices continue last week’s sharp decline. According to IEA, since the 2016 agreed productions cuts, Saudi Arabia has decreased their daily oil output by almost 590k barrels per day, Russia 250k barrels and U.A.E. 141k barrels per day respectively. Overall the oil output cuts by OPEC and partners have brought oil supply and demand close to balance with IEA’s recent statement “mission accomplished” pretty much confirming this”.

Similarly, according to Intermodal’s analyst, “the economic and political distress affecting the oil-rich Venezuela has led to collapsing crude production even from the country’s mature oilfields. Such downfall in oil output has affected oil markets quicker than expected. The situation is disappointing as Venezuela’s oil industry is falling apart, while conditions in the country degrade, with increased corruption, problems with payments and equipment breaking down. Furthermore, U.S. shale oil production is at record highs, with output doubling the last decade. Iran and Venezuela are not the only foundations of geopolitical volatility causing disturbed oil prices. The ongoing acceleration of tensions between Saudi Arabia and Iran, continuing conflicts in Iraq, Libya, Syria and Yemen have significantly shaken the region. As reported, a direct military confrontation between Iran and Saudi Arabia is seen unlikely, while any degree of conflict intensification in the region would undermine stability. The IEA has advised that the recent geopolitical events have increased ambiguity over future global oil supplies. Worldwide, the economy is strong, with the IMF predicting 3.9% growth this year. Vigorous economic activity is an important feature in rising oil prices and thus we shall wait and see the outcome of OPEC and further members’ upcoming meeting and if an agreement will be achieved in reference to production output levels” she concluded.

Meanwhile, in a separate note this week, Affinity Research added on the crude tanker markets, that “despite the festivities going on in Greece for the biennial Posidonia event there has been plenty going on in the VLCC market. Rates are sticking to the subWS20 mark still for MEG/USG as owners are happy to discount this voyage in order to benefit from the Caribbean and US Gulf cargoes the other end. On TD3C’s waters, this week the market took a slight turn for the worse in the beginning of the week, but due to owners low expectations for Posidonia week, turned their fortunes around with activity staying strong and boosting confidence. Fundamentals remain in the charterers’ favour of course, but the numbers the owners are returning are in line with OPEX and could be difficult to break now. As the activity in the North Sea and Baltic slowed down, the amount of available Aframax tonnage was clear for all to see, particularly for owners”, said the shipbroker.

Affinity added that “following the significant correction in the Med, the downward trend on rates inevitably continued. With particularly high bunker prices, many argue that we have now found ourselves at the bottom again, however there may be the odd panicked owner desperate to get covered before the weekend. Suezmax routes have experienced dips in Whilst West Africa’s misfortunate decline gives little cause for interest for those who have not already committed, a slew of Med/East cargoes are teasing eastern ballasters with the prospect of coming through the Suez canal. Frankly, fixing such runs remains a flawed logic, as it’s easy to find one’s self in the same situation thereafter and locked into extortionate bunker prices. But the Middle East Gulf market, despite the woes of a prompter PINEOS inquiry, would seem to have hit a ceiling at WS 35, as earnings at these levels wet quite the appetite for owners once more. The Continent & Baltic/East regions are similarly buoyed as a reflection of earnings, with current bunker prices in play, as opposed to accurately reflecting market conditions. Last time TD20 was this low we were seeing USD 1.85 Mn and below on subs, which would work for traders currently, but which is a quarter million bucks away from tempting owners in our current state”, the shipbroker concluded.

 

Trading Tankers: Where and Why? (11/06)

In a lackluster market, trading a vessel in the right route is vital. In its latest weekly report, shipbroker Gibson said that “where to position tonnage has always been a key question for tanker owners. Having exposure to the right market can make the difference between a profitable or a loss making voyage. In the dynamic product tanker market, choosing the right place to be, at the right time can be even more challenging. So where should owners position their tonnage for the balance of the year? The Atlantic, the Middle East, or the Far East?”

The shipbroker said that “in the Atlantic, traditionally the focus has been on US driving season. US buying activity had certainly picked up over the past month, with imports in the US Gulf and Atlantic coasts recently hitting a 7 month high as traders replenish stocks ahead of peak demand season. However, with higher domestic refining runs, and stock builds well underway, is there really much prospect for significant buying to lift freight levels substantially over the coming months? Although hurricane season is of course, always a wildcard”.

According to Gibson, “the focus therefore shifts towards West Africa and Latin America. With elections in February, the Nigerian government is focused on keeping gasoline stocks inflated. Yet, with shore bas noted that “with summer practically at the doorstep, trade flows pick up in line with traditional seasonality. VLCC volumes experienced a great week in MEG/East from various charterers, although Unipec was the most prominent. Rates, however, failed to show any strong trends. Formosa, for example, took an older unit at 265 x WS 39.4, while HMM paid 270 x WS 44 for similar tonnage. On modern ships, on the other hand, fixtures are coming out close to the BDTI TD3C average – currently at WS 50, although charterers and owners are in slightly different places with where to value deals”.

According to Affinity, “Unipec’s busy period and strict regulations in fixing ships will ensure that premium rates go for the best approved vessels. Some charterers have been able to circumvent the thresholds set by the market’s more prominent players, but this is getting increasingly tougher. All in all, we believe rates in WAF and MEG are slightly inflated, and activity will determine whether this holds throughout the week. Nevertheless, given the expected increase in volume as the warmer months draws closer, any hope for a price spike won’t last very long. Suezmaxes have experienced a slower week, with West Africa markets correcting downwards at a rather aggressive pace”. The London-based shipbroker added that “transatlantic ballasters are inevitably distracted by local business, with arbitrage activity busy and paying up. Gibraltar positions, on the other hand, are unwilling to commit to a ballast in either direction, given limited certainty on the market’s direction. The market’s cap can be attributed mainly to the busy VLCC activity between Angola/China, which naturally decreases Suezmax volumes”.

Meanwhile, in the newbuilding market, Affinity commented that “a long time ago, in a galaxy far, far, away, the shipyards used to look forward to Posidonia. Not only was it an opportunity for top management to get out of the office, get a bit of sunshine and spend time being courted by shipowners on yachts and at parties but, they would always come home with a briefcase full of signed contracts and promises of more to come. Unfortunately for the yards, that’s simply no longer the case and yard Presidents will be travelling more in hope than expectation this week. 2018 is probably not going to be as miserable for the yards as it was in 2016 when the shipbuilding market was just about to hit the bottom of its worst recession in a generation but, they’re likely to find the shipowners’ generosity and appetite for new business still significantly less than in the glory years. With much of the Greek owning community exposed to the negative cash flow of the crude market, the shipyards will undoubtedly find the shipbuilding market substantially cooler than they would hope. Whilst there’s been a surprising amount of crude newbuilding in spite of the weak freight market, the traditional Greek owners have been conspicuously absent so far this year – partly because, with impeccable timing, those that could already have moved last year when VLCC prices were around $80mill so are not really interested at over $90mill today. And, partly, the steady cash drain from trading has corroded sentiment to the extent that newbuilding looks to many like an unnecessary luxury even if a good investment. As a result, what activity there has been this year on crude has been dominated by ‘new’ money not exposed to the current freight market or by ‘industrial’ users who are very much enjoying it! For example, it’s been reported this week that Vitol have contracted 2 option 2 VLCCs at HHI”, the shipbroker said.

“That’s not to say that nothing will happen at Posidonia. There will, of course, be the usual rounds of meetings and probably a few rogue contract / LOI signings as part of the festivities as buyers and sellers take advantage of the sunshine and each other to conclude on-going negotiations. But, this year, we expect Posidonia to be dominated more by discussion of the upcoming regulatory challenges rather than new business with the debate about scrubbers, ultra-low sulphur fuels and LNG DF continuing to rage. The yards will obviously be looking to push the advantages of both scrubbers and dual fuel (both of which work best with NB) but we suspect that they may meet with a sceptical audience as the Greek shipowning community seems to be mostly favouring the ‘do as little as possible as late as possible’ regulatory model and waiting for more clarity before committing to any post 2020 additional CAPEX. Traditionally, this has worked very well with no obvious first-mover advantage in the past. But, with the biggest potential benefits of the new fuel regulations being in early 2020 when the HFO / ULSFO spread is likely to be at its biggest, our feeling is, with scrubbers at least, the early bird will catch the worm”, Affinity concluded.

 

Tankers: Newbuilding Orders Limited Mostly to VLCCs (04/06)

While newbuildings are thought to be the main risk to the future balance of the tanker market, it seems that it’s only VLCCs.

In its latest weekly report, shipbroker Gibson said that “much attention has been given in recent months to continued activity in newbuild VLCC tonnage. We, at Gibson’s, are not an exception to that, warning repeatedly about the risk of over-ordering if investment in VLCCs continues at such a relentless pace. However, what has gone largely unreported is the fact that the pattern of ordering activity has been completely different in other tanker segments, starting from Suezmaxes down to MRs”.

According to Gibson, “most notably, investment in new tonnage has been minimal in the LR1/Panamax size group. Just 4 tankers have been ordered so far in 2018, while ordering was also highly limited over the previous two years. Without doubt, a lack of investment interest has been driven by poor performance. In recent years, LR1s have also faced an additional challenge in terms of the increased competition from both smaller and larger product carriers, frequently reporting lower earnings compared to other sizes. Not surprisingly, owners have showed preference for smaller MRs or bigger LR2s when ordering a new tanker. With the exception of Handy tankers, as of now LR1/Panamaxes have the smallest orderbook, at 7% relative to its existing fleet”.

The shipbroker added that “the orderbook for Suezmaxes is also becoming notably smaller. Only 2 firm tanker orders (plus 4 shuttle tankers) have been placed this year to date, while investment in new tonnage was also somewhat restricted in 2016 and 2017. As a result, the Suezmax orderbook has now fallen below 9% relative to its existing size, nearly three times smaller from its position two years ago. The MR orderbook (40,000 to 55,000 dwt) stands close to 10%. Investment in new tonnage so far this year has been rather modest, with just 26 confirmed orders; yet, last year over 70 new tanker orders were placed. It is also worth pointing out that the orderbook for Handy tankers (25,000 to 40,000 dwt) is almost non-existent, with just 3 tankers yet to be delivered. However, this is largely a reflection of owners’ preference for the larger MR size when ordering new tonnage”, said the Gibson.

Gibson concluded that “finally, LR2/Aframaxes have the second largest orderbook of all size groups, largely as a result of robust investment in 2017. Yet, investment has slowed once again this year, with 12 confirmed orders for the year to date. As such, the orderbook remains notably below that of VLCCs. Just under 12% of the LR2/Aframax fleet is on order versus 16% in the VLCC segment. The above developments indicate that the growth in fleet size for most size groups could slow down notably next year, particularly if the demolition market remains active. Scheduled deliveries for Suezmaxes, LR2/Aframaxes and LR1/Panamaxes are expected to fall in 2019 to their lowest level since 2015. The number of scheduled deliveries in the MR segment in 2019 is on par with levels this year, yet still notably below the number of new deliveries seen between 2014 and 2016. This paints a much healthier picture in terms of fleet growth going forward. However, in order to see a much-needed rebound in tanker earnings, the current trend of robust ordering in the VLCC segment should certainly not be repeated in other tanker classes.”

Meanwhile, in the Middle East market this week, Gibson said that “the week ended with broadly no change for VLCCs week on week with an initial slight push negated by a slower second half to leave rates at around ws 49 to the Far East for modern units and to ws 40 for older vessels, with rates to the West again at no better than ws 20 via Cape. Unless Charterers over-concentrate their activities over the last phase of the June programme, it is likely that the marketplace will again remain rangebound, and still very uninspiring when converted into TCE returns. The week started with Suezmaxes in high spirits as vessels continued to look into the Med for employment, however few were able to make sense of the longer ballast as Med/East rates flattened out and only modest local demand led AG/West rates to soften from ws 30 to mid ws 20’s while East rates remained in the ws 70 – 72.5 range. A busier final decade in Basrah provides some hope for Owners but tonnage supply should be sufficient to suppress rates from moving far from these levels. Aframaxes eased off from previous not-so-highs as enquiry moderated locally, and further afield. Rates chipped down to 80,000 by ws 95 to Singapore and may discount further into next week”, the shipbroker concluded.

 

Tanker Shipping: Added Uncertainty Is Not Helpful To The Struggling Tankers (31/05)

Overview

The impact of the sanctions against Iran and global stockpile levels are two factors to watch out for.

Demand

Just when you thought it could not get any worse for the tanker shipping industry, the US is re-imposing sanctions on Iran coming into force after a six months wind-down period ending on 4 November 2018. The immediate effects are less tangible but sure to add more uncertainty to the whole shipping industry that has plenty of uncertainty to deal with already.

At the same time, freight rates for both crude oil tankers and oil product tankers are mostly in loss making territory. Hardest hit are the larger crude oil tankers. On 25 May, average earnings for VLCC, Suezmax and Aframax stood at USD 4,238; 18,073 and 17,930 per day respectively. In the product tanker sector average earnings were almost as miserable, ranging from USD 10,561 per day for a LR2 via USD 6,500 per day for a LR1 to USD 9,121 per day for a MR.

In its April Oil Market Report, the International Energy Agency (IEA) asked whether OPEC could claim “Mission accomplished” shortly, on rebalancing the global oil market after several years of oil supply being significantly higher than oil demand. BIMCO believes that the oil market still has some way to go before being balanced. As highlighted in our most recent tanker shipping report, global oil stocks still appear to be significantly above a “reasonable” target (same stocks/consumption ratio as before the building of stocks).

BIMCO believes that the tanker industry will enjoy a noteworthy higher level of demand when global oil stocks are drawn further down. Moreover, a better oil market balance may also cause a return to an oil price contango (contango is a situation where the future price of a commodity is higher than the spot price). An oil price contango is likely to indicate an increased demand for tankers for floating storage.

Supply

March 2018 was the busiest month for crude oil tanker demolition in general and specifically for VLCCs since 2003, with 10 units sold for demolition. Such hefty activity also prompted the crude oil tanker fleet not to grow during the first four and a half months of 2018.

Even though demolition of oil product tankers was high paced too – as 1.1m DWT left the fleet, the oil product tanker fleet size still grew by 0.9% from January through April.

Whereas demolition is affecting the freight market balance right here and right now, ordering of new ships represents an omen of what is to come. Currently it seems that owners and investors who are starving in the freight market have little appetite for ordering new ships for future delivery. Crude oil tanker ordering is up by just 6% to 6.6m DWT (incl. 20 VLCC) during the first four months from a year before, whereas oil product tankers are down by 33% to just 1.4m DWT from a year ago.

Owners and investors have also cooled their interest for second-hand ships, with an average of only six ships changing ownership a month in 2018. This is 50% down on 2017-average monthly Sales and Purchase business. The degradation of the freight market conditions has also meant that less money is spent, even though asset prices have moved up since the low levels of 2017.

BIMCO revises its previous estimate for crude oil tanker demolition upwards, from 9m DWT to 13m DWT. The immediate effect of this is that our estimated fleet growth for 2018 comes down to 2.0% from 2.7%. During the first four months of 2018, 8.5m DWT of crude oil tanker capacity have been demolished.

2018 is a focus year for the crude oil tanker sector more than anything with a fleet growth below 2% – particularly, if 2019 turns out as forecasted with a fleet growth above 3%, due to lower demolition than in 2018. In an average crude oil tanker market, the fundamental conditions only improve if fleet growth is less than 2%.

Amongst oil product tanker companies, patience is virtue. The fleet is growing slowly but earnings aren’t improving. Quite a few new orders surfaced in November and December 2017, but interest have cooled somewhat since then. Staying away from the shipyards is essential for reaping the benefit that two years of tepid fleet growth (2018 and 2019 at 2.8% and 2.6% respectively) could bring around in the form of higher freight rates.

Outlook

The level of global oil stocks, and not only OECD oil stocks, remains the only factor to watch out for. It is, however, also the one factor we have no hard data for. Nevertheless, indirect measures point to stockpiles still being too high for normal tanker demand to resume.

2018 has seen such a narrow focus on VLCC orderings in the crude oil tanker sector that the obvious question is: how much is too much? The developments in shipping in general and within the oil tanker sector specifically is focused on the larger ship sizes, but it remains important not to prepare too far in advance for what is forecasted to come. The better earnings that should come out of a stronger demand scenario, may end up disappointing if there is large overcapacity.

On another note, the sanctions against Iran have already had an impact on trade. But will we be able to single out the effect of US sanctions against Iran, when they come around? The answer is, “probably not to their full extent”, because the tankers are impacted by so many other factors too – some more potent. For example, the ongoing crisis in Venezuela and Libya limits oil production in both places. Imagine if that situation was reversed? The world would then be awash with oil, something which is likely to keep the oil price in backwardation (a situation where the spot price of oil is higher than the expected future price of oil).

Additionally, more pipelines are built around the world, and they are all equally critical to the oil tankers – as they take seaborne demand away. Amongst the newer pipelines are the Sino-Myanmar pipeline to Kunming, the second Sino-Russian pipeline to Daqing and the East-West Petroline from Arabian Gued inventories full and floating storage high, imports may be constrained. However, buying activity could remain erratic, occurring as and when NNPC can accommodate more product imports. The issuance of the delayed crude for product swap quotas should also be supportive for product tanker demand, as more independent offtakers participate in import activity”.

The shipbroker added that “Latin America has proved to be the primary outlet for US refined products in recent years. However, this demand could be threatened. Higher prices have forced the Brazilian government to introduce subsidies, increasing the differential between local and international prices, potentially complicating products trading into the region in the short term. Mexico, which has been particularly reliant on the US over the past few years, is on a drive to reduce it’s import dependence. In April the country managed to increase gasoline, diesel and kerosene production to 463,000 b/d, the highest in 9 months as the Salina Cruz refinery came back online. If refining runs continue to grow, US exports to Mexico could come under continued pressure for the balance of the year. In crisis stricken Venezuela, refining runs will continue to fall; however, the impact on product import demand is likely to be constrained by the country’s ability to pay for supplies. These factors combined signal that buying activity may be different for the balance of 2018, compared to 2017 activity levels. Looking East, having exposure to the Middle East product tanker market over the summer would seem a sensible choice. Seasonally high exports around July/August, coinciding with stronger demand for jet fuel to the West and naphtha to the East often generates a spike in rates over the summer period, even if the next few weeks see somewhat of a lull in activity”.

According to Gibson, “much depends on product demand from Asia, with both demand into the region and domestic supplies being a key determinant. Fundamentally, Chinese product exports should see continued growth this year, having soared by 800,000 b/d since 2012. However, export quotas are currently flat year-on-year, suggesting no export growth from this major source of supply. It remains to be seen whether the government will issue further quotas as the year progresses. Whilst lower growth in Chinese exports might be somewhat bearish for tankers operating across Asia, it could create opportunities for tankers trading cargoes into the region, particularly with 650,000 b/d of new naphtha reformer capacity due to come online in China this year. This development should also encourage demand for the naphtha flows from the Middle East and West, perhaps lending support to the West – East naphtha arbitrage which has been limited in recent years. On the other hand, potentially flat product exports from China, coupled with more flows from other regions, could pressure returns for intra-regional and backhaul opportunities, particularly when competition from newbuild crude tankers are accounted for”, the shipbroker concluded.

 

Tanker Newbuldings Gathering Pace (09/06)

Ship owners’ sentiment towards the tanker market seems to be more positive lately, at least if one takes into account the appetite for more newbuildings. In its latest weekly report, Allied Shipbroking said that it was “a very interesting week for the newbuilding market, though the focus this week seems to have been exclusively on the tanker sector, with plenty of fresh orders coming to light these past few days. It has been stated many times that the poor freight market climate and general turmoil in this sector goes in direct contrast to what we have been seeing in terms of new ordering activity since the start of the year. For the time being, fresh interest continues to hold and it looks as though we may well see a fair amount of further units being ordered during the summer months as well. On the dry bulk sector however, we continue to see periods short periods of bursts in terms of fresh new ordering volume. At the same time prices have shown a considerable jump this past month, without much of this having been positively reflected in concluded deals as of yet. It seems as though the overall sentiment being held is not currently strong enough to support a massive new ordering spree, though there is still a fair amount of interest being seen under the surface, with a fair amount of owners still playing with the idea though hesitant to make the decisive move”.

In a separate note, shipbroker Intermodal added that “the shipbuilding market remains busy and despite that fact that the summer season has officially kicked off last week, appetite for newbuildings remains very healthy indeed. Tanker orders almost monopolized the list of the most recently reported orders, further highlighting the very firm contracting activity in the sector that has seen in the first five months of the year an impressive increase of 59% in terms of number of vessels. Average newbuilding prices are also continuing their upward trend, with those for a VLCC now close to USD 90 million and above the respective ones in 2016 and 2017. The argument for placing an order ahead of upcoming regulations while prices are still low is therefore steadily weakening. Saying this, one could also argue that given the performance of the tanker sector, newbuilding prices were never actually low, as the earning potential of an asset is what renters it expensive or not and as far as earnings are concerned the tanker market, earnings have been disappointing. In terms of recently reported deals, US based owner, Guggenheim Capital, placed an order for two firm VLCC tankers (300,000 dwt) at DSME, in S. Korea for a price in the region of $90.0m and delivery set in 2020”.

In a separate note on the S&P market, Intermodal said that “dry bulk SnP activity was softer amidst the recent stalling of the market and Posidonia underway, while appetite for tankers resumed, with buyers focusing exclusively on vessels built 2000 onwards. On the tanker side we had the sale of the “IVER EXACT” (46,575dwt-blt ‘07, S. Korea), which was sold to Greek owner, Spring marine, for a price in the region of $14.0m. On the dry bulker side sector we had the sale of the “JIN FU” (50,700dwt-blt ‘01, Japan), which was sold to Chinese buyers, for a price in the region of $8.7m”.

Similarly, Allied said that “on the dry bulk side, activity seems to have scaled back slightly this past week, though there was a considerable volume of chatter as to ongoing deals that could well surface over the coming days. Interest is still there and it looks as though prices have been on the move again these past couple of weeks and we may well see this trend hold off for a little while longer. Given that we are in the midst of the Posidonia Exhibition fever, we may well see a fair amount of high profile deals take shape over the coming days. On the tanker side, activity continued to hold a fairly firm levels, though once again characterized by a few enbloc deals. Against this increased activity, prices still seem to be slightly waning, especially for older aged units, though the improved interests levels being seen amongst buyers and an ever increasing level of interest being noted amongst investors for this sector could well help price levels stabilize fairly soon and even push for a slight upward correction”, the shipbroker concluded.

 

VLCC Owners Rejoice Ahead of Posidonia, While Shipyards Are Looking for More Business (05/06)

While Athens is in the spotlight of the global shipping community this week, with the bi-annual international gathering of Posidonia taking place, owners of VLCCs, many of which are indeed Greeks, are able to smile more, as a result of improved market sentiment, despite the fact that it has not translated, yet, to higher freight rates. In its latest weekly report, shipbroker Affinity Researchlf to Yanbu in the Red Sea.

Another trend to keep an eye out for is the extent to which Europe is going to keep imports of oil products high. In recent years we have seen especially Middle Eastern refineries built for exports, with more to come online in the next couple of years. But will those refineries end up producing for domestic purposes?

 

Chemical Shipping: A Growth Story Worth Taking a Look At (29/05)

While the crude tanker segment is for yet another year in the doldrums, other wet segments are faring better. One such example is the the chemical tanker market, with the world’s liquid chemical seaborne trade growing at an exceptionally impressive 7% to 196 million tons in 2017. In a recent note, ShipFocus, said that “this compares to an average 5-year growth of just over 2% or a 10-year growth of 3%. We expect world’s volume to grow more moderately but still above average at about 4% this year. So, who are and will be the winners and losers with such solid growth? How have the chemical tanker carriers won or lost on the various shipping routes that enabled these cargoes move? Which are the cargoes that helped chemical traders thrive? What should you bank on next?”

According to ShipFocus, a chemical shipping specialist firm, “the world’s top three chemical tanker trade routes, namely, Intra-NE Asia, Intra-UK Cont, and MiddleEast/NE Asia saw their volume grow in 2017, helping them retain their respective pole positions. Intra-NAFTA at fourth position is quite a distance away with 11.6 million tons and little change from a year ago. NAFTA trades with South America countries increased almost 20% and helped this trade route move up 2 ranks to fifth position. At the same time, a 5.6% drop in volume from NAFTA to North-East Asia caused the trade route to drop from 5th to seventh position, while Intra-South-East Asian rapid and healthy growth to 6.1 million tons puts the former under threat even at its new 7th position. Resumption of production from earlier plant disruptions helped Singapore exports rise substantially and contributed to an over 10% increase in volume for the SE Asian north-bound trade route to retain its sixth position. Of the world’s top cargoes moved in chemical tankers, Methanol came in first with about 30 million tons moved, of which Iran and Trinidad & Tobago are largest exporting countries with about 4.2 million tons each. Paraxylene is the second largest product moved, growing by 2 million tons to 20.5 million tons in 2017. Chief beneficiary is Korean shippers who collectively were the biggest supplier to feed its Chinese neighbour’s insatiable demand. Sulphuric Acid which requires stainless steel cargo tanks grew by a million ton to 17.8 million tons, taking 3rd place with Korea being largest exporting country as well”.

Analyzing the three major routes, ShipFocus noted that the “Intra-North East Asia trade maintains its reign as the world’s biggest trade route for liquid chemical shipping for 2017 with almost 27 million tons of various petrochemicals traded and shipped. This is a growth of about 7% in volume over 2016’s. Largest product is Paraxylene which constitutes a huge 44% of total volume. You don’t get a prize for guessing that China has a big part to play in this. Yes, China makes up 75% of total volume traded, and 70% of net growth. South Korean shippers who benefitted from this huge product market include SK Global, Hanwha Total, S-Oil and GS Caltex”, said ShipFocus.

The “Intra-UK-Continent trade route comes in 2nd with an aggregate volume of over 25 million tons, a 9% growth over 2016, mainly from Caustic Soda Solution, Benzene and Methanol. Overtaking top cargo Benzene, Caustic Soda grew a huge 60% to almost 3 million tons to become the biggest cargo traded. Largest Caustic Soda suppliers in Europe include Dow Chemicals, Akzo Nobel, Inovyn and Bayer. Ethanol and Styrene being 4th and 5th largest shipped cargoes in this route also grew very healthily at 17% and 14% respectively. Will UK-Continent trade route renewed growth continue and help it to outdo its North-East Asian counterpart for the champion position next year? Looking in detail at how the trade route has grown, there is an across-the-board increase in all major countries for both imports and exports. The proposition for its continued growth is very good to say the least. Interestingly, specialty chemicals vis-à-vis basic or bulk chemicals, which has a 28% (above global average) ratio in the European trades, grew only 1%”, the shipbroker and digital shipping company noted.

Finally, the Middle East/NE Asia route is a ‘typical trade route’ shipping people know more about: “a distinct supply area where cargo is loaded and going to a receiving area where the ship discharges: Middle-East is one of the largest collective suppliers of petrochemicals, while NorthEast Asia on the other hand is a largest collective supplier of these cargoes. A total of more than 17 million tons was shipped in this trade route, growing almost 5% in 2017. When we break down into slightly more detail, we can see where the growth is attributed to: Trade from Saudi Arabia to China shines as the world’s top countrypair in terms of liquid chemical shipped, generating over 38 billion ton-miles of chemical tanker space demand. Saudi Methanol Co., National Methanol Co. of Saudi Arabia; Zagros, Fanavaran of Iran; OMI and Salalah Methanol of Oman are top shippers of the largest cargo in this trade route”, ShipFocus concluded.

 

Tanker Market: Is Mexico’s Oil Industry Shakeup a Factor? (28/05)

In its latest weekly report, shipbroker Gibson said that “Mexico’s energy sector could be radically overhauled if the current frontrunner in the July elections wins office. Candidate Andres Obrador has indicated that major reforms will take place should his party take office. Information published by Reuters stated that Obrador is opposed to sending crude oil abroad. The report goes on to say that he would try to put an end to all crude oil exports within three years of coming into office, focusing instead on refined products. Obrador’s energy adviser said that the country needs to try to consume their own fuels and not depend on foreign gasoline. He went on to say that this would be bad for US refiners, who export around 800,000 b/d of gasoline and diesel or 66 percent of Mexico’s domestic demand. Mexico is currently the biggest importer of US refinery exports. Obrador’s plans also include expanding the processing capability of PEMEX’s six refineries and building one or two more to add 300-600,000 b/d to the current 1.6 million b/d production”.

According to the shipbroker, “over the past decade, Mexico’s crude production has been falling due to the decline of several mature fields and the failure to develop replacement sites to compensate. Since 2013, the government has allowed foreign investment into the energy sector in an attempt to halt plunging production and ending the monopoly held by the state-owned PEMEX. However, this so far has failed to translate into higher output. In fact, according to the IEA, Mexico’s production is set to continue to fall this year. Yet, last year two significant oil discoveries were made – a huge offshore discovery by a Talos Energy led consortium (Zama-1) and a significant onshore discovery by PEMEX. Initial estimates suggest that Zama-1 holds in excess of one billion barrels. The PEMEX discovery, the largest onshore discovery in 15 years, is also estimated to hold a similar volume of high quality light crude and gas”.

Gibson added that “the current Mexican government had hoped to attract more investment from international companies to explore offshore waters in a bid to improve reserves and ultimately production. Initially, auctions to open up deepwater oil blocks were met with limited success, with only 2 winning bids for the 14 blocks available. This in part might be to the uncertainty ahead of the July elections. Obrador, if elected, also plans to review contacts signed by the existing government with foreign investors. Critics have warned that Obrador’s election could derail reforms and lead to a renationalisation, similar to what happened when Chavez came to power in Venezuela. International investors are keen to pump billions of dollars in exploration but are waiting to see what post-election reforms would take place should there be a change of government. When Chavez nationalised the Venezuelan energy sector in 2007, he did this after foreign companies had poured billions of dollars into a series of costly oil projects, which were producing huge amounts of crude. Chavez made his move at a time of high oil prices providing the Venezuelan government with a huge windfall. The current situation in Mexico is different, with the nation still requiring investment to kick-start the industry. To change the structure of the Mexican oil and gas sector will take time and of course investment. However, should Obrador’s proposed plans come to fruition, could the impact on both the crude and products sector in the Caribbean be significant for tanker trade? For the moment this remains political rhetoric but once again this could be a development to watch”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week. Gibson said that “modest VLCC demand through the week met ongoing good availability, and although Worldscale rates did inflate very slightly, it was merely a compensatory move to account for higher bunker prices, and net earnings remained at little better than at Opex levels. A slightly more active phase right at the very end, prior to the long weekend for many, added extra noise, but probably little else. Rates operate at up to ws 49 to the Far East with older unit’s still sub ws 40, and levels to the West at no better than ws 20 via the Cape. Suezmaxes started poorly but then attempted to push a little higher as many Owners decided to ballast away – rate ideas moved to around ws 70 to the East but remained at little better than ws 25 for more popular West runs. Aframaxes picked up the pace and bolted down an improved 80,000 by ws 100 to Singapore as their default number accordingly. More could yet be engineered, but Holidays will perhaps delay any further improvement”.

 

Overwhelming Tanker Orderbook Is Pushing Some Owners To Retire Ships Well Below 20 Years of Age (26/05)

In its latest weekly report, shipbroker Allied Shipbroking said that “one thing that can be said with certainty is that 2018 is all but what can be described as a stellar year for the tanker market, given the turmoil it has faced during these past five months and the repeated inability to show an ability to sustain itself on a stable track. Given that VLCCs are often considered as the flagship size segment for the crude oil market, it is notable to point out that they their TCE earnings eased back to – $5,449 per day during the latter part of the previous month, a figure not repeated since the last trough point back in 2014. For year so far their TCE levels haven’t been much more impressive, having stayed mostly in the negative territory, while the average figure for the past five months is closing in on – $2,100 per day. This is a level well below what we were seeing last year, which was in the region of $ 10,200 per day, let alone when compared to the respective figures of 2016 and 2015”.

Allied added that “yet despite this softening in earnings, most market participants seem to be showing a fairly perplexing and multi facet sentiment for the time being. Following the current downward spiral in freight rates, we have witnessed a record level of scrapping activity in the year so far. This can be considered to be attuned with the low earnings witnessed, but in part it has also been greatly nourished by the strong fundamentals noted in the ship recycling market at the same time. Simply put and to get straight to the point, scrapping activity during this period has already exceeded that noted during the whole of the past year”.

According to Allied’s Thomas Chasapis, Research Analyst, “on the other side of the balance and at the same time, we have seen a relatively enhanced level of newbuilding activity, which has come to add a level of considerable perplexity to the whole picture, given the supply/demand imbalance and the difficulties being faced. One would have hoped that new ordering would have scaled back, leaving room for some re-balancing to take place in the years forward. Against this logic, new ordering activity noted up until the end of April had already reached levels which were close to half of the total volume noted last year”.

He added that “this leaves us with an orderbook to total overage fleet (vessels over 20 years of age) ratio in the region of 680%, a very high ratio that can easily turn out to be overwhelming over the next couple of years, given the bearish indication taken on the demand side of the crude oil trade. However, it is quite key to point out here that during this most recent ship recycling drive for VLs, we have seen a fair number of vessels being retired at ages of well below 20 years. All-in-all, with what has been stated so far, the recovery for the tanker market in terms of earnings could prove to be a long and arduous journey given the current trends and geopolitical shifts being seen. For the time being, the most recent upward track noted in the price of crude oil can be seen as a possible glimpse of hope for the market, given the potential brought by the increased price arbitrage between markets and potential for contango trades. However, given that this most recent price hike has not been as a result of any demand shifts but rather shifts and fears of potential disruptions in supply, we could well see this turn out to be less than favorable for crude oil carriers. One would think that the overall approach being taken by most investors is that the overall long-term prospects look better, and it may well be that on this basis this most recent investment drive may inevitably find fertile ground”, Allied’s analyst concluded.

 

Ship owners snap up tankers (25/05)

Tankers are being bought left and right as prices are becoming more attractive. In its latest weekly report, shipbroker Intermodal said that “in the last six months we have seen more than 110 reported tanker transactions involving tonnage larger than 32k dwt and younger than 18 years old. The transactions are more or less equally segregated between crude and product tonnage, with crude carrier transactions slightly more than product ones). Among these sales we notice a bit of imbalance occurring at the depreciation that is associated with age and type. When it comes to tankers the rule of thumb states that after a ship passes the 10 year mark its value depreciates at a faster rate. More so in a market that has being depressed or declining for more than 18 months as the current one”, said the shipbroker.

According to Mr. Timos Papadimitriou, SnP Broker with Intermodal, “at this stage the only segment that has shown remarkable resilience are the S. Korean built MR tankers 10 years old or younger. These ships seem to defy the overall trend and are actually resisting to price discounts rather strongly. A representative example is the Kirk and Norden deal involving two vessels both 2009 built which were reported sold at $18.65m each. In June 2017 the ex- “KIRSTIN” (50,078dwt-blt 09, S. Korea) was sold to Norden at a reported price of $19.25m. Hence, the same buyer bought similar vessels with the two deals taking place a year apart and with only a 3.1% decrease on the respective values”.

Papadimitriou added that “similar resilience can be seen on Japanese tonnage but for earlier built ships. The “CHRISTINA KIRK” (53,540dwt-blt 10, Japan) was recently sold for a price of $17.75m, while last year the “NORD INTEGRITY” (48,026dwt-blt 10, Japan) was sold after its long T/C for a price of $17.50m. The $250k difference (as reported) can be even argued as a reasonable premium due to the deadweight difference. But if you look at values of Japanese MRs of even a year older, these seem to be depreciating at more reasonable 8% per year For example the “HIGH ENTERPRISE” (45,967dwt-blt 09, Japan) and the “SILVER EXPRESS” (47,401dwt-blt 09, Japan) were both committed at low $16.0m. The deal did not go thought and one can argue that this happened due to their respective condition, specs and the overall nature of each deal. But this sort of parameters rarely influences a deep-well ship”.

Intermodal’s broker said that “if we take a look at MRs older than 10 years and regardless of where they are built, a massacre takes place. The closer a vessel approaches to the 15-yr mark the harder it becomes to retain its value. A recent example is the BP owned vessels (47,000dwt-blt 05, S. Korea), which were fixed and failed two months ago in the region of $12.0m each and were once again committed last week for $10.7m per vessel. Even vessels built in 2006 or 2007 seem to be having trouble finding keen buyers”.

Meanwhile, “as far as overall sentiment is concerned, the majority of the product players do not expect any signs of recovery before Q1 2019. There have been some voices supporting that recovery will start earlier. These were mostly cased around the product and crude reserves and what happens historically. Either or, expectations that around the same time next year we will be seeing a better market are unified. So asset wise we can say that more or less we are now going through the bottom of this cycle or –most optimistically – that we very recently reached it, while the second half of the year will most probably offer more clear signs in regards to how long it will be before optimism returns to the market”, Intermodal’s analyst concluded.

 

Aframaxes in the North Sea the Silver Lining of the Tanker Market (22/05)

The tanker market has been facing the doldrums for quite some time now. But if one could attempt to find a silver lining in the market since the start of 2018, this would be the Aframax segment in the North Sea. In its latest weekly report, shipbroker Gibson said that “it goes without saying that crude tanker earnings across all size groups have been at very depressed levels this year. However, if one is to choose the “winner” in terms of the worst performance, it probably will be Aframaxes trading in the North Sea. Despite traditional support offered to the market during the winter months, spot TCE earnings on the key trade from Hound Point to Wilhelmshaven (TD7) averaged so far in 2018 at disastrous levels. The running average for the year to date shows a negative return of minus $1,750/day for a tanker with standard consumption levels before waiting time is taken into account”.

The London-based shipbroker added that “in addition to weak fundamentals, there are also factors behind this exceptional weakness that are unique to Aframaxes trading in North West Europe. Mild weather for most of the winter season reduced to the minimum the volatility in rates. There has also been a notable decline in Russian crude exports in the Baltic. Crude exports from Primorsk and Ust Luga averaged just under 1.3 million b/d during the 1 st quarter of this year, down by over 350,000 b/d compared to the corresponding period in 2017, following the expansion of the ESPO pipeline spur into China mainland. Crude production in the North Sea has also declined, although not so dramatically. Output fell by 130,000 b/d during 1st three months of this year relative to Q1 2017”.

“While there is less demand, tonnage availability is heavier, and the growing fleet is only one of the reasons. Since September 2017, there has been a notable increase in volume of US crude being shipped to Europe, primarily on Aframaxes, boosting the number of tankers looking for employment in the region. According to AIS data, during the 1st four months of this year 35 Aframaxes loaded in the US for discharge in North West Europe compared to just 14 units over the corresponding period in 2017. Another 26 Aframaxes departed from the US for the Mediterranean discharge between January and April 2018 versus 11 tankers over the same period in 2017”.

Gibson added that “the current trade dynamics in North West Europe are unlikely to change dramatically anytime soon. Production cutbacks need to be lifted to see meaningful and sustainable increases in crude exports out of Russia. Output in the North Sea is projected to slip further this year and in 2019. Only in 2020 production is forecast to bounce back, following the start-up of new projects in Norway. At the same time, crude supply in the US keeps rising at relentless pace, suggesting that exports are also likely to carry on growing. Most of the growth in demand for US crude is coming from Asia. However, until VLCC loading infrastructure in the US is improved to eliminate the expensive practice of reverse lightening, US barrels could remain attractively priced for the European market. If this is the case, it will only keep Aframax availability off the UK Continent and in the Mediterranean at elevated levels. Yet, as there is limited scope for growth in crude demand in Europe, the same is also likely to push more of the regional supply, be it West African, Mediterranean or North Sea barrels, to Asia on bigger tonnage”.

“As far as the Aframaxes trading in the North Sea are concerned, perhaps the most realistic prospect for improvement in the immediate future is actually on the supply side. As spot earnings are worse than in other key trades, owners may be prompted to reposition to a different trading area, if the opportunity arises. Owners of coated tankers may take an even more radical approach and switch to the clean tanker market all together. Longer term, the slowing pace of deliveries and prospects of higher demolition driven by new legislation offer hope for a more substantial recovery”, Gibson concluded.

Meanwhile, in the crude tanker markets this week, in the Middle East, the shipbroker said that there was “no improvement in extremely depressed earnings for VLCCs, despite Worldscale market values moving up a few ws points over the week – a merely compensatory move for higher bunker prices. Availability remains very easy, and the fresh June programme is unlikely to cause Charterers any cause for concern. Rates operate at up to ws 44.5 East for modern units with under ws 18 available to the USGulf via Cape. Suezmaxes remained flatline, at best, and an increasing number of Owners are precluding themselves from Iranian trades to further swell availability for other loadports. Rates cling on to around ws 62.5 to the East, and to ws 25 to the West with many vessels likely to head to the Atlantic in protest/as alternative. Aframaxes found reasonable levels of enquiry, and enough to ease rates into the mid ws 90’s to Singapore, where they are likely to hold over the next fixing phase also”.

 

Tanker Market Looking For More Upside Momentum This Week (21/05)

With the geopolitical side of the oil markets taking over, the tanker freight market is looking for more signs of a sustained recovery. In its latest weekly report, shipbroker Affinity Research said that “this week has been off to a good start, as we are seeing both steady and firming trends across the board. In Suezmax markets, we have seen positive momentum yesterday with fixing down in West Africa. Sentiment is firming up nicely, and we are now looking at an average WS 65 as a representative market base for TD20. The North, Mediterranean and Black Sea regions, on the other hand, are much more subdued by comparison”.

Nevertheless, according to Affinity, “freight rates do not look like they will be coming under pressure any time soon, so no reason to worry as of yet. By comparison, the Basra / West route is stable. Kharg is looking firm, but proving difficult to freight due to uncertainty over willing tonnage. As things remain up in the air on the Iranian sanctions front, some of the typical players continue to sit back and wait for clarity on how the sanctions will manifest. Our VLCC team questioned what kind of effect rising bunker prices would have on fixtures this week. Bunkers at Singapore went from $441/pmt to $448/pmt overnight, which meant that in order to make the same return ($5,000/day) with such a discrepancy, one would be aiming for a WS 0.44 premium. On the West African front, we are quite certain that owners will feel that there is just too much to shell out for bunkers on the longer voyages to simply be compensated with a w0.44 premium. Will owners take the plunge or not? On the one hand, summer is looming and there is always the argument that you lock in the asset for the prolonged voyage and simply forget about it for a while, as rates are not expected to improve significantly. However, when you consider fundamental supply and demand, we aren’t very convinced this will be the case”.

Affinity added that “VLCCs are piling up in the Middle East Gulf, with 93 ships in position at present to make a first decade load inside MEG. Even if we only covered as little as two June cargoes out of an exceptional decade, we have more than enough boats to go around. A majority of the Aframax traffic has been driven by continued rises in oil prices and bunkers. Due to current ullage and unsold oil issues as well, vessels being off the list have kicked rates up quite nicely. The Mediterranean has taken a welcome jump in three figures, while seeing as much as 80 X WS 120 on subs today. The North Sea has seen a comfortable mid- to high WS 70s average, and should be closer to the WS 100 mark when tested. With oil price volatility meaning physical trading increases as well, owners can feel buoyant moving into the weekend”, the shipbroker concluded.

Meanwhile, in a separate weekly report, shipbroker Charles R. Weber added that “a number of fresh appearances on Middle East position lists saw the May surplus surge to a fresh multiple‐year high, prompting rates to tick down lower this week before rebounding modestly to compensate for rising bunker prices..  With the May Middle East program seemingly complete, the number of spot units uncovered tallied at 38, representing the highest level since August 2012.  This comes despite the fact that some units previously constituents of May availability opted to speculatively ballast to the Americas in hopes of achieving better returns than the paltry levels yielded by AG‐FEAST trades and exposes the extreme level of oversupply gripping the market.  The last time surplus capacity stood at 38 units, AG‐ FEAST TCEs collapsed to just ~$5,067/day.    These voyages presently yield ~$8,589/day. As the market progresses past the early part of the June program, challenges are likely to remain.    A surge in WAFR‐FEAST demand during March kept units off position lists for longer than more conventional AG‐FEAST runs.    However, these units are now likely to return to position lists progressively during June, which raises the threat of a further hike in surplus capacity and a corresponding undermining of rates.  Present indications for June’s first decade surplus are ~20 units, though we expect that hidden positions will emerge and increase the number.  As more units come into play by the second‐decade, a higher surplus could materialize. Our analysis of proprietary intel and AIS data suggest the surplus could rise to as high as 38 units, matching May’s surplus”, the shipbroker concluded.

 

US sanctions on Iran to have limited effect on crude trade and tanker demand (21/05)

The United States (US) unilateral withdrawal from the Iran Nuclear Deal is unlikely to have any significant impact on the global crude oil trade and tonnage demand in the tanker market, as long as the deal is honored by the other signatories, and Saudi Arabia and other producers are willing to fill the possible shortage in global oil supply.

The US has unilaterally withdrawn from the Iran Nuclear Deal, also known as the Joint Comprehensive Plan of Action (JCPA), accusing Iran of continuing nuclear activity. It has also re-imposed sanctions on Iran’s energy, petrochemical, shipping and financial sectors with a grace period of six months. Businesses have a six-month wind down period for Iran dealings, otherwise, entities transacting in US dollars or that have operations in the United States, will be barred from accessing the US banking and financial system. The US Treasury Department has advised foreign buyers of Iranian crude and refined products to curb their imports during the 180-day wind-down period to qualify for exemptions from sanctions.

Although the pre-nuclear deal sanctions resulted in about a 1 million bpd drop in Iran’s crude exports, the impact of sanctions this time around will be much less prominent due to the absence of full support from Europe and Asia. While China has made it clear that it will continue to imports Iranian crude as along as the nuclear deal is intact, crude imports by other Asian buyers will be hinged on the Europe’s stance on the issue over the next six-months.

At this stage, European leaders look determined to fight US’s effort to renew sanctions on Iran. As long as Europe is in JCOPA and European insurance companies keep providing insurance cover for Iranian crude trade, the impact on Iran’s oil exports will be muted as almost all Iranian crude exports moves to Europe (30%) and Asia Pacific (70%). Turkey, France, Italy, Spain and Greece are the key buyers of Iranian crude in Europe accounting for about a third of total Iranian exports.

While Turkey is expected to continue to import Iranian crude, integrated oil companies (IOCs) and refiners in Europe with foot prints in the US will feel the heat of US sanctions. Still, as the volume of Iranian crude imports by IOCs is very small, the overall impact will be modest. Even if European countries align with the US, scrapping JCOPA, the impact on Iranian exports will still be lower than the previous sanctions as China, which imported about 650 kbpd of Iranian crude in the first quarter of 2018, will continue to import Iranian crude. Meanwhile, any decline in Iranian crude exports would lead to the return of about 17 of National Iranian Tanker Co (NITC) vessels to floating storage, reducing tonnage supply in the market.

Moreover, as Saudi Arabia is willing to work with major OPEC and non-OPEC producers to fill any gap in global oil supply on account of the US sanctions on Iran, global crude oil trade is unlikely to see any significant change. Saudi Arabia, the UAE and Kuwait are collectively producing about 200 kbpd lower than their agreed production levels, which can be used as a buffer for any drop in Iranian supply. For any decline in Iranian production beyond 200 kbpd, OPEC and non-OPEC producers will have to revise the production quota to fill the gap. But in all likelihood, oil producers, especially Saudi Arabia would try to keep production at levels which will support oil prices around $80 per barrel.

 

Turmoil on the Oil Markets and the Tanker Conundrum (18/05)

The oil market is experienced the full force of the Iran sanctions and shipping is next in line. In its latest weekly report, shipbroker Allied Shipbroking said that “we are following through from last week’s insight on the crude oil market jump, as developments rock the validity of this new 4-year high mark in its price. As previously discussed, these latest advances in the price of crude oil have been heavily fueled by the abandonment of the nuclear deal with Iran by the US, bringing the potential of shortage in terms of supply. However, as the week progressed it became apparent that the rest of the parties involved in the deal would step up and do their outmost to uphold the terms and keep “things going”.

According to Allied, “Europe has played an instrumental role here, with most of the European leaders and the UK having embarked in efforts to uphold the accord and shield European companies from possible US sanctions that would threaten a considerable amount of investments that have been made since the deal was first struck. This is a key step, given that a considerable volume of crude oil from Iran has typically been destined for Europe, while at the same time Iran heavily depends on supplies and access to financing from European companies. At the same time China has also taken up the opportunity to further enhance its relationship with this major oil producer, extending valuable discussions with Iran’s Foreign minister as it looks to find ways around the re-establishment of US sanctions”.

Allied’s George Lazaridis, Head of Research & Valuations noted that “a bigger key to all this however, will be the turbulence all this will bring on the price of crude oil itself. After the initial surge in price which has reached now close to US$ 80 per barrel, things are slowly looking to settle down. The reason in part has been the aforementioned efforts by other countries to uphold a deal despite the absence of the US. Yet, it seems as though the biggest driving force however has been developments that most would have expected to take place at a much later stage. OPEC is already seen as a possible source for plugging any possible gap left behind by Iran, with enough spare production capacity along with Russia to more than easily offset any cut back in Iran’s production levels. At the same time, it looks as though US producers have been very quick to respond to these most recent developments, despite the near-term limitations they face.

Lazaridis added that “one of the biggest issues they have to battle with is the pipeline capacity constraints that is being seen in west Texas, the very heart of the US shale boom. Despite this considerable limitation, a number of projects have regained momentum over the past couple of days for the tackling of this issue through new pipeline capacity development. The fruits to bear from these efforts will most likely take more than a year to show face, yet, it will surely push for another reshuffling of the global crude oil trade map. Beyond the typical discussions revolving the tanker market and possible influences these geopolitical developments may have on their trade (something that has been extensively discussed in previous issues), it is important to look at the overall effect it has on the shipping industry as a whole. A common view that is often expressed amongst practitioners, is that high oil prices foretell a market rally in general. This may well have been the case in past decades, where a spike in the price of crude oil would be directly linked with some sort of spike in consumption levels and as such a spike in industrial production. In this particular case however, an overwhelming spike in the price of crude oil could act counter to this logic, choking the demand growth in trade rather than being a forbearer of the reverse”, Allied’s analyst concluded.

 

VLCC Still the Main Demolition Candidates (17/05)

The ships’ demolition market has been dominated by wet tonnage so far in 2018, with the past week proving no exception to the norm set since the beginning of the year. In its latest weekly report, Clarkson Platou Hellas siad that “last week had seen some firmer prices return to the market with once again VLCC’s being the main tonnage being offered by Owners whilst the Tanker market continues to remain in a depressed state. As cash buyers look to have offloaded the bulk of their larger wet tonnage previously acquired into the ‘now-open’ Pakistan market, it has meant a small sense of cautious appetite has returned resulting in some stronger numbers being offered on the subsequent VL’s that entered the market. However this sense of positivity is not viewed across the board as each individual buyer still has its own ideas on the market with some preferring prompt tonnage before the upcoming Ramadan and Monsoons, whereas others seem to have preferred the gamble on a longer laycan, leaving it difficult to gauge whether prompt or longer deliveries are more beneficial to buyers. With Ramadan now upon us, we may see a cooling off period taking shape over the next few weeks and therefore Owners may hereafter find it harder to attract even an offer for any available tonnage”.

In a separate note, Allied Shipbroking added that “things in the recycling market turned rather blurry for the time being, given the fact that activity in the Indian Sub-Continent is unable to sustain its previous fixing volumes. Despite Pakistan’s re-opening for tanker units, offered price levels remain under pressure, as inventory circulated into the market is excessive and most End Buyers seem discouraged to bid at these levels. Moreover, given that we are now close to a traditionally quiet period for the demolition market, and with weather disruptions already being felt to some degree, this may have spooked most cash buyers from any excessive speculative buying while also looking to take a more conservative approach, holding back their cash for when the uncertainty seems to have cleared up. Regarding the other main ship recycling destinations, recent news of the closure of the Chinese recycling market for international flagged vessels, came to add extra pressure to the mix, despite the fact that China has been unable to compete in this market for some time now. On the short run, given that the closure is planned to take effect from January 2019 onwards, it is unlikely that this will play an imminent role in the overall price of scrap”, the shipbroker noted.

According to the world’s leading cash buyer, GMS, “following the official reopening of the Pakistani market for tankers, the offloading of the plethora of unsold tanker / VLCC tonnage continued at pace this week, as interested Pakistani Buyers eagerly filled their plots. There were further VLCC sales concluded this week, gradually bringing the total number of units sold through 2018 towards the 30 mark, which looks likely to hit even before the end of May (not even halfway through the year)! There is a noteworthy dissimilarity in pricing a VLCC vs. an MR / Aframax / Suezmax tanker as very few end Buyers in the Indian sub-continent are capable of opening such large U.S. Dollar value Letters of Credit (LC). Under the current market conditions, this can easily amount to an approximately USD 18 million LC on a roughly 40,000 Lightweight unit. Given the limited number of capable end Buyers who are able to do this (translating into a lower demand), VLCCs are discounted far more than the average tanker for which, a greater number of Buyers are open / available to negotiate.

Moreover, VLs generally take between 6 – 8 months to fully recycle, resulting in a significant exposure for the respective Buyer who will likely endure multiple market peaks & troughs over this period and only a Recycler with a strong financial standing is generally willing / able to withstand such fluctuations. Pakistan and Bangladesh – both of whom have already reached their saturation points – tend to be the main Buyers for such large LDT tonnage, whilst India prefers smaller sized vessels that they can quickly recycle and minimize their market exposure (due to the generally volatile nature of steel plate prices & currency fluctuations) before moving onto the next unit. Finally, for those owners who choose to sell their large LDT ships into India for HK SoC green recycling (such as Ridgebury Tankers this week), there is generally another hefty discount to endure (about USD 500,000 in this case) as compared to conventional recycling. GMS APPLAUDS their decision for choosing responsive recycling standards over price”, GMS concluded.

 

Tanker Owners Shouldn’t Panic Over Iran Affair Claims Shipbroker (15/05)

The impact of the US’ President Donald Trump to repeal sanctions relief for Iran, effectively terminating the agreement in place over the Middle Eastern country’s nuclear program was the main event in the tanker market last week, bringing a flurry of speculation. In its latest weekly report, shipbroker Gibson attempted to offer some valuable insight, weighing in on past experience and tangible data. According to Gibson, “market participants have been given a 180-day grace period, but we could see many adjust much sooner. In terms of oil production, estimates vary widely, with analysts calling the impact somewhere in the region of 200,000 b/d to 1 million b/d. Much will depend on demand for Iranian oil. Perhaps the biggest fall in buying activity will come from Europe. Even though the EU opposes Trump’s decision, European players may be forced into line regardless. A lot depends on the stance taken by the finance and insurance sectors, whose cooperation is required to facilitate trade with Iran. If these institutions take a more cautious approach, then Westbound flows are likely to see substantial declines, perhaps with the exception of Turkey and Syria”.

However, “predicting the move of Eastern buyers, who proved to be loyal customers during the last round of sanctions is trickier. China is largely expected to continue buying Iranian grades and may be tempted to consume even more as price differentials become more attractive. However, Japan and South Korea, who were consistent buyers during the last sanctions era have so far reduced their purchases already this year. Japanese buying averaged 85,000 b/d, down from a peak of 215,000 b/d in 2016, whilst Korea has reduced its intake by 65,000 b/d YOY. India has however, increased its purchases of Iranian crude, importing 492,000 b/d so far in 2018, supported by the need to replace lower Venezuelan volumes. Sanctions may of course make buying for Indian refiners more challenging, but overall most Indian refiners are expected to remain significant customers”, Gibson said.

So how will these developments impact the tanker markets? According to the London-based shipbroker, “on the one hand, the more Iranian exports decline, the bigger the reduction in crude tanker demand. However, other producers are likely to compensate for any lost Iranian barrels. Furthermore, one must consider that a significant proportion of Iranian exports are carried on Iranian tankers, particularly VLCCs (of which NITC owns 38). If exports increase from elsewhere, for example Saudi Arabia or Iraq to compensate for lower Iranian volumes, then these volumes will not be carried on Iranian VLCCs – so international tanker owners will benefit, whilst Iranian ships spend more storing or idling. Whilst sanctions may be marginally beneficial for VLCCs, the benefit for the Suezmax sector is less clear. If Saudi Arabia makes up the lion’s share of lower Iranian exports to the West, then the Suezmax market might surrender some market share to the VLCCs. Additionally, as NITC only operates 8 Suezmaxes, there is unlikely to be much impact on fleet supply”.

Gibson concluded its analysis by noting that “overall there remains some uncertainty as what the impact might be. Losing Iranian oil from the market is only a negative if it is not substituted from elsewhere or impacts upon tonne mile demand through more short haul crudes being sourced. Simultaneously, losing Iranian ships from the open market is positive for the supply/demand balance. In our view, tanker owners need not panic. Besides, it can’t get much worse, can it?”

Meanwhile, in the crude tanker market this week, in the Middle East, it was “another extremely frustrating week for VLCC owners to endure. Bunker prices have ramped higher to further squeeze earnings and initially it looked as if some mild compensatory gain could be achieved to offset, but the sheer weight of availability quickly extinguished any occasional redress, and rates again compressed down to ws 40 East for modern units and into the very low ws 30’s for older vessels with runs to the West at no better than ws 18 Cape/Cape. Next week will see the introduction of the June programme, and it could then get a little busier, but that is unlikely to materially help. Suezmaxes gently ebbed and flowed but on very modest volume, and rates ended more or less where they began, at 130,000mt by ws 65 to the East and down to ws 26 to the West. No near-term change likely either. Aframaxes saw just about enough to hold at an average 80,000mt by ws 87.5 to Singapore and are not anticipating conditions to improve sufficiently next week to change the picture”, Gibson concluded.

 

Tanker Market Lacking Direction (14/05)

Tanker owners had little to talk about during the course of the past week, amid holidays left and right, but it was the geopolitical side of the market, which caused the most stir, as a result of the reprise of Iran sanctions from the US. In its latest weekly report, shipbroker Charles R. Weber commented that “the VLCC market saw rates extend last week’s late rate gains through mid‐week on a moderated level of surplus capacity and rising bunker prices. By the close of the week, however, the bear market returned in full swing from mid‐week with rates plunging Thursday after an S‐Oil market quote was met with over a dozen offers.   Having touched ws45 on Tuesday (its highest level in a month), the AG‐CHINA benchmark route dropped back down to ws42.    At this level, the rate stands approximately at the YTD average.    Meanwhile, bunker prices surged further this week after Trump announced intentions to withdraw from the Iran nuclear deal.   Since the start of the year, the six‐port CRW bunker index is up 14% to $429/mt.  As a result, earnings stand at ~$8,463/day, or 29% below the YTD average. The structural positioning is far from positive: a number of fresh appearances on position lists, augmented by charterer‐relet units and previously hidden positions, has pushed the end‐May Middle East availability surplus to 30 units, the most since January’s 33 units.  The development challenges expectations for a summer rally and will certainly continue to undermine rates as charterers complete the May Middle East program and progress into the June program”.

According to CR Weber, “in isolation, VLCC rates in the Atlantic Americas strengthened this week on demand strength voyages servicing US crude exports. Nine such fixtures have materialized in the past two weeks while during 1Q18 the weekly average was around one per week. From all regions, the Atlantic Americas fixture tally was nine this week, matching last week’s tally. The CBS‐SPORE benchmark route surged 9% as a result. Further rate gains in the region could support a fresh wave of speculative ballasts from Asia to bypass the Middle East market. Indeed, round‐trip TCEs on the CBS‐ SPORE route stand at ~$14,718/day – more than double AG‐FEAST TCEs at ~$7,398/day. Given the high sensitivity of ex‐AG rates to small changes to the availability profile, a wave of speculative ballasts could be supportive of earnings. During the last round of speculative ballasts after Hurricane Harvey shut significant PADD3 (USG) refining capacity and displaced crude to enable a surge in exports, VLCC earnings rallied 114% m/m from September to October ’17”, the shipbroker said.

Meanwhile, in a separate report, Affinity Research added that “it has been an uninspiring week for Aframaxes thus far, and with bank holiday Monday and now ascension day, much of the fixing has been quiet. Simply, tonnage is refreshing too quickly and the Black Sea program supplied with zero Turkish strait delays is not allowing the market to progress. Rates remain flat at around WS 85, with potential to maybe fix at a touch below that. In addition, maintenance at Trieste ends 15th , which equally will not help the market. The Baltic and North Sea markets have stayed flat since last week, seeing WS in the low 70s for the Baltic and low 90s for the North Sea. High bunker prices also remain unchanged, which is making the battle for lower rates a difficult one. The bank holiday caused a bit of disruption, but overall, activity has been on the weaker side. This may change next week, but only time will tell”.

Affinity added that “Suezmaxes have not seen much action in the 25-30 window, with earlier flirtation with parcelling up onto VLCCs and a slew of relets covering stems in this window reducing owner confidence in the market. Should fixing dates leap out to June, sentiment could be damaged. Although Rotterdam ships are in some cases severely delayed, there are enough vessels remaining to cater for inquiries further into May. Moreover, because of uncertainty around Kharg as a viable trading and insurance option, owners who traditionally cover their eastern ballasters on Iranian stems may shift their attention to WAFR and bolster the list. Meanwhile in the Black Sea, off-market fixing and naivety from owners has fostered some fairly tame behaviour. Despite a busy 3 rd decade, with 12 stems expected to cover this week, owners have failed to drive TD6. Cold war politics certainly feels like it is alive and kicking again, as Trump’s latest decision on Iran raises concern in VLCC markets. While it’s still unsure what Europe plans to do, we expect them to cease importing in the spot market, but for India, China, Korea, Japan to continue without much hesitation. Europe may instead look to Iraq to source the shortfall, but all in all the net result will hardly change, except perhaps for Iranian companies”.

Affinity added that “on the spot market, the MEG had a reasonable pace as we step closer towards the weekend and the releasing of June dates next week. On paper there is lots to do in a short space of time, but charterers are taking plenty of offers on each cargo and as last week’s step up in rates settles into the back of the memory, it should be easier to conclude business. That’s not to say owners are making it easy, and the long drawn out trades we are seeing reflect that. There is still more upside than down, but it seems to be very limited at best. West Africa has also moved reasonably well today with a good handful of cargoes. Rates concluded slightly below last done levels, which appropriately reflects the mood. The Caribbean remains an interesting play with tonnage remaining tight. The increased availability of ships in the North and the encouragement for ballasters from the east to commit west means this is likely to be short lived unless surrounding markets suddenly lift. All in all, everything feels a bit flat. The MEG market is one to keep an eye on, as charterers will want May dates wrapped up sooner rather than later, while owners are still in the mood to try and give it a squeeze before committing their ships”, the shipbroker concluded.

 

Tanker Market and the Scrapped Iran Agreement: What Do Shipbrokers Say? (11/05)

Iran, Venezuela and again Iran are among the typical geopolitical factors which have affected the tanker market over the course of the past few years and the Middle Eastern country is back into play once again. In its latest weekly report, shipbroker Allied Shipbroking said that “with crude oil prices driving above the US$ 75 per barrel mark this past week and reaching its highest point since November 2014, the investor bulls are starting to circle any and all opportunities that emerge. This recent drive seems to have been motivated by a series of factors, with most prominent being the recent tensions between the US and Iran and the scrapping the nuclear deal that was set up by the previous US president, Barrack Obama”, said the shipbroker.

According to Mr. George Lazaridis, Head of Research & Valuations with Allied Shipbroking, “the simplest reasoning and drive however has been the overall tightening of market conditions over the past 1 ½ years. Inventories of crude oil had built up considerably during the supply glut of 2014-2016, however in line with this we had seen a fair increase in the levels of consumption noted. With market conditions having radically shifted with OPEC’s and Russia’s decision to scale back production, the obvious shift has been for a sharp decline in inventories, while despite the gradual increase in price, little has yet been seen in terms of scaling back consumption. This delayed reaction is in part helping drive the market now, with this trend being noted in the Far East more so than anywhere else”.

Lazaridis said that “this overhang will be slow to clear out, while as prices stick to above the average levels noted during the past couple of years, we will gradually see a renewed shift and investment drive towards alternative fuels and energy efficiency once more. Till that point, the market will remain relatively tight, with political shocks likely to push prices ever higher. Through all this price drive, we have seen a rewed interest emerge amongst large hedge funds and other speculators, helping bring back investment for new production sources. Nowhere has this been more so present then in the US shale industry, with its ever-increasing number of oil rigs and increasing production volumes”.

Allied’s analyst notes that “given that the Far East has proven to be the powerhouse in terms of consumption growth, a fair flow of this increased US production will most likely head in that direction and given that it replaces the cut backs set up by OPEC and Russia, it will slowly bolster the overall tonne-miles of the tanker market. Obviously, we have seen limited influence of this, as of yet, translate into any marked improvement in freight rates for crude oil carriers, while at the same time this recent spike in the price of crude oil has temporary scaled back interest by traders, with consumption shifting more so towards consuming the lower priced inventories rather than importing any exceptional volumes at these high prices”.

“All this is temporary however, and at some point, we are looking to see a bolstering in trade volumes. Put all this against the recent trends noted in terms of tonnage supply and we are looking at a slightly better picture emerge for the forward prospects of the tanker sector. The flattening out of the fleet growth over the past couple of months, thanks to limited newbuilding deliveries and an intensifying level of ship recycling, has helped balance things out and scaled back the growth figure for the first four months of the year down to 0.16%. It is therefore no surprise that we have seen a considerable rise in the level of buying interest in the secondhand market, while despite the low earnings still being seen, we are still seeing a fair flow of new orders take place. Given the current balance noted in the market, it will take a fair while before these recent trends start to really show face in terms of earnings, though despite this market participants have already started to “sit up and take notice”, he concluded.

 

Tanker Market and Venezuela: Again… (08/05)

The impact of Venezuela’s reeling oil industry on trade patterns on the tanker market has been well documented since the country’s “fall from grace” a few years back. Things are once again heating up, bringing shifts on the freight market. In its latest weekly report, shipbroker Gibson noted that “later this month the people of Venezuela will once again be heading to the polls to vote in Presidential elections. Whatever the outcome of the vote, the next government will be facing significant challenges over the next few years. The Venezuelan economy is almost entirely dependent on revenue generated from the oil and gas industry. Opec’s decision in November 2014 to remove all production limits hit Venezuela particularly hard as the oil price fell to historically low levels. As a result, the nation’s economy slumped from what was already a precarious position and despite the country sitting on the world’s largest proven oil reserves. Venezuela lacked the financial investment and expertise from overseas companies, which could have helped drive down production costs as well as support higher production levels which in turn would have at least slowed the nation’s economic decline”.

Gibson said that “according to the IEA, in March Venezuelan production fell to just 1.5 million b/d, down 24% from a year earlier. Production has fallen by around 40% since Maduro took office in 2013, following the death of Chavez. Until recently, sanctions imposed by the US against Venezuela has benefited the tanker market in terms of long haul crude exports previously destined for US refineries. However, as production and the quality of the crude continues to decline, the impact on shipments is a cause for concern. Between January and April this year, some 9.5 million tonnes of crude and fuel oil was shipped on VLCC and Suezmax tonnage to Asia, down from 12.2 million tonnes over the same period in 2017. Fortunately for the tanker market, increased volumes from the US and Brazil have more than compensated for these losses”.

The London-based shipbroker added that “it must be concluded that Venezuela urgently needs huge outside investment into their oil and gas industry which in all probability needs to be in the form of foreign technology and investment. The current political impasse with the US would make this difficult. The fear of another Maduro victory, the most likely result, has resulted in several companies trimming further their operations in the country. In April, Schlumberger joined other service providers, by reducing their Venezuelan workforce, because of payment problems with money owed to them. Chevron have also withdrawn key personnel ahead of the election. In the same month, ConocoPhillips received confirmation from an arbitration case that the state-owned oil company Petroleos de Venezuela SA (PDVSA) owes them $2.04 billion in a contractual compensation settlement dating back to 2007. Also last month Halliburton announced that it was writing down its remaining investment in the distressed Opec member, citing “continued devaluation of the local currency, combined with US sanctions and ongoing political and economic challenges”. Reuters reported that in March PDVSA’s refineries were operating at 43% of their total capacity due to a lack of spare parts, light crude and feedstock caused by cash flow problems. Venezuela is consistently short of gasoline and other fuels and is forced to import more and more to supplement domestic demand”.

Gibson concluded that “the elections are unlikely to change the political scene, though the outcome will be keenly followed in Washington and further measures could be placed against Venezuela. Therefore, it is difficult to see much hope of a turnaround anytime soon. The problems that plague Venezuela’s oil industry are only going to get worse as the nation’s economic and political crisis deepens. The IEA’s prognosis sees production falling to around 1 million b/d by 2020, which places an even greater burden on servicing their huge international debt. The pressures on the Caracas government continue to mount and at the moment there appears to be no release valve”.

 

Shipbroker Sees Upwards Correction on VLCC Rates (07/05)

It’s been a mixed bag for the tanker markets this week, but more upside could be on the way. In its latest weekly report, shipbroker Affinity Research said that “in Suezmax markets, the TD20’s dramatic collapse was perhaps halted by busy WAF & Americas/East VLCC markets, which could firm & cause inquiry to return to Suezmaxes. West Africa can be considered flat at best. There is currently limited inquiry but prompt fixing & prospect of returning barrels holds the market to some degree. We also expect some potential upwards correction on VLCC rates amidst busy WAF / USG / CBS regions. Additionally, the long term involvement of Suezmax tonnage in USG / CBS EAST business keeps owners optimistic”.

Affinity added that “unfortunately, Mediterranean/Black Sea markets are also the flatter side. Although natural market drivers were expected to hold the Black Sea markets firm, a strong relet presence has undermined the region. We expect a quieter week in the Mediterranean, and some patient fixing of CPC/Novo stems is allowing the market to cool. Essentially, regional sentiment across western markets has been hurt, which is just as key as the fundamentals. Meanwhile, in Aframax markets, the week commencing 23rd finally saw a small tick up for Med Afra owners, mainly supported by Trieste maintenance delays and good levels of activity with vessels being fixed longhaul. Rates settled in the low 90s for now with WS 93.75 cross Med-Libya-Ceyhan, and although the PPT tonnage list was small with circa four ships, tonnage opening later in the week was significant with expectations for corrections at some point”.

According to Affinity, “as expected, this week started quietly with Turkish straits delays and the Black Sea program quiet, particularly given the inactivity around Labour Day. Cross Black Sea achieved WS 80 late this week, which isn’t standard and won’t be repeated, but cross-Med has subsequently settled around WS 85 in Ceyhan, with Libya still demanding more. The outlook for the rest of the week comes with very low sentiment, and with two bank holidays next week, owners will be sweating. North sea and Baltic markets lost a few points this week, but we’re probably just about at the bottom for now. With bunker prices relatively high, owners are fighting to keep earnings as positive as they can, and there isn’t much more wiggle room for charts to squeeze as it stands. A lot of owners are looking for longhaul options with hopes of minimising idle days, in order to boost longer term TCEs. Turning to VLCCs, Thursday has been a fairly frustrating day for the owners with several failures in West Africa, mainly due to the folding Suezmax market losing the advantage for charterers to use the VLCCs”.

Affinity Research concluded its weekly analysis by noting that “it’s not all over yet with some ships still waiting for their subjects tonight on what looks to be co-freighted stems. There are still a few outstanding cargoes left in West Africa, but we are now looking in the early June window, and while the market has stepped up a few points on the back of a replacement, it is not clear cut that the rates will hold. In the Middle East there has been a fair amount of cargoes working and Charterers are not ready to give up points on the back of a rising bunker price. This has led to a few of the more compromised vessels being utilized in order to keep rates below the WS 40 mark for now. The US Gulf was incredibly busy on Wednesday, with several cargoes reported and subsequently fixed at rates above the last done mark”, the shipbroker concluded.

In a separate weekly report, shipbroker Charles R. Weber commented on the VLCC market that “higher bunker prices and a modest improvement in demand trends saw rates post small gains this week. Fixture activity in the Middle East market was slower; 22 fixtures materialized versus 28 last week, though net of cargoes covered under COAs demand was improved by one.  Demand in the Atlantic basin was markedly stronger on both sides.  The West Africa market observed nine fixtures, unchanged from last week’s tally but up from the YTD weekly average of 6. The North Sea market observed three fixtures, off by one w/w.  Demand in the Atlantic Americas surged to nine this week from four last week, largely due to a record number of fixtures for US crude exports (which accounted for five of this week’s tally). The past three weeks of demand strength in the West Africa market and this week’s activity in the Americas have largely consumed the earlier speculative ballast units from Asia; this could help to support further class‐wide rate gains in the near‐term.   Already, the extent of surplus Middle East tonnage has declined m/m with 21 redundant units projected for the conclusion of the May program, representing a 19% reduction from the April surplus.  Greater‐than‐expected draws on May tonnage to service West Africa demand and any fresh speculative ballasts could reduce the surplus tally to levels below 21, which is already the fewest since January.   When charterers subsequently move into the June program, rates could be poised for further positive pressure on an anticipated decline in availability replenishment due to earlier ton‐mile demand gains”, CR Weber concluded.

 

High Tanker Demolition Activity Not Only Due to Market Demise, Says Analyst, While Newbuilding Ordering Activity is Picking Up Again (01/05)

A series of reasons is behind the increased tanker demolition activity so far this year and it’s not just the market demise, or an aging fleet. In a recent note, Mcquilling Services LLC said that “the tanker demolition market has picked up the pace in 2018, following a period of below average deletions due to favorable market conditions and younger fleet profiles. From our analysis, one market factor does not drive tanker demolitions, but rather a confluence of factors such as an aging fleet, depressed freight rates, higher steel scrap prices and regulatory constraints, but also micro considerations from owners”.

According to Mcquilling, “in the 2005/2008 period, we observed a rise in VLCC fleet removals with 39 vessels deleted in 2008; however, as we moved into 2011, volumes began to decline below the historical average since 2001. The run-up to 2008 was largely influenced by a combination of regulations for single-hull tankers and interest to convert tankers to offshore vessels. In 2015, fleet removals fell to a low of just five vessels, largely driven by falling steel prices as well as a strong freight rate environment, which provides more incentive for owners to continue trading older tonnage. This year, we have observed the opposite occurrence with steel scrap prices averaging US $434/ldt, a 17% rise from 2017’s full year average. Freight rates have been in decline since peaking in 2015 with the benchmark TD3C AG/East route averaging roughly US $1.4 million in freight through March 2018 as compared to US $2.4 million in the first quarter of 2017. Both of these factors are likely contributing to the momentum around the VLCC demolition market”.

The US-based shipping consultant added that ‘through the first quarter of this year, we have seen 19 VLCCs reported sold for demolition or conversion; however, not all these vessels have truly exited the trading fleet as of yet. Further analysis of our remotely-sensed vessel position data indicates that on occasion vessels that are deemed “sold” will ballast into what we describe as a designated “load” region such as the Middle East as opposed to a scrap/shipyard. This is largely due to two reasons, either the vessel is being transferred to the new buyer in this region or the new buyer seeks to trade the vessel further before removing it from the water. As such these vessels may can potentially take a cargo from the market or engage in floating storage, which represents vessel demand and therefore, cannot be removed from the trading fleet. We note several such occurrences in the VLCC sector in recent history. Going forward, we will be closely monitoring vessel position data to verify when vessels are actually exiting the trading fleet. At the time of writing, we count 18 VLCCs removed from our trading fleet only partially mitigated by seven deliveries through Q1 (15 more conducted sea trials), although several more demolition deals may be under negotiation”, Mcquilling concluded.

Meanwhile, in a separate note this week, shipbroker Gibson added that “the acceleration in VLCC demolition activity this year has frequently been in the headlines of late. As more tankers head to the beaches, this gives shipowners some cause for optimism in the future, particularly taking into account the current depressing market. However, quite a few of those units reported for scrap or viewed as likely demolition candidates in the short term, have been absent from the trading market in the recent past. Some have been involved in floating storage, others showed little signs of trading activity, at times for extended periods”.

“Another area of concern is the robust interest in newbuild tonnage. Over the course of last year, 57 VLCCs were ordered, marking 2017 as one of the highest over the past decade in terms of the volume of new tanker orders. Strong investment in new tonnage has continued so far in 2018. Since the beginning of the year 24 firm VLCC orders have been placed and indications are for more in the pipeline. Strong ordering activity keeps the VLCC orderbook at elevated levels despite a steady flow of new deliveries. As of now, VLCCs have the largest orderbook of all tanker size groups, at 16% relative to its existing fleet. Over 40 tankers are scheduled for delivery for the remainder of this year and another 57 units over the course of 2019. Even with an anticipated slippage, deliveries next year will mark the 4th year in a row of heavy delivery profile. Of course, if scrapping continues at similar robust levels seen recently, fleet growth will slow down in the near term. However, once all the prime candidates are out of the market for good, the pace of demolition will slow down”, Gibson noted.

The shipbroker added that “furthermore, ordering activity will not come to a complete halt going forward. Although newbuilding prices have firmed over the past twelve months or so, values still remain well below the averages seen over the past 15 years. The approaching 0.5% global sulphur cap on marine bunkers in 2020 also offers additional savings for newbuilds with scrubbers (once the cost of the scrubber is repaid). On this basis, it is perhaps not surprising that we are starting to see speculative orders from investors with limited or no exposure to the shipping industry. After all, low newbuilding values, a promise of technology driven competitive advantage and the pick-up in demolition is an attractive story to sell. Norwegian investor Arne Fredly is behind 4 firm VLCC orders at South Korea’s DSME, while Guggenheim Capital ordered another 2 units at the same yard. Although these orders represent only a small fraction of the total VLCC orderbook, the key question is it just a “one off” investment or a start of a new trend and will there be many more to come? We remember all too well the surge in tanker orders back in 2013-15, in part financed with a helping hand from private equity and hedge funds. This eventually translated into over ordering in many segments. Will history repeat itself again?”, wondered Gibson.

 

Tankers: Suezmax Market in the Clear? (30/04)

In its latest weekly report, shipbroker Affinity Research wondered whether we are sailing into the calm after the storm for Suezmax markets? Rather unlikely. The end of second decade May inquiry is still outstanding, and whilst Singaporean ballasters are lining up for the 3rd decade, the willingness to fix westbound will be limited. More significantly, however, the East-West spread of Rotterdam-Singapore fuel prices is widening every day. Prices stand at USD 17.50 on IFO 380 and USD 28.75 on IFO 180 to date, with bunker prices at USD 33.00 & USD 27.50 respectively. Moreover, with a variety of questions in the North, the quietness of West African markets is not necessarily deterring owners. Similarly, fuel inquiry has characterised the Mediterranean market this week”.

According to Affinity, “charterers, wary of that third decade Black Sea programme, have been inclined to reach forward ahead of time and seek commitment for this upcoming window. Given the year to date, we cannot blame owners for being concerned about turning down last done. However, charterers were willing to put an extra 2.5 points on the table to sweeten the deal prior to 135 x WS 80 fixing and re-establishing TD6’s capacity to firm further. In the world of Aframaxes, the Black Sea/Med has not kicked off as well as some would have hoped. The highest rate we’ve seen paid was WS 87.5 and WS 92.5 cross-Med, though this was for difficult cargoes. Lists are staying tight up to the weekend, with Black Sea – Novo covered until May 13th and CPC until the 15th. Essentially, we expect a quiet period, with Turkish delays down to 2-3 days. As hoped and expected, Primorsk announced plans to lift ice restrictions, which has significantly relieved pressure to prevent prices from nose-diving. We are also seeing significant rate corrections for Baltic stems, which is expected to have an inevitable knock-on effect on cross North Sea rates”.

In a separate note, shipbroker Charles R. Weber commented on the VLCC market that “rates lacked a clear direction this week with both positive and negative pressures materializing.  After last week’s strong run of demand in the Middle East market, fixture activity there moderated this week; 27 fixtures were reported—11 fewer than last week’s tally and one fewer than the YTD average. Meanwhile, in the West Africa market demand strengthened for a second consecutive week to yield nine fixtures—the most in six weeks. Demand in the Atlantic Americas improved by one fixture w/w to four”.

CR Weber added that “vessel supply in the Middle East appears to be moderating during the second decade of May program due to an increase in demand for Asia‐bound voyages originating in the Atlantic basin that took place in March. The longer turnaround time for these voyages relative to voyage originations in the Middle East means the time before reappearing on position lists is longer. As such, replenishment of tonnage in the Middle East is now declining. After surging during May’s first decade to 28 surplus units, the second decade appears likely to conclude with 21 surplus units. The YTD average is 25 units. Against YTD average earnings of ~$12,432/day, the present assessment of ~$8,274/day appears low in light of the fundamentals setup. Historically, 21 surplus units has guided TCEs of about $18,000/day though due to the exponential nature of rate movements in the tanker market achieving this is highly unlikely. Still, we expect that rates are poised for at least some near‐term upside”.

“Fundamentals are tighter than they have been which itself should yield at least modest TCE gains and the decline in replenishments from the March Atlantic basin demand is only just starting make its mark. Meanwhile, demand in both the West Africa and USG markets is showing fresh directional strength. As these market support, to varying degrees, draws on Middle East tonnage, the combination thereof with declining replenishments could set the market up well for a summer rally. Given the large structural oversupply in the VLCC market, any optimism should be tempered.  Still, we note that the historical supply difference between a $25,000/day market and a $10,000/day market is just nine units”, the shipbroker concluded.

 

Tanker Market Could Recover in the Short-Term (28/04)

The tanker market could be in for a positive surprise in the near future according to shipbroker reports. In its latest weekly report, shipbroker Allied Shipbroking said that “the drive for further oil production continues as prices for crude oil reach US$ 75 a barrel, which is the highest point we have seen for almost four years. This recent rally has pushed for an increase of over 50 per cent over the past year and it looks as though the production caps placed by OPEC and Russia over the past 16 months are starting to pay off serious dividends. These recent price hikes however could well be closing in on a temporary ceiling, given that this sharp price rise has started to take up considerable notice amongst global investors who are now looking to back new production projects”.

Allied’s, Head of Research & Valuations, Mr. George Lazaridis noted that “one place this has been more noticeable than most is in the US, with expectations now being for a considerable jump in shale production to take place as the potential rewards start to look ever more favorable. A number of prominent hedge funds have joined in the fray, pouring in cash at a rate not seen for at least two years. At the same time these recent price increases have helped generate a fair amount of cash flow for oil producers something that will surely go towards further market re-investment as well”.

According to Allied, “despite this and given the inelastic demand consumers hold for this vital energy commodity, we may well see a fair amount of inflation start to slowly creep up in most major developed and emerging markets. As such this could to some degree lead to a slow down in global growth, something that would surely hurt most if not all shipping markets. As things stand now however, it does look as though some slight glimpse of hope may well be on the rise for the tanker sector, which has faced “choppy” conditions for almost two years now”.

Lazaridis said that “this shake up in prices may well lead to a bigger level of speculative trade as we start seeing an increased volume of contango take place once more. At the same time, it should theoretically push for increased production, which could mean bigger volumes being transported and possibly over larger distances. The caveat nevertheless is that we may also have a deterioration in demand over the medium to long term. Increased oil prices are likely to further intensify the shift towards alternative fuels and better energy saving devices, while at the same time it may well lead to consumption of the reserves that had been accumulated in recent years”.

He added that “on the plus side, the tanker fleet growth continues to hold at historically low figures, while the intense volume of scrapping that has taken place over the past couple of months has helped clear out the market of most overage units that were still present. We have seen minimal activity in terms of new orders, though we haven’t been exactly going through a complete dry spell, with some owners having taken up this opportunity of the low prices quoted by most shipbuilders to take up slots. In any case and given the overall state of the orderbook, it looks as though the number of trading vessels may well stay flat or even drop during the next eight months, something that would surely go towards helping the overall market balance. At the same time, the further production ramp up that could take place in the US could help further drive oil exports out of the US and given that most of these exports tend to end up in the Far East, it would likely help further boost ton-mile demand. For the moment we have yet to see any positive outcome from all of this in terms of freight rates, with the majority of routes for crude oil tankers still hovering at relatively bleak levels”, Lazaridis concluded.

 

Tankers: Enough Scrap Candidates in the Market as Average Tanker Demolition Age is 22 Years Old Says Shipbroker (27/04)

Oversupply of tonnage could soon be eradicated in the wet markets, if the current pace of demolition activity is maintained. In its latest weekly report, shipbroker Intermodal noted that “on the crude sector, a very anemic supply growth in 2014 helped the market enjoy a very good year in 2015 as the demand for crude carriers surpassed the fleet growth. Consequentially, the improved market led to renewed appetite for new buildings and the orders peaked in 2015”.

According to Intermodal’s SnP Broker, Mr. Theodoros Ntalakos, “the ships ordered then were for delivery in 2016-2018, so, as demolition bottomed in 2015 and 2016, during those years the fleet grew at levels of five to six percent. Such increased tanker supply has not been matched by the respective demand, so the earnings have remained suppressed. Nevertheless, demolition – supported also by upcoming regulations, is peaking to unprecedented levels at least since 2012 leading to marginal fleet growth despite deliveries. Furthermore, and whilst the average age of the tankers being sold for scrap is around 19years old and only one percent of the crude fleet is over 20years old, eleven percent of the current fleet will be over 20 years old by 2020 meaning there are still good grounds for demolition to continue”.

Ntalakos added that “the product market looks even more promising. The current orderbook is marginally at ten percent of the fleet and the average age of ships being scrapped is around 22 years. Furthermore, six percent of the product tanker fleet is still over 20 years old and by 2020 ten percent of the fleet will be over 20 years old. The fleet grew sharply in 2013 and 2015 but for the last three years the growth is subdued. In a very plausible scenario for 2018, demand growth is expected to surpass supply growth for the first time since 2015”.

Meanwhile, “what is interesting is that the correlation between earnings and contracting turned negative in 2017. Few but wise and counter-cyclical investors find the stomach to order tanker new buildings when the market is deteriorating. One reason is the attractive prices in all tanker sub-segments; VLCCs at or below $80m, Aframax tankers hovering just over 40 million and MR Tankers in the very low 30s were well below their historical average making them very attractive. The lack of orders during 2016 led the shipbuilders to reduce their pricing and the poor market helped the buyers squeeze them further to the lowest possible contract prices. Pricing, combined with compliance to the upcoming regulations made the new buildings more attractive solutions for a shipowner who wanted to renew or expand his fleet”, said Intermodal’s analyst.

He concluded his analysis by noting that “is a shipowner prepared to pay more for a tanker today than six months ago? Definitely NO for an older vessel and marginally YES for a modern ship. Should one be worried about today’s tanker orderbook? Yes one should, but one should also keep the fact that the tonnage that can possibly exit the market the next few years is very close to today’s orderbook”.

 

Time to buy the dip in LR1 Tankers? (25/04)

Asset values remain depressed across the clean Tanker markets, creating buying opportunities for prime age tonnage. Younger ships provide investors with an asset that is well placed to appreciate when the shipping markets do turn. LR1s have been unfashionable as of late due the smaller number of ports at which they can call relative to their prime competition, MR2s of around 50,000 DWT, which are more flexible in their delivery options. Asset values have rebounded somewhat but remain below their long term median value.

However, ton mile demand for the larger Crude Tankers have risen over through late 2017 and again in March of this year. Low hire rates appear to be creating new trading opportunities for these vessels.

Clean Tankers will remain in high demand as more smaller refineries are expected to close or reduce runs following the 2020 bunker fuel switchover. Smaller refineries produce a higher amount of residual fuel oil, a product that will become far less valuable after it is no longer suitable for use as bunker fuel. This will create even higher demand for large clean Tankers who will be the shuttles from newer high efficiency refining hubs to the regions serviced by older and smaller refineries.

The combination of low asset values and the first indications of a structural shift to higher demand suggests now is the time to consider an investment.

 

Tankers: VLCC Market On the Mend? (24/04)

Tanker owners were granted some respite over the course of the past week, as demand in the VLCC market edged higher. In its latest weekly report, shipbroker Affinity Research commented that “VLCCs experienced a positive start to the week, with 32 cargoes covered in the MEG for May’s first decade. Charterers managed to maintain low rates of mid-30s at the beginning of the week by holding back on enquiries, after which shipowners started to see some positive returns, albeit minor. 1-10 May cargoes are also facilitated by an oversupply of 57 vessels. The VLCC WAFR market has also been trading under the radar, with various fixtures coming to light today that were unheard of by the market. After last week’s action in the Baltic, ice and non-ice tonnage was still in demand off prompt dates to start the week. On that basis, owners managed to hold the improved rates early on, but as we head towards May, and with Primorsk ice restrictions being lifted today (20th), fixing levels will gradually fall away. The Med/Black Sea Afras this past week saw good action, and as a result, we’ve seen the usual cyclical clear out of early tonnage. Rates are there to be pushed if the cargoes keep coming, but even if WS 80+ levels are achieved, we’re still talking meagre returns”, said Affinity.

According to the shipbroker, “Turkish Straits closures and another three weeks of maintenance at Trieste (2 of 4 berths) offer some hope of meaningful uptick for owners. Suezmax markets in both West Africa and the Med/Black Sea have enjoyed a firm week. Despite a quieter end to the week, owners should not be deterred from pushing for higher rates going forward, with a busy mid-month approaching and plenty of cargos in play. The Mediterranean market, on the other hand, which had been quiet earlier in the week, has seen a solid influx of inquiry over the past 24-48 hours, supported by the emergence of further first decade cargos out of the BSEA. The third decade is filled to the brim with cargo, with a firm market outlook promising positive sentiment to only increase”, Affinity Research concluded.

In a separate note, shipbroker Charles R. Weber added that “demand in the VLCC market was markedly stronger this week on a rebound in demand for China‐bound voyages following a recent lull and a significantly greater than expected number of April Middle East cargoes. A total of 39 fixtures were reported in the Middle East market this week, representing the highest weekly tally since December and a w/w gain of 77%.  Meanwhile, in the West Africa market there were six reported fixtures, or one more than last week’s tally.  Fixtures for voyages to China from all areas tallied at a seven‐month high of 26.    These factors helped to offset a strong number of fresh appearances of units on position lists to temper surplus availability gains. The April Middle East program observed 136 cargoes, or the most since January 2017.    As a result, the surplus tonnage for April declined modestly to 26 from an earlier projection of 28, and matched the surplus observed at the conclusion of the March program.   The stronger demand helped owners to command modest rate gains.  The impact of these gains on daily earnings, however, was partly offset by higher bunker prices.   Further gains to support TCEs will likely be complicated by a projected small rise in surplus tonnage during the first decade of the May program to 28 units”, the shipbroker said.

Meanwhile, in the Suezmax market, “rates in the West Africa Suezmax market inched up modestly this week on higher bunker prices and an easing of oversupply levels in the Atlantic basin following a strong recent surge in ex‐USG cargoes.  Fixture activity in the West Africa market was range bound; ten fixtures were reported this week – one more than last week and one less than the YTD weekly average.  Rates on the WAFR‐UKC route added 5 points to conclude at ws57.5. TCEs on the route gained 255% but remain paltry at ~$2,772/day. Further bunker price gains and/or demand strength in isolated markets could support similar small gains during the upcoming week but gains to move TCEs consistently above OPEX levels will depend on a round of capacity reductions in the segment – something Suezmax owners have proven resistant to in isolation of the wider crude tanker market.  Indeed, just five Suezmaxes have been phased out since the start of the year, compared with 17 VLCCs and 17 Aframaxes. Incidentally, the segment leads the crude tanker class in terms of YTD fleet growth, clocking in at +2.4% (as compared with  ‐1.0% and  ‐0.1%, respectively, in the VLCC and Aframax fleets). During 2017 the Suezmax class also led fleet growth, having expanded by 39 units, or 8.4%.    Since the start of 2016, the Suezmax class has expanded by 76 units (net) while just 41 units typically fix in the West Africa market in an entire month”, CR Weber concluded.

 

Tankers: Bunker Costs To Rise on Higher Oil Prices (23/04)

The rise of oil prices in the past few weeks will translate into higher bunker costs, but not change the current balance in the market and thus freight rates. In its latest weekly report, shipbroker Gibson said that “last night saw ICE Brent close at $73.78/bbl, the highest since November 2014. Oil prices have been on a rollercoaster journey over the past four years. Geopolitical risk, most notably ongoing Libyan disruptions and the fall of Mosul to ISIS drove oil prices up to $115/bbl in June 2014. Then the battle between US shale oil and OPEC dominated oil price movements, pushing Brent below $28/bbl in January 2016, despite Mosul remaining in the hands of ISIS, and Libyan production remaining under pressure”.

Gibson added that “since bottoming out in early 2016, oil price movements have, until recently, been dominated by supply and demand balances. OPEC’s strategy to curtail production and raise prices took time to gain traction. Values had gradually firmed throughout 2016 as US shale output fell in line with lower prices and received an extra boost later in the year as OPEC folded on it’s strategy to defend market share. However, it took until the second half of 2017 before oil prices showed a clear upwards trajectory, again driven by OPEC’s collective action rather than geopolitical factors. That story is, however, now changing. OPEC and its allies are close to achieving their objective, with sources close to OPEC suggesting oil stocks were just 12 million barrels above the 5-year average, whereas the glut of oil at sea has all but evaporated. Now against a backdrop of tighter supply/demand balances, a seasonal uptick in demand and a backdrop of political uncertainty, oil prices are gaining increasing support”.

According to the London-based shipbroker, “perhaps the biggest political factors driving oil prices today are the threat of sanctions being reimposed on Iran, which could see production fall back towards pre-sanctions relief levels (down 800,000 b/d); significant production declines in Venezuela, which have seen output fall 580,000 b/d YOY; the war in Yemen, which recently saw an attack on a VLCC and heightened tensions between Saudi Arabia and Iran; and of course, although of little direct impact on oil markets, conflict in Syria. Perhaps the only area, where tensions have eased back, have been between North Korea and the United States, which could ignite once again if planned talks end badly”.

 “But should the oil markets really be that concerned? Undoubtedly, oil supply/demand balances are tighter. However, production increases from Brazil and the United States alone this year could supply the estimated 1.5 million b/d increase in world oil demand, even before smaller increases from other sources are accounted for. Even if production declines in Venezuela were to accelerate and sanctions were to be reimposed on Iran, Saudi Arabia and its Gulf allies alone have sustainable spare capacity in the region of 3 million b/d. This would of course support prices further but the market would likely remain adequately supplied”, the shipbroker said.

“For tankers, the most notable impact in the short term will be higher bunker prices. Further down the line, higher prices could stimulate increased marginal barrels to flow into the market but at the same time potentially put downwards pressure on demand. The future direction of the market remains finely balanced”, Gibson concluded.

Meanwhile, in the crude tanker market this week, “May VLCC fixing got properly underway but for Owners it was the same sorry story they had endured for late April and rates continued to operate at little better than ws 40 to the East for even the most modern units, and with older ladies accepting into the low ws 30’s. West runs were very few and far between and rate demands remained theoretically in the high ‘teens’. Oil prices, and therefore bunker prices, have moved noticeably higher, so Owners will be striving to add a Worldscale point/two merely in compensation, though it will need a serious fixing push by Charterers to allow for any net upward movement to be engineered. Suezmaxes lost most of their previous shine as volumes dropped away and Owners once again had to face rates at down to ws 24 to the West, and to ws 62.5 to the East with no early turnaround likely. Aframaxes held their lines, as was expected, at 80,000mt by ws 90 to Singapore and could yet add just a little more if the fixing pace maintains”, Gibson said.

 

VLCCs, Place your bets! (21/04)

In 2018 so far, some 17 VLCCs have been ordered, which has expanded the orderbook by 17.0% in terms of vessel numbers, according to Alibra data. Of these ships, all but two are to be built at South Korean yards. One has been ordered in China and another in Japan.

Almost 80.0% of the overall VLCC orderbook is scheduled to arrive this year and next, which could pose a problem if charter markets do not improve dramatically in the short term.

VLCC earnings have, generally speaking, been on a downward trajectory since last year, although in the past two months much sharper falls in spot rates have been observed on MEG-US Gulf routes than those for MEGJapan as the US ramps up increased domestic production (and exports).

The period market, meanwhile, has held steady. One-year timecharter rates are currently hovering at around the $22,000/day level, which is around $5,000/day less than what was being achieved this time last year.

By looking at newbuilding prices reported in 2018 so far, it would seem that low prices are tempting owners back to builders. In March, Kuwait Oil Tanker Co reportedly signed a one-vessel contract at China’s Bohai Shipbuilding for just $79.7m.

In South Korea, VLCC contracts have been going for around $87.0m since 2018 began. In contrast, three years ago China-built VLCCs were contracting at prices of close to $94.0m per vessel.

While newbuildings have been getting cheaper during the past two years, secondhand prices have remained more or less flat. The Baltic Exchange’s five-year-old VLCC
(310,000 dwt) benchmark has been valued at around the $64.0m mark since June 2016 with only slight fluctuations. With the price differential between new and nearly-new ships having closed so rapidly in the intervening period, what better reason to say “to hell with it” and see what bargains shipbuilders can offer?

Add to this the influx of “other people’s money” into shipping again. Funds have reportedly renewed their interest in investing in shipping, putting their money behind speculative asset plays and helping to fuel the VLCC newbuilding spree seen this year to date.

Private equity previously had its fingers burned by shipping when it entered the space en masse from 2013 onwards. Let’s hope things are better this time around.

 

Early Month Activity the Hope for a VLCC Rebound (16/04)

The freight market for VLCCs has continued to remain unimpressive. According to the latest weekly report from shipbroker Gibson, there was “no improvement for previously sliding VLCCs….a slow week as Charterer’s proceeded to gently close out the April programme and had to wait upon May schedule confirmations. Availability remained abundant, and rates slipped further to under ws 40 East for the most modern units, with rates to the West into the high ‘teens. It could get busier next week but even if it does it seems unlikely that any pinch points will develop to allow for a positive market U-turn. Suezmaxes started brightly with early replacement needs adding additional support – rates stepped up to as high as ws 40 to the West and to ws 70 to the East but then interest slowed and Owners moved back onto the defensive with some rate erosion anticipated. Aframaxes had been expected to add a little rate fat and the market did indeed gain to 80,000 by ws 90 to Singapore on solid demand and the improvement should hold for a little while yet – maybe a touch better than that, even”, said the shipbroker.

In a separate weekly note, Affinity Research added that “in the world of VLCCs, cargoes are closing for April’s last decade on a fairly quiet note, fostering a hope that next week will show a promise of early-month activity. Rates have crawled back up to the mid WS40s after plummeting into the high WS20s a few weeks ago for MEG-CHI. However, with little activity being reported in the Atlantic and Arabian Gulf, rates are still slipping, taking shipowners’ confidence down with it. Owners also face rough seas ahead with Suezmaxes, with TD20 and TD6 rates creeping back down. We are seeing a reduction in strait delays, alongside limited cargo outstanding for fixtures in April’s third decade in West Africa. With market base levels on the horizon, owners are faced with the dilemma of whether to accept what is on offer”.

On the Panamax market front Affinity Research commented that “similarly, Panamax fixtures have been unfortunately quiet, with many owners who have even secured cargos this week having needed to wait for a few weeks for the opportunity to do so. Frankly, Panamaxes’ current rate of WS 100 is hanging on a thread, with potential of dropping. It doesn’t help that stateside traders are rolling in local feedstock at present. Transatlantic arbitrage is not expected to pick up until stateside local consumption and local production of oil drops. With summer, and thus a reduced demand for oil, fast approaching, this doesn’t seem to be anytime soon. Mediterranean and Black Sea Afra markets, in similar tone, remain flat. This comes even with a good amount of vessels held up in Trieste and Turkish straits closures. Those vessels which are being fixed are very much part of the lucky few, and offering positive TCE returns. With a weak outlook, any addition to current activity will be an improvement”.

“On a more positive note, though, we count thirteen Aframax/LR2s sold for scrap during the first quarter of the year. This comes alongside another fourteen VLCCs for scrap as well. The North Sea and Baltic markets, on the other hand, have landed some action, with decent amounts of fixing and tightening tonnage raising rates up. With various uncertain positions, mainly due to on board cargoes with no prospects, and few positions rolling round to open Baltic Short/Scandinavia, owners have managed to push the market up by about 15WS points. Meanwhile, MRs have been experiencing a trend of trumping LR1s and LR2s, with a reduction in fleet growth and intra-regional trading working in its favour. However, in the short term, growth in this fleet is expected to slow, particularly given its strong trend of demolitions. LR1s and LR2s are also seeing a confident increase”, Affinity Research concluded.

 

Tankers: Newbuildings and Demolitions on the Rise in Tandem (11/04)

Tanker owners are looking for additional hope in a market, where fundamentals are crucial. In its latest weekly report, shipbroker Intermodal said that “in a previous insight that was written at the end of last year, we had stressed that the real focus should be in the tanker sector, where fundamentals continue to cast a shadow of uncertainty up until today. During the first quarter of the year that just finished there have been more than a few interesting developments in the tanker sector as well as the oil market in general”.

Intermodal added that “despite the bad freight market, tanker newbuildings have noted an impressive increase year to date, while SnP activity has dropped substantially at the same time. Another market where activity seems to be picking up quite nicely is the demolition market. Demo activity has had a tremendous increase compared to last year, with most notably an impressive number of VLCCs being sold for scrap. Lastly, spot rates during the first quarter of 2018 have been following a downward trend and further pressure has occurred in the T/C rates”.

According to Intermodal’s Research Analyst, George Panagopoulos, “the Brent oil price has increased around 4% since January, supported by the last agreement in November 2017 between OPEC and non-OPEC producers who agreed that Russia would limit their output by around 1.8 million bpd throughout 2018. Many analysts believe that oil prices can still benefit from the next OPEC meeting in June, where they are scheduled to discuss the deal with Russia and other producers to further limit oil output. In OPEC’s recent report, the organization has estimated that the global demand for oil will increase by 1.6 MMb/d in 2018. This specific figure is in line with last year’s demand growth, while total oil demand is expected to be 98.6 MMb/d in 2018. At the same time, it is believed that the emerging Asian market will be one of the main key regions for new demand growth”.

Panagopoulos added that “on the supply side, non-OPEC supply forecast for 2018 was revised upwards by 0.28 MMb/d, “mainly due to higher-than-expected output in 1Q18 by 0.36 MMb/d in OECD (Americas and Europe), FSU and China.” The new forecast calls for non-OPEC supply growth of 1.7 MMb/d in 2018 to a total of 59.5 Mmb/d. With the current sentiment that is surrounding Brent oil demand, J. P. Morgan raised its Brent crude oil price forecast for 2018 to $70 a barrel, as the bank believes that in the first half of 2018 there will be growth in economies around the world that will boost demand for energy. Moreover, Bank of America Merrill Lynch recently increased its Brent oil price forecast to $64 a barrel, while Goldman Sachs kept its forecast at $62 a barrel”.

“Lastly, despite the firmer prices in Brent oil, last week it was agreed by the U.S. energy companies to cut oil rigs after a month. Thus, currently the total number of oil and natural gas rigs active in the United States are 966, which is 90 more rigs compared with 2017 and 457 compared with 2016. All in all, OPEC’s next meeting is of great interest as if there is a decision with Russia and other producers not to further limit oil output – will most probably lead to new discussions and unknown impacts”, the shipbroker concluded.

 

2020 IMO Sulphur Cap Could Benefit Product Tanker Demand (10/04)

Product tankers’ long term potential could be heading for a limelight, but not until the end of the decade. In its latest weekly report, shipbroker Gibson commented that “undoubtedly, 2017 proved to be a very difficult year for the product tanker market, with earnings sinking to multi year lows on the back of rapid fleet growth in the larger product tanker segment, limited arbitrages due to high product stocks and no large-scale growth in demand in key loading areas. Will this year be any different and when do we expect to see a rebound in industry earnings?”

Gibson added that “the 1st quarter of this year showed mixed results. MRs continued to outperform LR1s and LR2s, with average TCE earnings for the 1st three months of 2018 both in the East and in the West being slightly above the returns for larger product carriers on benchmark trades out of the Middle East. MRs are starting to find support from the slower fleet growth, a consequence of restricted ordering since 2014; robust intra-Asian trade and incremental demand into West Africa and Latin America are also helpful. In contrast, LRs begun January at their lowest level in many years; yet, over the following two months earnings gradually firmed close to their highest level seen over the twelve months as Middle East refineries gradually came out from scheduled maintenance”.

The London-based shipbroker went on to note that “the growth in the MR fleet is expected to remain restricted in the short term. So far this year, 15 units have been delivered and another 55 are scheduled for delivery over the remainder of the year. If a degree of slippage is seen, the growth in the MR fleet in 2018 is likely to mark one of its lowest levels this decade, particularly if the demolition activity remains as robust as it was in Q1, with 14 MRs reported sold for demolition. This, coupled with the positive demand signals in Asia, Latin America and West Africa, is likely to offer further support to the MR market in 2018. However, deliveries in the larger product tanker fleet will remain at elevated levels, although not as high as those seen in the previous two years. Since January, 7 LR1s and 8 LR2s have been delivered and another 11 and 12 respectively are scheduled for delivery for the rest of the year. The LR2 market could also be challenged by migration from the dirty segment, as earnings in the Aframax market in recent months have been worse. However, demand for all product carriers could benefit if the recent declines in product inventories in some regional markets stimulate arbitrage movements”.

Gibson also said that “on balance, although some positive signals are being seen for MRs, any gains in the short term are likely to be limited, capped by continued robust growth in the LR fleet and the likely migration from the dirty segment if clean tanker earnings continue to offer relatively better returns”.

“In the longer term, prospects are for a more substantial and sustainable recovery in the market. On one hand, approaching legislation in terms of the Ballast Water Treatment and the 2020 Global Sulphur Cap on marine bunkers could lead to a notable increase in demolition. On the other hand, large scale refining capacity expansion in the Middle East between 2019 and 2022 is likely to offer a big boost to product trade, driven by product imbalances. Also, product tanker demand could find additional support if the implementation of sulphur cap on bunkers translates into an emergence of new trades for compliant marine fuel”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “the Easter break, and then Chinese Holidays, did no favours for previously upwardly mobile VLCCs and only modest fresh attention resulted in the market edging off towards the low ws 40’s East, and to sub ws 20 to the West via Cape. Availability looks well stacked for the balance of the April programme, and Owners are likely to remain upon the defensive over the coming period too. Suezmaxes started slowly, but then shifted to a much brisker pace that stripped out the supply fat and allowed for rates to break away from their previous anchor points. Now, 130,000mt by ws 70 East and into the low ws 30’s to the West with perhaps a little more achievable before things once again slow. Aframaxes tightened a little to allow for rates to modestly rise to 80,000mt by ws 85 to Singapore with perhaps further increases to be engineered if the cargo flow is maintained…if”, the shipbroker noted.

 

VLCC Demolition Frenzy Slowing Down on Easter Holidays (05/04)

The flurry of VLCC tonnage heading towards the world’s scrapyards appeared to be slowing down over the course of the past week, as a result of Easter Holidays in Europe. In its latest weekly report, Clarkson Platou Hellas commented that “with the start of the Easter holidays commencing in Europe and the end of the financial year, the market has softened from the bullish start to the month where as many as 9 VLCC’s were committed. This Tsunami of wet tonnage has certainly shown signs of slowing down and any vessels currently workable in the market are taking longer to be committed due to the sudden lack of buying interest, subsequently resulting in a standoff between Sellers and Buyers.

Cash buyers are now facing a conundrum of where the actual market lies and what position to take, as many units remain unsold from previous commitments. Financial restraints, and also crewing arrangements, are now placing several buyers under strain resulting in limited Buyers for any newly proposed larger tanker tonnage. The Bangladesh market remains firm, but seemingly now for smaller LDT units, although some are questioning for how long they can continue to absorb the majority of tonnage on their own. The domestic steel market remains firm in Bangladesh which is encouraging, however more units look to set to end up on these shores unless some ‘miracle’ is announced from Pakistan”, said Clarkson Platou Hellas.

In a separate note, Allied Shipbroking noted that it was “another week of a considerable flow in the recycling market, despite some shakes and trembles being noted on the pricing front. At this stage, the role tanker demo candidates (especially those coming from the bigger size segments) play in shaping the current state of the demolition market both in terms of pricing and volume is more than obvious. However, as these units become less and less available, as expected, there could be some pitfalls to face in this market. For now, the extensively discussed reopening of Pakistan for tanker vessels has not yet finalized, while at the same time Pakistan is also facing negative disruptions in its currency. Moreover, taking into account the recent shake ups in the local steel plate prices from in India, we may well say that the majority of market indicators are point against a firm market in the near term. At the same time it is important to note that their were rumors circulating of softening price levels being quoted (but not concluded) in most of the main markets”.

Meanwhile, GMS, the world’s leading cash buyer said that “the anticipated and feared price decay seems to have truly set in this week, with constant declines across all recycling locations – evidence that what goes up eventually comes down! The ongoing uncertainty surrounding the reopening of the Pakistani market is also causing increasing consternation among local markets and Cash Buyers alike, who presently have a healthy collection of unsold vessels in hand that were previously committed at sky-high speculative prices and are now at risk of failing or facing significant losses. The depreciation of the Pakistani Rupee, declining local steel plate prices in India & Turkey and fears over the impact of the new US tariffs on steel import and other Chinese products are all conspiring to dampen previously bullish enthusiasm and depress prices even further. With demand and the number of available end Buyers who are capable of opening large Lcs (particularly of VLCC size) starting to rapidly dwindle, it was no surprise to see prices on subsequent units falling at least USD 15 – USD 20/LDT below those done last week”.

GMS added that “a healthy majority of Cash Buyers now have their hands full with (primarily) wet tonnage. Moreover, with hot works cleaning on the recent large LDT tankers / VLCC sales being on Buyers account (which can take almost a month to complete on the larger LDT units), it is expected to take some time before these onward sales are finalized, allowing Cash Buyers to get back in the buying once again. Monsoon is around the corner once again (towards the end of May) so any future purchases will likely be facing the usual end Buyer aversion to purchasing and importing new tonnage over the rainy season”, it concluded.

 

Tanker Demolitions at the Forefront, Although Activity Could Soon Subside (30/03)

Ship owners are actively looking to offload their older tankers, but with freight rates still below par, decisions have to be made soon and these aren’t helped by the general market sentiment, local conditions and the Easter Holidays. In its latest weekly report, Clarkson Platou Hellas noted that the news from Pakistan, unfortunately haven’t been what everyone has been waiting for.

“With no news concerning the ongoing drama of whether Pakistan will open or not for importing tanker units, something else occurred last week which has not helped market sentiment. It was announced on Tuesday that the Pakistani Rupee devalued by about 3.4% against the U.S. Dollar (equivalent to some USD 25/ldt net) which suddenly brought some caution back into the market and will definitely not help those cash buyers who currently hold a significant quantity of larger tanker units in their hands. Hence, whilst waiting for the outcome amongst the local recycling fraternity, we can expect a negative price correction from Pakistan as this would make it more expensive for importing tonnage for recycling. With elections, an earlier Ramadan this year (mid-May) and monsoon season not too far away, relying on Pakistan to resell the larger tanker units is becoming increasingly doubtful as each week passes. This is unwelcome news with there being no end to the supply of larger LDT wet tonnage and will not ease the strain on the Bangladeshi market, where also this week, domestic steel prices have started to drop off and reduce sentiment amongst breakers. As we look to India, once again they seem to be off the pace and look more likely to purchase any miscellaneous smaller units that may be proposed as they remain uncompetitive for the larger tanker units. However, any negative correction from their counterparts in Bangladesh and Pakistan may bring the Indian recyclers back into contention”, Clarkson Platou Hellas said.

In a separate note, Allied Shipbroking said that “activity still holds at relatively firm levels, with a fair amount of transactions having been reported again this week. The main source of candidates continues to be the tanker sector, with its poor earnings performance having driven a fair flow of candidates to market, while given that Pakistan still remains effectively closed for tanker units, this trend should amplify further if and when this situation changes, with increased competition amongst cash buyers likely to help entice more owners to take up the option. At the same time it is interesting to note that we had another two VLCCs being reported sold for scrap this week, both of which are under 20 years of age. On the pricing front, it looks as though the levels being offered are still holding firm while still showing room for further gains given the current market fundamentals”.

From the cash buyer’s point of view, GMS said this week that “after a frantic few weeks of VLCC sales in anticipation of an imminent Pakistani reopening for tankers, this week, activity slowed down a touch, given that Gadani’s doors are yet to reopen and some worrying fluctuations in the Pakistani currency (against the U.S. Dollar) were witnessed. It seems as though we may have finally hit a peak of sorts as levels start to slide once again, on the back of a declining demand from the increasingly fewer end Buyers possessing the ability to open large Dollar value LCs to negotiate the large LDT tankers / VLCCs being proposed on an ongoing basis. It also does not help that most of the VLCCs and larger tankers that have been sold recently have been concluded with the respective Cash Buyers being responsible for their “gas free for hot works” cleaning, in order to comply with the far more stringent standards for entry into India and Bangladesh. Depending on the lightweight of the unit and quantity of slops and sludges remaining onboard, this operation can easily stretch over a month of cleaning and the requisite funds being blocked for subsequent / fresh purchases. The last signatory required to reopen the Pakistani market for tankers has reportedly been travelling and is due back in office this coming week.

However, such have been the prevailing expectations for a market reopening over the course of many months that certain end Buyers are starting to lose faith that this will happen any time soon and they feel certain that “just another excuse” will be found in order to delay things further yet. Consequently, the sub-continent markets slowed down overall this week and fresh market fixtures have been hard to come by as many Owners have started to temporize sales of their units in the growing face of lower than “last done” market offerings. Unfortunately, it seems that subsequent sales will likely be chasing down the market in the coming days / weeks”, GMS concluded.

 

Demolition of Tankers Reaches Multi-Year Highs, as More Bulkers Remain in Service (29/03)

The tanker markets have been seeing elevated levels of removals as weak earnings continue to push returns at or below opex levels in many markets. The number of ships that are on the water and equal to their scrap value only has increased. This is no guarantee that these ships will be removed from service, but the low returns and continued oversupply should move older units out of service and into recycling hubs. The average age of ships being deleted should decline as well as the lower fuel efficiencies of older ships will penalize them after low sulphur fuel oil regulations come into force in 2020. Sub-par earnings and the capital costs associated with drydocking an older ship will discourage the investment needed to keep these ships in service. We expect elevated scrapping to continue while weak market earnings continue to be seen for the remainder of 2018.

The dry bulk markets are now seeing a better supply and demand balance. Low market returns in 2015 and 2016 led to increased scrapping of ships. The lack of newbuild orders during the same time period led to a natural correction in vessel supply, which then set up the rate recovery we saw in the winter of 2017. The dry bulk market remains heavily reliant on the shipment of iron ore, coal, and grains, so short term prediction of the markets is challenging. Fleet fundamentals remain promising as market appetite for ordering new ships remains tepid. Too many lenders remember placing orders for ships in the late 2000’s, which in turn were delivered into some of the worst dry bulk markets on record. They are not anxious to repeat this mistake.

Scrapping will be the primary driver of a rate recovery in the tanker markets. Owners in the dry bulk segment need to be more focused on order discipline to maintain the current balance between rising demand for ships, and the supply available to charterers.

 

VLCC Tankers: Strong Demand in the Middle East and Atlantic Americas Reported (27/03)

Ship owners of the largest tankers, VLCCs have been witnessing some harsh market conditions, which have appeared to ease off, during the course of the past week. In its latest weekly report, shipbroker CR Weber said that “VLCC rates experienced upward pressure this week as owners’ confidence was boosted by strong demand in the Middle East and Atlantic Americas regions. The demand gains in these regions built on strong draws on Middle East tonnage to service West Africa demand over the past two weeks to moderate the extent of surplus Middle East tonnage”.

According to CR Weber, “a strong run in recent demolition sales activity also saw a number of units positioned between Singapore and Fujairah drop off position lists. Additionally, as charterers progressed into early April Middle East cargoes at the start of the week, about half of the units available to cover these were disadvantaged. As a result, those requirements that could not work disadvantaged units lent support to rates for competitive units; the gains did not extend to disadvantaged units and instead created a wider spread between the two tiers of tonnage. We note that the number of surplus units projected to be available at the conclusion of the first decade of the April program stands at 23. This marks a progressive decline from the 26 surplus units observed at the conclusion of the March program and the 33 units seen at the conclusion of the February program (which was a four‐ year high). Early indications suggest that surplus availability will continue to post modest declines as the April program progresses, which follows the recent rebound in demand in the Atlantic basin”.

According to the shipbroker, “further demolition sales activity would also bode positively for owners by reducing the surplus further. As the market progresses into Q2, there are signs that a rebound in demand in the Atlantic basin and the corresponding ton‐mile and voyage duration gains which lead to slower return appearances of performing units on position lists will lend fresh, and potentially stronger, support to VLCC rates and earnings. Adding to potential positive pressures around that time, any abandonment by OPEC producers of their present quotas could deflate front‐month crude prices as a headline kneejerk reaction, but this negative crude price pressure would not likely extend to further forward months, creating a fresh contango structure. This could support a reopening of floating storage, particularly as floating storage prices would – at least initially – be quite attractive to the economics of such plays”, CR Weber noted.

In the Middle East, “rates on the AG‐CHINA route gained 8.5 points to conclude at ws45 with corresponding TCEs more‐than‐doubling to ~$13,707/day. Rates to the USG via the Cape gained four points to conclude at ws20. Triangulated Westbound trade earnings jumped 29% to ~$16,678/day”. In the Atlantic Basin, “rates in the West Africa market followed those in the Middle East. The WAFR‐CHINA route added 6.75 points to conclude at ws44.75. TCEs on the route rallied 55% to conclude at ~$15,673/day. In the Atlantic Americas, demand surged from a recent lull. Collectively, there were 11 regional fixtures, marking a strong gain from last week’s three. Among this week’s tally, USG loadings were at a six‐week high, account for three of the total. With the demand surge effectively narrowing the supply/demand positioning, rates strengthened. The CBS‐SPORE benchmark route added $150k to conclude at $3.25m lump sum”, CR Weber said.

Meanwhile, “the West Africa Suezmax market continued its slide this week on a further slide in regional demand following stronger earlier coverage by VLCCs. The WAFR‐UKC route observed a loss of 2.5 points to ws55. Sluggish performance was also seen in the Black Sea market, where rates on the BSEA‐MED route lost 2.5 points to ws67.5. Rates in the Caribbean market were largely unchanged with the CBS‐USG route holding at 150 x ws55 and the USG‐UKC route steady at 130 x ws55”, said CR Weber.

In the Aframax segment, the shipbroker said that “after commencing the week with rates at an effective floor, rates in the Caribbean Aframax market firmed at the close of the week on the back of a strengthening of demand at mid‐week. As available positions declined, owners were able to achieve incrementally higher rates and the CBS‐USG route ultimately concluded with a 5‐ point gain to ws100. Date sensitivity is also a factor behind the higher rates being observed, which implies that as charterers progress past the front end of the list further rate gains could be elusive”, it concluded.

 

Tankers: The Iranian Factor Back on the Foray (26/03)

Over the course of the past few years, Iran’s crude exports have been the subject of various developments affecting directly and indirectly the tanker industry. In its latest weekly report, shipbroker Gibson commented that “May 12th is the next deadline for the US to waive oil related sanctions on the Iranian government. However, US president Donald Trump after the latest waiver on sanctions, pledged that this would be Iran’s “last chance” to comply with the nuclear accord. The original deal was approved in 2015 under the Obama administration following the International Atomic Energy Agency’s verification Iran’s compliance. Trump has always been a fierce critic of the nuclear pact which lifted many of the restrictions on Iran to trade internationally. He went on to say that if congress and the European signatories did not “fix the deal’s disastrous flaws”, the US would withdraw. The recent removal of Rex Tillerson as Secretary of State could also be viewed as another move to toughen up US foreign policy in dealing with certain countries. According to the Financial Times, Tillerson together with Jim Mattis (US Defence Secretary) have argued that “torpedoing the deal” would be disastrous. As well increasing tension in the Middle East, it would also deepen America’s split with its European allies. In contrast, Tillerson’s replacement, hardliner Mike Pompeo advocates leaving the Iran deal”, said the shipbroker.

According to Gibson, putting aside all the political rhetoric, any change in US policy towards Iran would probably have little impact on the current status quo in the tanker market. Although most economic and financial sanctions were lifted, difficulties with US dollar transactions would once again become a major headache should US sanctions be re-instated. Prior to the January 2016 deal, European companies had been reluctant to resume business involving Iran because of the risk of unwittingly violating secondary sanctions on Iran or damaging established relationships with US banks. Since the embargo was lifted, European nations have been keen to reestablish links with Iran. The US acting alone would have little impact unless president Trump can persuade nations like China, India and Japan, which continued to import Iranian crude during the sanction period, to join an embargo. Should the US manage to persuade the original signatories of the Joint Comprehensive Plan of Action (JCPOA) to support them, then Iran would really be in a spot of bother. In this scenario, NITC VLCCs could once again be forced to act as a storage hub for unsellable Iranian barrels. However, this time around there are five less VLCCs to work with, following NITCs scrap sales last year. It is possible that Iran could attempt to purchase tonnage, probably through a friendly partner or supportive nation not on the US radar. Tanker owners presently facing extremely challenging markets might find it tempting to sell off tonnage older tonnage; however, this is unlikely to work. Iran may also take another look at placing a fresh wave of VLCC orders, probably from China, although this will not help them in the short term. In terms of trade, taking Iranian barrels out of the market would have limited impact as other Middle East producers would be more than willing to pick up any shortfall in supply. As a consequence, tonne miles would be unaffected. However, the removal of several Iranian VLCCs back to floating storage could make a real difference – Iran controls 5% of the current fleet”, the shipbroker noted.

“In the current political climate, Trump is unlikely to gain support from the European JCPOA signatories as they no longer have the appetite for the cause, urging the US to respect the integrity of the original agreement. Since the embargo was lifted, many nations have established strong business relationships with Iran, including several high-profile US companies. Those nations purchasing Iranian barrels are also unlikely to want to change supplier for various reasons. The deadline for the “fix deal” coincides with the US preparations for talks with North Korea, so president Trump could play this one of two ways. By making strong demands on Iran he could send out a signal that the US doesn’t want to negotiate with rogue states. Most likely, we will see more sabre rattling from the White House and the waiver moved forward again”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “a sharp burst of early week VLCC activity provided enough bargain hunting momentum to force rates a little away from their recent absolute bottom, with modern units moving to ws 43.5 to China and more elderly vessels at up to ws 37. Rates to the West also managed to break back above the ws 20 mark too. Thereafter, however, Charterers applied the brakes, and Owners could only dig in to attempt to hold the gain, rather than press for higher. Perhaps a little more defensive over the coming period. Suezmaxes broadly remained unchanged through the week at down to ws 24 to the West and to the low ws 60’s East but slightly busier times are expected by many, and rates could tick a little higher next week. Aframaxes crept up a touch to 80,000mt by ws 80 to Singapore and could perhaps add a ws point or two over the next fixing phase”, the shipbroker concluded.

 

Tanker Scrapping in 2018 Already As High As the Whole of 2017 (19/03)

Weak freight rates have prompted a surge of tanker scrapping, in what could prove to be crucial for the long-term revival of the wet market. In its latest weekly report, shipbroker Gibson pointed out that “traditionally, one of the key drivers for demolition has been weak spot earnings. Just a couple months ago in our weekly commentary we reported higher tanker scrapping in 2017 on the back of deteriorating trading conditions. Further increases have been seen more recently, most notably in the VLCC segment. For the year to date, 15 VLCCs have been reported sold for demolition, with this year’s volume already exceeding the total for 2017. In addition, two former VLCCs (converted into FSOs and used for storage projects) were also sold for permanent removal. Tankers heading for scrapping are getting younger, relative to those demolished last year. This year’s average age is 18.5 years versus 21.5 years for VLCCs demolished in 2017”.

Gibson said that “the latest deals are not surprising, considering the exceptional weakness in the spot market. Since the beginning of the year, spot TCE earnings for modern tonnage have averaged just $8,500/day (market speed) on the benchmark TD3 trade, an unprecedented level for this time of year for nearly two decades. Returns for aging tonnage have been under even greater pressure due to a typical minor rate discount, more waiting time between voyages and higher bunker consumption relative to modern and fuel-efficient tankers. Firmer scrap values have also helped to stimulate demolition: lightweight prices in the sub-continent have climbed above $450/ldt in recent months, their highest level in three years”.

According to Gibson, “the prospects for the spot market remain poor in the short term, suggesting that we are likely to see more tonnage heading for demolition. The phase out of OPEC-led production cuts does not appear to be in sight anytime soon, while increases in long haul crude trade from the US and South America have been insufficient to offset the rapid fleet growth seen over the past two years. Brokers indicate that there are a few more VLCCs being circulated for demolition at present. In addition, a number of vintage VLCCs, which were used extensively for floating storage back in 2017, have struggled to find a suitable employment and could be considered for demolition. Finally, there are over a dozen VLCCs, which are due for their third or fourth special survey later this year. For some of these units, it would be more economical to exit trading instead of investing into an expensive circa $2.5 million survey and drydocking”.

However, “even if more VLCCs are scrapped, it is unlikely to be sufficient to offset 46 VLCCs still scheduled for delivery this year, even if we take slippage into account. We also should not forget that some tankers have been reported for demolition recently or are considered as likely candidates in the very short term, have been largely absent from the trading market anyway (for example, used for storage as discussed above)”, said Gibson.

According to the shipbroker, “further down the line, regulations such as the Ballast Water Treatment (BWT) and the introduction of the global sulphur cap on marine bunkers are widely expected to offer a further boost to demolition. Although the date for the BWT system installation has been extended to September 2024 (if certain conditions are met), only a small portion of the aging fleet will be in position to benefit from it. Many owners decoupled their IOPP certificates from the special survey prior to the BWT deadline extension and so for them the next IOPP renewal and hence the BWT installation is due in 2022. As such, tanker demolition could peak in 2022, offering more substantial support to industry earnings compared to what we are likely to experience this year”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson noted that “a steady but rather slow trawl through the week for VLCCs that remained rangebound over the close of the March programme, and also onto early April positions too. Owners will hope for the bargain hunting pace to pick up next week and lend a degree of momentum to the marketplace, though it will need to be a very sustained phase to haul TCE,s to much above Opex levels. Currently rates to the East operate at around ws 36/37 for modern units with runs to the West still moving in the high teens. Suezmaxes edged lower as longer haul volumes dwindled and shorthaul activity failed to impact. Rates fell off to ws 65 to the East and to ws 25 West accordingly. Aframaxes ‘enjoyed’ a steady flow, but a flow that only maintained rates at their recent lows of 80,000mt by ws 77.5 to Singapore though a slightly more active inter-Far East market may assist a little next week”, the shipbroker concluded.

 

Tankers are All the Hype in the Demolition Market (15/03)

The expected reopening of the Pakistani market to imports of tanker ships for demolition is taking the demolition market by storm, as tankers are the most traded type of vessels, when it comes to the scrap market, due to the freight market’s demise. In its latest weekly report, shipbroker Allied Shipbroking said that “the strong flow of activity has continued yet again this past week, with the firm scrap price levels helping entice owners and drive for fairly quick deals. The main bulk of these, has been tanker vessels which due to Pakistan remaining out of competition, still leaves for a poor price premiums being paid against dry vessels being sold. The poor freight market conditions will continue to push for a fair supply of demo candidates to emerge from the tanker sector, though we may well start to see some owners delay their decision, as the hints of a looming re-opening of Pakistan for these vessels could easily boost price levels by a fair amount. Under such a case, this price boost may well expand beyond tanker units, even allowing for another round of speculative buying to take place, as end buyers start to compete more aggressively. For the moment things are holding relatively firm on the price front, despite the fair number of vessels having already been beached since the start of the year”.

Meanwhile, Clarkson Platou Hellas said that in the latest Ship Recycling conference in Hamburg, “the talk on everyone’s lips was around the amount of VLCC’s that have either, entered the market or entering the market. With one or two having trickled in each week since the turn of the year hinting of things to come, we saw a mammoth wave of wet tonnage come into the market during this week’s ‘meeting-place’ with Bangladesh making some strong gains at the beginning of the week followed by some serious speculation by cash buyers on the expectation of an announcement of the reopening of Pakistan for importing tanker units during the conference discussions. Subsequently, no firm or definite commitment was announced and still the echoes of ‘next week, next week’ followed from the member of the Pakistan Shipbreakers Association resulting in a further anxious wait for cash buyers that have absorbed a large volume of larger tanker units who had expected to receive positive news from Pakistan last week. This lack of positive news affected market sentiment and saw confidence fall away for larger tankers as price levels started to fall for such units as the risk appeared too costly to over speculate further. It would now seem that there are only a limited number of cash buyers having the capacity and financial resources to consider purchasing the higher valued tonnage”.

Clarkson Platou Hellas added that “with the presence of the NGO Environmental Group withdrawing on the morning of the first day, sadly they were unable to witness first-hand the video presentations of the incredibly improved recycling facilities now available from the likes of the PHP yard in Bangladesh to the Shree Ram Group and Priya Blue in Alang, India. Interestingly too, we all learnt that there are now 66 recycling yards in Alang who now hold classification certificates from either NK, Rina or IRS for Statement of Compliance in conjunction with the H.K Convention. Many more, we were informed, are to follow in Alang over the forthcoming months. But the last 10 years since this conference began has seen the Recycling market evolve dramatically making the industry now much more environmentally and humanely friendly, mainly due to the work and commitment of the actual ship recyclers and cash buyers”, concluded Clarkson Platou Hellas.

In a separate note, the world’s leading cash buyer, GMS, said that “it was another bumper week of sales, particularly into a rampant Bangladeshi market where local steel plate prices enjoyed another stellar showing, consequently placing them atop the sub-continent leaderboard. Once again, there were several VLCCs sales (market and private) concluded this week, as the number of market sales for 2018 surges closer to 20, in what has been a frantic and ongoing “first quarter 2018” for tanker recycling. On the other side, there is reportedly one key signature remaining for tankers to finally get the “go ahead” to be imported into Pakistan once again. As such, certain Gadani Recyclers seem convinced by the ongoing developments to offer on wet units, albeit on a ‘conditional’ basis (i.e. local authorities permitting their import). This in turn has seen increasing Cash Buyer speculation whilst acquiring some of the larger tanker units being negotiated of late, at what have turned out to be nearly further-trading levels. Notwithstanding, the specific guidelines for importing tankers have yet to be announced and it is very likely that the first few imports will be preliminary test cases before negotiations for wet units with Gadani recyclers are in full swing once again. Indeed, many Gadani Recyclers remain reluctant to import vessels until absolute clarity on the new requirements have been announced and the official green light has been delivered by all governmental authorities and the PSBA. Much of the ship recycling industry (end Buyers, Brokers, Owners and Cash Buyers alike) gathered in Hamburg this week for the inaugural TradeWinds Ship Recycling Conference and as usual, it was a lively affair, with deals being done between talks, market information shared and discussions conducted. Finally, President Trump’s imposition of a 20% duty on the import of steel and aluminum has many in the industry concerned about a possible flooding of cheap steel into the recycling destinations and a subsequent drop (crash?) in levels, as was the case back in 2015”, GMS concluded.

 

VLCC Market’s Hopes for Rebound Faded Away (13/03)

The tanker market and the VLCCs in particular are finding it hard to achieve any sort of meaningful rebound. In its latest weekly report, shipbroker Charles R. Weber said that “rates in the VLCC market commenced the week with the potential for modest gains on a slight improvement in supply/demand fundamentals. This potential quickly evaporated as sentiment reacted to what was a less active week in the Middle East market, which offset any positive sentiment from the fundamentals positioning – as well as any positive impact from a second week of above‐average demand in West Africa. Ultimately, rate progression on AG‐FEAST routes were a mixed‐bag: the AG‐ CHINA route concluded with a very modest uptick while the AG‐JPN and AG‐SPORE routes ended in the red”.

CR Weber noted that “for its part, the surplus projected in the Middle East at the conclusion of the March program is 26 units – a reduction of 7 units, or 21% from February’s observed surplus. Whether this will influence rates to bounce concertedly from current levels yielding TCEs below OPEX remains to be seen. Given the ongoing structural oversupply situation, small changes in the fundamentals immediately facing participants appear to have less of an impact on rate sentiment than the pace of demand. Thus, a robust progression into the April program would represent one of the few possible events on the horizon to influence rates in the coming weeks”.

In Middle East, “rates on the AG‐CHINA route concluded with a 0.5 point gain from last week’s close to ws37.5. Corresponding TCEs gained 6% to conclude at ~$7,766/day.  Rates to the USG via the Cape lost two points to conclude at ws15.5. Triangulated Westbound earnings fell by 16% to conclude at ~$13,385/day”. In the Atlantic Basin, “rates in the West Africa market were soft this week in line with the overall performance of ex‐AG rates. The WAFR‐FEAST route shed 3.5 point to conclude at ws37.5.Corresponding TCEs were off 25% to ~$10,004/day. Rates in the Americas were softer on a growing regional surplus. The CBS‐SPORE route shed $100k to conclude at $3.15m lump sum.  Round‐trip TCEs on the route were of by 9% to ~$13,480/day”, the shipbroker said.

According to CR Weber, “in the West Africa, Suezmax market was largely unchanged this week with rates holding on to gains commanded last week, when demand surged its highest level in over six months. The WAF‐UKC route was unchanged at ws70. Rates could hold at present levels during the upcoming week as charterers work remaining March cargoes, but fresh challenges may accompany an eventually progression into April dates and lead to a fresh pullback. We note that VLCC demand during the March program was at a pronounced low with the class observing the fewest cargoes of any monthly program since November 2016.  In turn, this increased cargo availability for Suezmaxes and supported the rate strengthening the class has recently observed. Early fixture activity for VLCCs in the April program has shown a return to more normalized levels, which implies a fresh decline in Suezmax cargo availability. Elsewhere, Suezmax rates were strengthening in the Americas on lagging influence from the West Africa market and amid sustained demand for Suezmaxes on long‐ haul voyages from the region. The CBS‐USG route added 7.5 points to conclude at 150 x ws67.5 while the USG‐SPORE route added $100k to conclude at $2.35m lump sum”, it concluded.

Finally, in the Aframax segment, “rates in Caribbean Aframax market were correcting from recent highs this week as availability levels loosened on an easing of weather‐related delays. The CBS‐USG route lost 20 points to conclude at ws90. Charterers were keen to see rates break below this level, but with demand this week having proven fairly robust and the CBS‐ USG TCE already having dropped to levels below those in alternative regions, ws90 became the effective floor. We expect rates to hold at this level through the start of the upcoming week”, CR Weber concluded.

 

Tanker Owners Looking for US Crude Exports Boom To Turn Market Fortunes (06/03)

While the dogma of “America First” is a time-bomb in the foundations of free trade and its growth projects, especially as it’s starting to materialize from fiction to reality, crude tanker owners are looking for the silver lining of the US economy these days. This can be found in the form of a booming export trade of crude oil, which has the potential to offer a much needed boost in the tanker freight market. In its latest weekly report, shipbroker Cotzias Intermodal Shipping, said that the “US shale production continues to grow rapidly, hitting new records and with projections being revised upwardly at every turn. According to the International Energy Agency, the US will overtake Russia as the world’s #1 crude oil producer by next year, having surpassed 10m bpd in late 2017 and slated to surpass 11m bpd by the end of 2018”.

According to the shipbroker, “over the past two years US shale oil companies have managed to become more efficient, optimizing production processes and utilizing new technologies and practices at lower costs. This is attributed in part to technological breakthroughs on the drilling side; Break-even points for US production have been driven substantially downward. It remains to be seen if this increase will be sustainable but at this point most pundits do not see production peaking before 2020. The booming production has of course unnerved other producers and oil markets globally and comes at a time when other producers have voluntarily capped their own production in order to prop up prices. During 2017, we witnessed the spike in prices due to OPEC production cuts with prices steadily correcting upwards since November 2016. Oil is currently trading in the low $60s, after peaking at a 3-year high of ~$66pb”.

Linos Kogevinas, Commercial Executive with Cotzias Intermodal Shipping, said that “OPEC and its allied producers are seeing their market shares eroded by the increasing US production. At the same time, US oil imports are also dropping, further shrinking profits from OPEC established markets. With this in mind, it will be very interesting to see how the commodity price will fare under these new conditions. US shale production will be extremely important to watch over the next 5 years. It is almost certain that production will continue to grow in the next years. However, a number of factors will determine if this growth will be sustainable long term and how the market will balance itself under a future -potentially different- status quo”.

According to Kogevinas, “on the tanker side a growing US production is good news as exports from the country could be offering more and more support to rates in the future as apart from Europe and Latin America, the long haul trips to the Far East and particularly to China is gaining increasing momentum. Thomson Reuters data reveals that US shipments specifically to China that were non-existent prior to 2016 have now reached a new record of around 2.01 million metric tonnes or 474,450 barrels/day during last month. Sinopec, the biggest oil refiner in China, expects to import 10 million metric tonnes of crude oil from the US during 2018. As the production cap from OPEC and Russia continues, the fairly new and quickly increasing flow of the commodity from the US to S. Korea, Japan and China is definitely something to watch out for. Additionally as a growing US production will almost certainly keep undermining OPECs efforts to boost oil prices, this means that the price of the commodity will keep moving – at least for the short to medium term- within a specific range that is still considered attractive for consuming countries maybe not compared to early 2016 levels but certainly when compared to mid-2014 levels of around $ 100/barrel”, he concluded.

 

Ice-class tankers might present an investment opportunity (05/03)

The profile of the current ice-class tanker fleet could offer an investment opportunity. Despite their high maintenance costs and short timeframe of premium returns, this class of tankers are slowly aging. According to data cited by Gibson, 68% of the whole ice-class fleet is now over 10 years old. In its latest weekly report, shipbroker Gibson said that “this week, much of Europe has been blanketed in snow as cold weather has spread as far south as the Mediterranean coast. With temperatures across the continent as low as -30C (-22F), now might be the perfect opportunity to talk about the ice class fleet”.

According to Gibson, “perhaps the first thing to mention is the lack of ordering activity in recent years. Most of the recent newbuild investment has gone into Aframax tonnage with a mix of Finnish/Swedish ice class 1A and 1C orders. Last November Sovcomflot (SCF) announced a huge investment in ice class 1A tonnage, ordering six Aframaxes (plus options), at the same time SCF stated their commitment to environmental standards by making them LNG powered. Last month the company announced long term time charter agreements for two of these units. Back in October 2016, Euronav made a rare venture into the newbuildings market by ordering ice class 1C Suezmaxes, with seven year time charter attachments to serve the Quebec refinery to replace some of their older units. Speculative orders appear to be rare, in part due to the higher up-front pricing for expensive kit, so most are already committed to project work”.

The shipbroker added that “ice class tonnage by the nature of its employment is expensive to run and costly to repair and of course only command a premium during the short ice season. Older units, although built to ice class rules, may in fact drop out of these trades into the more conventional markets because of escalating maintenance costs. With this in mind, it is interesting to see that today 72% of the Aframax fleet is over 10 years of age. Applying the same principle to the Handy/MR sector, 70% and the Suezmaxes 78% of the fleet is over 10 years old. To put this into context, 68% of the whole ice class fleet today is over 10 years of age. Analysis of the tanker orderbook shows only a handful of ice class units are currently firm orders, most already with committed employment. With so many units from the mid-2000s heading towards third special survey over the next few years, potentially this niche market could be heading for a shortfall. Forty-three percent of the fleet was built between 2003-2007 (10-15 years of age). Given that ice class tankers spend the greater part of their working lives in the ECAs, the impact of the 2020 sulphur legislation will be limited. However, over the next few years many units will be required to invest in Ballast Water Treatment systems as well as the added expenses associated with working in ice in terms of steel replacement etc. Also, ships now have to comply with the safety part of the Polar Code by their first renewal survey. Many of the older units may require changes to fuel tanks to comply with the code, all this comes at a cost”.

Gibson concluded that “of course, there has to be demand for these specialist vessels. Trading routes are changing across the tanker market and the ice trade is no exception. Vladimir Putin has just issued a statement, vowing to increase traffic tenfold along the Northern Sea Route by 2025. This route will require the highest ice classes, similar to those being deployed for the Yamal LNG project. Another example will be changes in the Baltic trades. A recent announcement by Transneft stated that crude exports from Primorsk are expected to fall after 2018 due to increased exports to the Asian market, primarily China, reducing the volumes shipped from Baltic ports at least for this year. However, product exports through the Baltic are due to grow because of the modernisation Russian refineries and a favourable tax system. Those that operate ice class tonnage have some interesting choices to make over the next few years”.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “after all the disruption from last week with Chinese New Year and IP Week Charterers settled down and concentrated on their 2nd decade VLCC enquiry. Even with the greater influx of interest, Owners were unable to capture any potential gains and the market remains firmly on the bottom. Rates to the East hold in the region of low ws 30’s for older units and mid-high ws 30’s for the more modern unit based on 270,000mt. Voyages fixed to the West remain somewhat limited with levels holding at around ws 18 via the Cape on min 280,000mt. A very active, three tiered market this week. Iran was particularly busy jumping from 140,000mt x ws 32.5 to ws 45 for West discharge, with one Charterer covering 6 stems in 3 days. The non-Iranian market was better supplied and struggled to keep up, with rates only improving marginally from low to mid-20’s for West and low ws 60’s to the East. Basrah Heavy premiums were restored to ws 12.5 points, as one Charterer found themselves with just one ship to pick from. The week ends on the firmer side so long as volumes continue into end March early-April laycans. After a couple of desperately quiet weeks in the AGulf for Aframax Owners, week 9 has finally delivered an improvement in enquiry. However, the backlog of tonnage will take time to clear and with ballasters on the horizon from the East, has prevented Owners to improve rates which sit at 80 x ws 82.5 for Agulf-East”, the shipbroker concluded.

 

3.5m DWT Tankers Scrapped in 2018 so far (01/03)

Tanker scrapping slowed in 2015 due to three key factors: Stronger spot market returns, low price being offered by buyers at the recycling yards, and the demand to store oil following the price collapse in late 2014. Each played a part as the decision to remove a ship from service varies depending on the financial situation of the owner. Some may be motivated as the $/t offered price offsets enough of their remaining mortgage on a ship to allow them to move out of a low cashflow market, while others may remove a ship after it completes a long-term storage contract.

Higher spot market returns were due to higher levels of removals over the past several years combined with a low level of orders. This led to a contraction in fleet sizes in many segments.

Restrictions on emissions in China as the country grapples with air pollution issues has led to a rise in steel prices. The impact of this is seen in the global steel markets, which influences the value recyclers are willing to pay per lightweight ton. The price being offered in India for tankers and bulkers has been trending upwards since mid-2016.

The sudden drop in oil prices led to a demand for floating storage as shoreside tanks filled due to contango in the oil markets. Older ships were taken on three to 12-month charters to store oil as they were able to offer lower $/day numbers than prime (less than 10 years) aged ships. The employment of these ships removed them as scrap candidates and kept them on the water.

High scrapping and market consolidation will contribute to better returns for owners over the next several years. For the harmony of the global shipping markets continues, older units are removed in a weak market and replaced with new vessels as rates recover.

 

Better days ahead for VLGC shipowners (01/03)

A slowdown in fleet growth should begin the recovery cycle from the second half of 2018, although freight rates will not reach the levels seen during the bull run of 2014-15, according to the latest edition of the LPG Forecaster published by global shipping consultancy Drewry.

2017 was one of the toughest years in the history for VLGC shipping as ample vessel supply squeezed the freight market. VLGC earnings in the spot market (on the benchmark AG-Japan route) averaged $12,500pd; way below the break-even rate of $21,000pd.

Shipowners are hoping for a better future as annual fleet growth is set to slow down from 16% in 2016-17 to a more manageable 5% over 2018-19. However, new ordering is also picking up, with seven VLGCs ordered in the first month of 2018 as owners look to position themselves for the next upswing in the freight cycle.

The above figure depicts Drewry’s freight rate forecast for VLGCs over the next three years, with rates improving from this year and strengthening further in 2019-20. However, rates are unlikely to touch the highs seen in 2014-15 when the bull run was led by a sudden pick-up in propane demand from new PDH plants in China. China already has its eight PDH plants up and running, and only two more plants are due to come on line in 2019. That will prevent any sudden spike in the country’s imports.

“Our outlook for 2018-20 suggests an average freight rate of $23,400pd, below the $28,800pd that was recorded between 2011 and 2013,” commented Shresth Sharma, senior analyst for gas shipping at Drewry. “The reason for the difference between average historical and future rates is that VLGC fleet ownership has become more fragmented since 2013 as many new players entered the market during the boom period of 2014-15. For instance, at the end of 2017, there were 62 companies in the VLGC sector, 17% more than at the end of 2013. It goes without saying that fragmentation tends to reduce the bargaining power of shipowners with charterers.”

 

Crude Tankers Could Be Headed for Record Demolitions (27/02)

The demise of the crude tanker market could be translated to record demolition activity during 2018. In its latest weekly report, shipbroker Charles R. Weber said that “following a depressed year for crude tanker earnings during 2017, rising $/ldt demolition values appear to be the only positive development for owners of elderly tonnage during the first weeks of 2018 amid a worsened trading environment. Through the first eight weeks of 2018, crude tanker earnings have posted an average decline of 65% on the same period during 2017 – to levels that are either at or below OPEX costs in most cases. At the same time, $/ldt values have continued to rise, posting a 40% gain since the start of 2017. Strengthening $/ldt values already prompted an accelerating of demolition sales activity during 2H17 and, over the course of the whole year, more tanker tonnage was demolished than during 2014, 2015 and 2016 combined. The trend appears to be accelerating, as so far this year there has been 4.3 Mn DWT of crude tanker capacity sold for demolition; on an annualized basis, this is a nearly four‐fold year‐ on‐year increase. Several additional crude tanker units currently under negotiation for demolition sales suggest that the trend may rise still – particularly as many of the units being worked are VLCCs”.

According to CR Weber, “a heavy phase‐out program between now and the end of the decade had already projected by market participants and factored into the projecting of a recovery of earnings in the coming years, in light of the age distribution of the crude tanker fleet and the high cost of compliance with forward maritime regulations. Pegging the precise timing of most units’ phase‐outs, however, is complicated by a number of factors, not the least of which is the fact that many owners have historically enjoyed better returns from older units that usually have little or no debt servicing obligations. Our phase‐out projections are made both generally (based on age and SS/DD positioning) and granularly (in consideration of known variables pertaining to the deployment, trading orientation and ownership profile of each unit).

Yet, despite the expectations of both the market and our models, the extent of demolition activity was rather uninspiring until 3Q17 – well after the earnings downturn commenced. Moreover, even as the pace of demolitions surged during 3Q17 and 4Q17, the average age of demolished units actually rose to 27.7 years. The reluctance of owners to agree to demolition sales even as earnings were nosediving appeared to many as a harbinger of a poor trading market for years, rather than quarters, to come. Since the start of the year, however, the average age has declined considerably to 21.7 years, with no less than five units younger than 20 years included in the average. Participants in the crude tanker market will undoubtedly be closely monitoring the pace and age characteristics of units sold for demolition in the coming months to ascertain the shape a forward recovery of earnings may take. Certainly, a sustained commitment to the demolition option by owners would be a positive development that could hasten a recovery forward by at least a few quarters”, the shipbroker concluded.

Meanwhile, in the VLCC tanker market this week, CR Weber said that the market “appeared to be further deteriorating this week with fresh demand‐ side headwinds adding to those caused by an ongoing and pronounced structural oversupply situation. Fixture activity in the Middle East market dropped 7% w/w and COA coverage thereof increased by six percentage points to account for 43% of the total. The Atlantic basin was worse yet: there were zero fixtures in the West Africa market, marking the first such occurrence in over a decade while in the Americas, demand remained limited and fresh cargoes were met with a growing list of available units. Middle East Rates on the AG‐CHINA were unchanged at an apparent floor of ws39 (the shorter‐ haul AG‐SPORE route experienced a fresh weakening). Corresponding TCEs concluded the week at ~$8,406/day. Rates to the USG via the Cape were off by 0.5 point to ws17.5. Triangulated Westbound trade earnings were off by 6% to ~$15,041/day. Atlantic Basin Rates in the West Africa market followed those in the Middle East. The WAFR‐FEAST route was unchanged at ws41. The route’s TCE concludes the week at ~$12,482/day. In the Americas, rates were unchanged at $3.25m lump sum for CBS‐SPORE voyages”, the shipbroker concluded.

 

VLCC Cargoes from the US: A New Market Development (26/02)

The news that a trial VLCC loading occurred in Louisiana was a rather significant development in the global tanker market. According to the latest weekly report from shipbroker Gibson, the successful loading of a VLCC at the Louisiana Offshore Oil Port (LOOP) was a “culmination of the port’s efforts to modify one of its pipelines to accommodate the bidirectional flow of crude through the terminal. It remains to be seen how much will be exported from the port on a regular basis, taking into account its restricted pipeline connectivity to the key shale plays. However, undoubtedly there is no shortage of export demand. The growth in US crude exports was spectacular last year, with total volumes up by around 1 million b/d over the course of the year. The biggest increases were seen in long haul trade to Asia, stimulated by restricted crude flows out of the Middle East and the need for diversification by energy hungry Asia Pacific countries. Both Suezmaxes and VLCCs benefited from these incremental long haul barrels, although to date loading a VLCC required an expensive reverse lighting exercise. Infrastructure improvements at LOOP would certainly improve freight economics for VLCCs. In addition, once the dredging project at the port of Corpus Christi is completed, the terminal is also expected to be able to load partladen VLCCs”.

According to Gibson “long haul trade from Latin/South America to Asia also remains strong, despite the economic turmoil in Venezuela, which is affecting the country’s crude exports. Venezuela’s short haul crude trade to US has been in decline for quite some time, while long-haul volumes to the East have started to slip of late. Nonetheless, this has been more than offset by growing shipments of Brazilian crude both from Brazil and Uruguay. According to AIS movements, last year the volume of crude exported on VLCCs from these two countries reached 25 million tonnes, up by over 25% versus 2016”.

The shipbroker added that “robust crude trade from Latin/South America, coupled with the increasing number of long haul shipments out of the US Gulf, is translating into gradual increases in demand for VLCCs. Yet, the availability of naturally positioned tonnage in the region is at best static, if not at risk of decline, as ongoing increases in US crude production threaten to lower the country’s crude import requirements, including those barrels shipped from the Middle East. For VLCCs, discharging in Europe, loading in the Caribbean or the US Gulf is already a natural step forward. Furthermore, a new trend has emerged since last year, with VLCCs occasionally ballasting from the East to load off the South American coast or in the Caribbean”

Gibson noted that “keeping all things equal, strong prospects for continued growth in US crude exports and VLCC infrastructure developments suggest further increases in chartering demand and with it, dwindling availability of naturally positioned VLCCs in the region. This implies a greater need for ballasters; however, the majority of the US business is done on a speculative basis. Quite possibly these market dynamics will pull more prompt tonnage towards the US Gulf, creating additional opportunities for Eastern ballasters for Caribs/South American term loadings. Of course, owners will only welcome more inefficiencies in trade, yet a watchful eye has to be kept on developments out of Venezuela, as a further decline in long haul crude trade out of the country cannot be ruled out”, the shipbroker concluded.

Meanwhile, in the crude tanker this week, in the Middle East, Gibson said that “Chinese holidays, and I.P. Week in London, handicapped VLCC Owners’ hopes from the very start of the week and although volumes were not as thin as they could have been, ongoing heavy availability continued to weigh heavily, and rates remained stuck fast within their recent lowly range. Older/more challenged units at down to ws 30 to the East with modern units into the high ws 30’s and runs to the West as low as ws 15.5 via the Suez. Perhaps busier next week, but supply will remain a negative drag anchor. Suezmaxes found very little to do and competed extra hard for any stray cargo to the West to force rates there into the very low ws 20’s with no better than ws 57.5 available to the East. Some have ballasted to the Atlantic, but even that exodus has barely dented supply. Aframaxes remained weak, and rates edged off further from their recent lows. 80,000mt by ws 82.5 to Singapore now, and similarly poor values likely over the near term, at least”, the shipbroker concluded.

 

MR Tankers Market is stronger and rising right now (26/02)

A look at VV trade data shows that ton mile demand for MR tankers is increasing, which in turn has supported returns in an otherwise brutal market environment for owners. US crude oil production has allowed US refiners cheap access to crude oil, which has encouraged higher throughputs over the past several years. The discount for US domestic crude is constantly in flux, but the trend of rising production should structurally support full utilisation of most US based refineries. With US demand for products rising only modestly, most of these additional barrels are exported, which benefits clean product tankers.

US exports now account for about 25% of global ton mile demand for MR tankers. There was a hiccup following hurricane damage in the fall of 2017, but ton mile demand creation shot to a new peak by the end of January 2018. Much of the additional demand is being created in Latin America, which now accounts for far more ton mile demand than the shipments to Europe, the historical backhaul for US product exports.

March and April are seasonally sensitive rate windows for MR tankers, and the trend overall in February has been closer to the five-year average than at the same time last year. Annual spring refinery turnarounds in March and April correlate with this rate sensitive window, and rates should see a fundamental boost again in the weeks ahead. Underlying trade flows continue to boost the overall outlook for the MR market as ton mile demand continues to climb higher.

 

VLCC Tankers Prime Candidates for Scrapping (24/02)

The rumor mill has stalled things at the demolition market for ships, with Pakistan seemingly ready to reopen its import market for tankers. In any case though, weak freight rates and increased tonnage availability, mean that VLCC tonnage is looking like prime candidates for scrapping.

On the back of this development, Clarkson Platou Hellas said in its latest weekly report that “as Chinese New Year came and we entered the “Year of the Dog”, the market is still consumed with the rumour from cash buyers on the back of the anticipated re-opening of Pakistan importing tankers, however no clear evidence to support this has been seen and so we may just wait and see if this speculation is rewarded. Despite the holidays in the Far East, there were still some large units to whet cash buyers appetite resulting in some very firm numbers as can be seen below. This has helped the market in some way as only last week, there was confusion as to where we were due to the disparity in numbers from cash buyers and the global stock price volatility experienced.

Therefore the resale value is critical for units committed this week, so it will be interesting to see the levels achieved at the water front for the recent sales and whether cash buyers rates were mad or justified. With the continued weakening freight markets for VLCC’s, it seems the list of potential candidates grows by the week as owners start to face the harsh reality of the market conditions. It is also important for the committed sellers of such units to understand the difficulties involved as well as the limited number of yards available to take such units, hence the lower price that Cash Buyers can offer for the larger wet tonnage”, the shipbroker concluded.

In a separate note, GMS, the world’s leading cash buyer said that “on the back of a meeting between the Pakistan Ship Breakers Association (PSBA) and local authorities, ongoing rumors surrounding a potential Pakistan re-opening for tankers within the next month began to further intensify. The news may well be greeted with the usual degree of outlandish Cash Buyer speculation that we have frequently seen through the course of the recent past. However, the reality is that Pakistan is a market that too has softened in recent weeks and an influx of tanker candidates is hardly going to help in boosting levels from Gadani Buyers. That being said, Sinokor of South Korea continued their clear-out of older tonnage with the sales of a Capesize bulker (a highly sought after and rare breed of vessels these days) in addition to an Aframax tanker, at some unsurprisingly bullish numbers.

Moreover, given the spate of fixtures through 2018, there was of course, another VLCC concluded on private terms this week, to swell the growing ranks of unsold tonnage out there, and perhaps another sign that Cash Buyer confidence on a Pakistan reopening may be well-founded. Meanwhile, pricing has remained stagnant for several weeks now, with marginal declines witnessed in both India & Pakistan and Bangladesh just about holding onto their levels, through what has been an overall underwhelming start to the year for Chittagong buyers. Finally, Chinese New Year holidays have certainly interrupted the flow of deals and deliveries (as minimal as they have been) this week and it may be a stilted week ahead as people slowly drift back to work from their various holidays”, GMS concluded.

Meanwhile, Allied Shipbroking added that it was “a fairly slow week in the market, with less than a handful of larger size vessels being sent to be beached. The majority of these were in the Tanker space, with a couple of vintage ladies having been let go at relatively low numbers compared to the firm figures being seen for dry bulkers and container vessels of late. As a direct comparison, you could take the sale of the only dry bulk vessel being sold to breakers this past week, which managed to receive a significantly higher price than any of the tanker vessels sold, reflecting both the preference and higher competition noted for these vessels right now. Overall prices are still holding firm and are looking to be able to sustain these levels for a while longer, with most market fundamentals still providing fair support, while competition amongst breakers continues to be high as the number of demo candidates, especially on the large sizes, remains tight”.

 

Tanker Newbuilding Orders Resume (22/02)

While newbuilding orders for dry bulk carriers were absent over the course of the past week, perhaps as a result of the Chinese New Lunar Year Holidays, things were surprisingly active in the tanker segment. In its latest weekly report, Allied Shipbroking said that “a fair amount of activity having been seen this past week, despite the noticeable absence of any new orders on the dry bulk front. Surprisingly enough we started to see a fair amount of new orders emerging for tanker vessels, with an order coming to light for 2 firm VLCC units, while we were also seeing 2 MR size methanol carriers being ordered in Japan. The market is still primarily being moved on project basis, with the vast majority of new orders coming through being supported to one extent or another on specific trade requirements, something that although is on the rise right now, is not something that can continue indefinitely and be the prime source of keeping shipbuilders active. There is a slight sense that a market shift may well be at hand as we move closer towards the 2nd quarter of the year, with the dry bulk segment likely to make a strong statement in terms of activity, as owners start to gain in confidence as to the real forward prospects this market has to offer, with the prime motivation likely to be the limited correction in freight rates noted during the start of the year (typically a seasonal low point in the market) and the quick improvement noted after the end of the Chinese New Year festivities”.

In a separate newbuilding report, Clarkson Platou Hellas said that “in Dry, COSCO HI Yangzhou announced receiving an order for two firm plus one optional 64,000 DWT Ultramax Bulk Carriers from Clients of Union Maritime. The two firm units are set for delivery in 2020. There is only one order to report in the Container market. Although contracted some time ago, it came to light this week that Maersk Line have extended their series of 15,226 TEU Container Carriers at Hyundai Heavy Industries by declaring an option for two additional vessels. Being the 10th and 11th units in the series, these vessels will be delivered within 2019 from Ulsan”.

Meanwhile, in the S&P market, Allied noted that “on the dry bulk side, it looks as though there was a fair amount of deals to be concluded before the onset of the Chinese New Year festivities. Given that we tend to see European owners being active of late, activity should remain at fairly good levels over the coming days, despite the fact that China and the majority of the Far East will be in a slumber state for the largest part of this week. There seemed to be a fair shift towards the Handysize segment, taking up the vast majority of vessels changing hands, most of which being relatively modern vessels. On the tanker side, we started to see a fair amount of action take place, with the most prominent deal being that of Ocean Yield, which snapped up 4 resale VLCCS on relatively favorable terms. There was also so interesting deals to be seen in the rest of the size segments, with the largest proportion of deals centering around fairly modern vessels”.

In a separate note this week, VesselsValue said that in the dry segment, bulker values have remained stable with a slight softening in Handy tonnage. Capesize Silver Road (185,500 DWT, Jul 2002, Kawasaki) sold to Times Navigation for USD 15.0 mil, VV value USD 13.72 mil. SS passed Nov 2017. Capesize South Trader (181,300 DWT, Jan 2014, Koyo Dock) sold for USD 36.5 mil, VV value USD 36.35 mil. An en bloc deal of two Panamax vessels, Emerald Baisha & Emerald Dongji (81,600/81,500 DWT, May 2015, Zhejiang Ouhua) sold en bloc for USD 45.0 mil, VV value USD 39.04 mil. Supramax Da Cheng (57,100 DWT, Sep 2010, Bohai Shipbuilding Heavy Industry Co) sold internally to Shanghai Changhang Shipping for USD 13.3 mil, VV value USD 13.91 mil. An en bloc deal of two Handy vessels, La Fresnais & Hull 153 (39,400/39,300 DWT, Jan/May 2018, Jiangmen Nanyang) sold en bloc to Ocean Yield ASA for USD 36.0 mil, VV value USD 37.95 mil. Inc 12-year BBB charter. An en bloc deal of two Open Hatch Handy vessels, Star Lily (33,200 DWT, Oct 2008, Shin Kochi) & Kumano Lily (32,300 DWT, Oct 2009, Kanda) sold en bloc to Taylor Maritime (HK) Ltd for USD 21.5 mil, VV value USD 21.98 million”, VV said.

In the tanker market, the ships’ valuations experts said that “values have remained stable across the sector with slight softening in VLCC values due to a softening in rates. VLCC Front Circassia (306,000 DWT, Mar 1999, Mitsubishi HI) sold to Foresight Drilling for USD 18.5 mil, VV value USD 18.8 mil. Aframax HS Carmen (112,900 DWT, Aug 2003, Hyundai Samho Heavy Ind) sold to Eurotankers for USD 11.3 mil, VV value USD 11.3 mil. SS due. MR1 Tanker Rosa Tomasos (37,200 DWT, Mar 2003, Hyundai Mipo) sold for USD 8.5 mil, VV value USD 9.05 million”, VV concluded.

 

VLCCs’ on Slowdown Mode, as Tonnage Surplus in Middle East Almost Three Times Higher than 2015 Average (20/02)

The VLCC tanker market has a long way to go, before it manages any sort of meaningful recovery. In its latest weekly report, shipbroker and tanker market specialist, Charles R. Weber said that “the VLCC market’s depressed state of affairs remained the defining characteristic of the market this week. Fresh demand in the Middle East declined modestly as the February program came to a conclusion – with the fewest spot cargoes since February 2016 – and charterers progressed slowly into the February program.   Meanwhile, demand in the West Africa market remained muted, pushing the region’s four‐week average of fixtures to a nine‐month low – and demand on the other side of the Atlantic was minimal”.

According to data compiled by CR Weber, “the February Middle East program’s concluded with 33 available units unfixed, marking a surplus 94% higher than the average observed during 2017 and 267% greater than 2015’s average. With earnings already hovering around an effective floor, the influence of the fresh worsening of fundamentals failed to influence rates much.  What did was a further correcting of bunker prices through the first half of the week, which hampered owners’ ability to hold rates steady as TCEs improved.   Bunker costs presently make up around 80% of VLCC voyage costs (and on an AG‐ FEAST run overwhelm sunk OPEX costs by a factor of around 2:1), meaning that any substantial change thereof has strong implications for TCEs”.

CR Weber added that “since mid‐week, bunker prices have returned to strength in line with crude prices, though it remains to be seen if owners will be able to recoup lost ground on this basis. Middle East Rates on the AG‐CHINA route shed one point to conclude at ws39. Corresponding TCEs fell by 12% to ~$8,645/day w/w. At mid‐week, before the late rebound of bunker prices, ws39 yielded a TCE of ~$9,181/day. Rates to the USG via the Cape shed 0.5 point to conclude at ws18. Triangulated Westbound trade earnings were off 15% ~$16,127/day. Atlantic Basin The West Africa market continued to lag the Middle East with the WAFR‐FEAST route shed 3.5 points to ws41 to reflect last week’s stronger losses in the latter market”.

“Corresponding TCEs were down 18% to ~$13,083/day. Rates in the Atlantic Americas turned to fresh weakness this week following two successive weeks of muted demand while a small number of ballast units speculatively ballasted to the region from Asia for the relatively better earnings of round‐trip CBS‐SPORE TCEs. The route shed $350k to conclude at $3.25m lump sum with round‐trip TCEs falling 22% to ~$14,583/day”, the shipbroker said.

Meanwhile, “Suezmax rates in the West Africa market were moderately softer this week as demand levels failed to improve as charterers progressed into the March program. The WAFR‐UKC route was off 2.5 points to ws55. The Caribbean market was also soft this week, despite strong fog delays at the Houston Ship Channel. The CBS‐USG route lost five points to conclude at 150 x ws55 and the USG‐UKC route lost 0.5 point to conclude at 130 x ws47.5. Rates on both routes remain at a $/mt premium to those on Aframaxes, despite surging rates for the smaller class” said CR Weber.

Finally, “the Caribbean Aframax market observed sharp gains late during the week on the back of a dense fog in the Houston area, which had delayed a long list of vessels and constrained tonnage availability.    As of Friday morning, some 53 inbound and 19 outbound units were queued waiting at the Houston Ship Channel.  A small number of units are understood to have been permitted to proceed outbound over the course of Friday, but the channel is expected to close again Friday evening and continue to experience closures throughout the weekend. The CBS‐USG route added 25 points to conclude at ws110 (and an Aframax cargo fixed on a Suezmax unit tested the Aframax rate higher still). Just one prompt Aframax unit remains available, which is maintaining strong positive pressure on rates.    Further rate gains could materialize early during the upcoming week, or at least hold steady, before a clearing of units ensues and rates start to correct”, said CR Weber.

 

Tanker Shipping: Markets Under Massive Pressure From Low Demand Growth (20/02)

The future of oil demand and subsequently of tanker demand is very much policy driven. It has been so in the past to some extent, but in coming years this will be more apparent.

Demand

BIMCO was surprised by the barely seen seasonality in tanker shipping where freight rates peak during the colder months in the Northern Hemisphere – from November to January. Loss-making freight rates across the board highlight the issues that the tanker industry is currently battling. Overcapacity, weak ”trading demand” and weak OPEC output have depressed the conditions that usually boost long hauls.

As illustrated by the very weak rates for oil product transports during most parts of 2017, the hardship extended losses into 2018.

For VLCC spot earnings, 2017 was the worst year since 1994. Average earnings of just USD 17,800 per day meant money was lost every day. Suezmax earnings averaged at USD 15,829 per day and Aframax at USD 13,873. The fact that China increased its importance in the oil market at the same time, generating a lot of tanker demand growth as it became the largest importer in 2017 (exceeding the US in April), freight rates remained dismally low.

China grew its imports by 10% (volume) in 2017, from the year before, and much of it was long haul imports. However, this boost to demand wasn’t enough for the overall market to improve.

This brings our attention back to the rebalancing of the global oil stocks, and to the question of what is the future ”right level” of global crude oil and oil product stocks going forward? Where’s the goal line? A return to the absolute stock levels of 1 July 2014, does not seem to be the target. Consumption rose from 93.9m bpd in mid-2014 to reach 99.3m bpd by December 2017. As consumption rise, stocks are likely to follow suit.

Stock levels are often measured by ”days of supply” – giving an indication that accumulated stocks equal to +1m bpd maybe one target point to watch out for.

According to the U.S. Energy Information Administration (EIA), the implied stock changes to the world liquid fuel balance in Q1-2018 show a drawdown of stocks, for the fifth consecutive quarter. Overall, stocks have piled up to an equivalent of 2.9m bpd since mid-2014, when crude oil prices started to decline rapidly. For 2018 and 2019, EIA forecast modest inventory (stocks) build up.

The drawdown of stocks is measured as a ‘flow’, i.e. the difference between oil production and oil consumption in million barrels per day (m bpd) and not as an absolute in million tonnes.

Since November 2016, when OPEC and non-OPEC producers agreed for the first time ever, to deliver a co-ordinated cut in oil supply, global stocks have declined. Despite that effort, stocks remain significantly above the level they were before oil prices started to drop, inspiring large-scale stockpiling during Q4-2014 to Q1-2016. The deal to cut oil output runs until the end of 2018.

So why is it that global stocks do not continue their decline? The short answer is because the US oil producers, who are not party to the supply cut agreement, are increasing their output from 9.3m bpd in 2017 to a forecast 10.3m bpd in 2018. Output reached 10m bpd in November 2017. From an oil tanker perspective, the uncertainty surrounding global oil supply adds another layer of unpredictability to the market.

Regardless of the talk about alternative sources of energy – oil demand continues to grow. The International Energy Agency (IEA) forecasts global oil demand to grow by 1.3m bpd in 2018. Potentially breaking the 100m bpd barrier during Q4 2018.

Supply

A four-year high for demolition was not enough to prevent the freight market from stagnating, as the crude oil tanker fleet grew by 5.1% and the oil product tanker fleet grew by 4.2% in 2017. For 2018, BIMCO expects the amount of capacity leaving the fleet for demolition to go down slightly. This is due to a lower level of newbuild deliveries and expectations of slightly improved demand growth in the second half of 2018.

For 2018, BIMCO expects slightly higher fleet growth, on the back of the factors mentioned. We are now expecting the crude oil tanker fleet, as well as the oil product tanker fleet, to grow by 2.5%.

Fleet growth estimates are quite sensitive to demolition forecasts – which in turn are very sensitive to freight rate developments. 2018 has already seen 0.5m DWT of oil product tankers tonnage and 1.1m DWT of crude oil tanker tonnage being demolished (including two VLCCs). As the year progresses the pace is expected to slow down.

In terms of new tanker orders, 2018 is off to a slow start. It seems as if the recovery of the dry bulk sector meant that most orders placed in January were for dry bulk ships. One VLCC, two LR1s, five MRs and six handysize is it – for now.

For deliveries in 2018, the VLCC sector (with 734 ships at the end of 2017) will see some 30 units launched. In the product tanker sector, the MR fleet (with 1,387 ships at the end of 2017) will see up to 40 MR-workhorses entering the fleet in 2018.

Outlook

One of the volatility factors to watch out for in the crude oil tanker market is the amount of capacity being used for floating storage. Depending on the amount of newbuildings delivered, a huge increase in the use of oil tankers for floating storage could deliver a “virtual” decline in the operating fleet size. This in turn affects the freight market balance in a positive way – at least temporarily. Even though gross delivery of crude oil tankers in 2018 will be lower than last year – the level of floating storage will be lower as well.

According to McQuilling Services, less than 20 VLCC are currently being used for floating storage. This is due to the oil market backwardation (future price of oil being below the spot price) which does not encourage anyone to store oil, at sea or on land, until contango (future price of oil being above the spot price) returns on a more permanent basis. Floating storage at current level has no impact on the freight market.

The future of oil demand and subsequently of tanker demand is very much policy driven. It has been so in the past to some extent, but in coming years this will be more apparent.

The impact of policy can be seen in many forms. Such as:

The building of strategic petroleum reserves in the US, China and India to mention a few that can afford it.

The resumption of crude oil exports from the US in early 2016 and

Rapidly increasing refinery capacity in the Middle East.

These are all major market policy events that have impacted the tanker market and its trading lanes.

Next in the line of policy driven changes with a potentially widespread impact, particularly on the oil market and oil tanker market comes from the industry itself. The 2020 marine fuel sulphur cap is a huge issue, not just in terms of the uncertainties surrounding fuel availability and compliance, but also in terms of the positive knock-on-effect on shipping demand but also the negative and inevitable higher cost of bunkers.

More questions are raised by the day, with only very few absolute replies to any of them. Will there be a sufficient amount of compliant low sulphur marine fuel available from 1 January 2020? Even if there is, how much of this compliant fuel will require largescale redistribution from its production area to the purchase place of the bunkers? Will there be a requirement to refine and stockpile compliant fuel ahead of 1 January 2020, if yes how much?

What is apparent is that shipping demand will be positively impacted – mainly, in the short term with the building of local stocks, but possibly also in the longer term if the compliant marine fuels from the refineries continue to be produced remotely to the bunker refueling hubs. Last but not least, what will the refining industry do with the high sulphur residuals previously “disposed of” through the shipping industry? They will need to find new markets to ship to.

 

Suezmax Tankers Could Witness Higher Freight Rates Despite Record Newbuilding Deliveries (19/02)

Despite a high volume of newbuilding deliveries in the Suezmax tanker market over 2017 which led freight rates levels to average lows of $14,000/day, demand growth evolution could help return the segment back to growth. In its latest weekly report, shipbroker Gibson said that “crude tanker earnings across all sectors were challenged in 2017, not least the Suezmax sector, which saw net fleet growth of 45 units during the year. Heavy ordering activity between 2014 and 2015 saw 57 newbuilds enter the market, making 2017 a record year for Suezmax deliveries. It was therefore unsurprising to see earnings averaging lower at $14,000/day, down from $27,000/day in 2016. However, despite bearish developments on the supply side, developments on the demand side were positive overall. Indeed, AIS tracking data indicates that tonne mile demand for the sector rebounded in 2017 driven by shifting global oil flows”.

According to the shipbroker, “a key driver of the trade growth was higher crude flows from West to East as OPEC production cuts took effect, in particular, increased CPC blend exports from the Black Sea to Asia. According to tracking data, Suezmax CPC blend volumes grew from 1.5 million tonnes in 2016, to 7 million tonnes last year, which was particularly beneficial for Suezmax demand given distances involved. Nearby, further growth was seen out of the Mediterranean, however the picture was somewhat mixed depending on the countries involved. Declines were seen from Algeria, but Suezmax flows from Libya increased by 5 million tonnes, which accounted for the majority of the growth from the region”.

Gibson added that “significant growth was observed from the Americas, with total Suezmax loadings in the region growing by 30 million tonnes. The key to such growth has been higher exports from the US and Brazil. Exports from Brazil account for a third of the increase, whilst the US accounted for more than 20 million tonnes. However, over half of the Suezmax volumes were traded within the region, limiting the tonne mile effect. In the Middle East, despite OPEC’s product cuts, Suezmax exports from the Middle East saw continued growth in 2017. Growing by over 13 million tonnes, with almost all the increase originating from Iran. However, not all regions have seen growth. Suezmax exports from West Africa have fallen over the past three years outright exports from West Africa on Suezmaxes fell to below 100 million tonnes in 2017 (down 12 million tonnes YOY)”.

“Moving forwards, whilst 49 Suezmaxes are scheduled to be delivered this year, demand growth can be expected in some of the key load regions. Strong expectations for US production, as well as anticipated higher Brazilian output will support volumes loading in the Americas, even as Venezuelan volumes continue to slide. Export growth from Libya is never certain but remains a possibility whilst high Kashagan production this year (despite Kazahkstan’s involvement in the OPEC pact) is expected to translate into higher CPC exports from the Black Sea. In theory, exports from the Middle East should flatten out, given OPEC’s pact. However, volumes from West Africa could rise year on year, if Nigeria is able to hold its production stable at its OPEC ceiling of 1.80 million b/d. On balance, 2018 will be tough whilst the excess supply delivered in 2017, and inbound deliveries this year, are absorbed. However, tangible demand growth means it is only a matter of time before earnings return to more sustainable levels”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “hopes of a pre-Chinese Holiday boost for VLCCs were never realised and although the week started with reasonable volume, no momentum resulted, and the pace eased to keep the market at little better than ws 40 for the most modern units to the East, with down to ws 32 booked for the most challenged. Rates to the West remained cemented at under ws 20 for straight runs too. Availability remains an ongoing challenge for Owners over the coming week, and well beyond. Suezmaxes saw less and less as the week progressed and as tonnage built, rate ideas fell further to 130,000mt by ws 57.5 to the East and to under ws 25 to the West with no early recovery likely. Aframaxes operated to a slow beat too, which was just sufficient to keep rates at an average 80,000mt by ws 85 to Singapore, with more of the same the call over the coming period”, the shipbroker concluded.

 

Demolition Market Could Heat Up For Tanker Units Soon (15/02)

Things could start to heat up in the ships’ demolition market, as more and more tanker owners are contemplating selling their older units. On the back of this trend, should Pakistan elect to uplift its ban on tanker imports, as is widely rumored among the industry, the market could firm up pretty quickly.

In its latest weekly report, shipbroker Clarkson Platou Hellas said that “as more larger tanker units are talked in the market this week, there are ‘stronger’ rumours emanating from Pakistan that the ban on importing tankers will be lifted. However until an official announcement is made, we cannot predict anything at this stage as we have been down this road of ‘opening, not opening’, for the last 12 months. The only point to make, and for all to understand is, that if and when it reopens and allows the import of tanker units again, nothing will happen immediately as it will take some time to ascertain the new regulations and comprehend any new formalities that are put in place by the local authorities. Any cash buyer speculating with firm prices on the basis of this market reopening at the end of this month, as hinted, could be risking a big exposure should these rumours fail to become reality.

Whilst many units are now being talked into the market, the same argument remains that there appears to be a lack of definite workable tonnage on offer to Buyers. With this in mind, any sales are very competitive and gives the opinion that the market still remains in 4th gear and is not at its most fluid, nor is it particularly transparent with huge disparity over pricing from every buyer, each having their own ideas as to where this market is. Interestingly, several units that cash buyers purchased at the beginning of the year remain unsold which fuels further suspicion that the domestic markets are not as aggressive as would seem. Only time will tell after the latest small cluster of sales reach the waterfront and we then see which destination is the most stable market and attracts more confidence from the cash buyers”.

In a separate note, Allied Shipbroking added that “there seemed to have been a jump in the level of activity being noted in the recycling market, showing a sharp turn compared to what we were seeing one week prior. This came just in time to soothe somehow the overall thinking of a market that may well have reached a peak in the overall activity we would see moving forward. For the Indian Sub-Continent, things in India have remained firm, with Cash buyers still eager to gather as many demo candidates as possible and compete heavily on any promising tonnage that comes to market, holding a positive sentiment at the same time, following the announcement of the Indian Budget. Bangladeshi buyers have remained relatively close on the heels of their Indian counterparts, committing a fair share of tonnage sent for scrap recently. Pakistan seems to still be in a state of flux, with an eerie pause having taken place of late. It is true that the improved picture in terms of earnings combined with the upward trend of sentiment in the Dry Bulk sector has resulted to a tighter availability in demo units. There still seems to be a fair amount of demo candidates emerging from other sectors, allowing for this relatively fair flow of sales reported this past week”.

Meanwhile, in a separate note, GMS, the world’s leading cash buyer of ships, said that “following on from last, another flat week concluded in the recycling markets as a steady reluctance from recyclers to pay some of the ongoing exorbitant Cash Buyer asking prices and some reverberating volatile fundamentals (in tandem with the recently rocky international stock markets) started to tell of a nervous sub-continent recycling market. Indeed, local steel plate prices suffered another set of worrying reversals midweek (just as global stock markets started to plunge), only to find their feet in the final few days of the week, subsequently bringing some needed relief to the anxious ship-recycling sector. Several Cash Buyers are still hoping that the markets hold going into the traditionally quieter Chinese New Year holiday period, as there remain several expensive and unsold vessels in a variety of hands, all of who will be hoping for further market gains in the days / weeks ahead (rather than any declines that could prove disastrous).

Meanwhile, the VLCC market continues to shed tonnage at pace as news of yet another unit being committed, surfaced this week. This has taken the total to almost 10 units sold / beached for the year already! Overall, it does seem increasingly clear that prices will likely not breach the USD 500/LDT mark any time soon (as many were hoping for), despite some clearly over exuberant market sales having been concluded through early 2018 (which have eventually lost the relevant Cash Buyers considerable amounts on their trades). As the Chinese New Year holidays commence at the end of the coming week, it could be a quieter period (in terms of overall supply) and this should give the markets a chance to steady themselves for a renewed push on levels as February concludes”, GMS concluded.

 

VLCCs on Firmer Ground as Middle East Fixtures Rose by 82% on the week (13/02)

The VLCC tanker market was on a high over the course of the past week, as a result of increased demand for cargoes from the Middle East. In its latest weekly report, shipbroker Charles R. Weber noted that “a strengthening of demand in the Middle East market this week halted the downward rate trend of the second half of January. A total of 35 fixtures were reported there, representing an 82% w/w gain and the highest tally in four weeks. Fixture activity in the West Africa market was less inspiring: there were just four fixtures there – off two from last week’s tally – which reduced the four‐week moving average of regional fixtures to a two‐month low. Meanwhile, a small number of speculative ballasts from Asia to the Atlantic basin have returned amid the sour TCE environment prevailing in the Middle East market. Round‐trip AG‐FEAST TCEs presently yield an average of ~$11,081/day while round‐trip TCEs on the CBS‐SPORE route stand at ~$18,719/day.

According to CR Weber, “these ballasts contributed to a modest narrowing of oversupply during the final decade of the February Middle East program to 22 units after reaching a four‐year high of 30 units at the conclusion of the month’s second decade. The reduction of excess supply could help to improve rates during the coming week if sentiment is also influenced by demand strength, but any gains would likely be very modest at best, particularly as recent decline in bunker prices has broadly boosted voyage TCEs. Middle East Rates to the Far East route were unchanged at ws37 while corresponding TCEs were up 18% to ~$11,804/day on a 7% decline in bunker prices. Rates to the USG via the cape rose one point to ws19 to narrow the gap between triangulated TCEs and those on round‐trip voyages from the Caribbean. Triangulated Westbound trade earnings rose 22% to a closing assessment of ~$20,141/day. Atlantic Basin Rates in the West Africa market lagged those in the Middle East and posted fresh losses, accordingly. The WAFR‐FEAST route lost 2 points to conclude at ws42.5. Corresponding TCEs were off 2% to ~$14,479/day. Rates in the Atlantic Americas were stronger on declining regional availability. The CBS‐SPORE route gained $100k to conclude at $3.6m lump sum. Round‐trip TCEs on the route rose 18% to conclude at ~$19,088/day”.

Meanwhile, “Suezmax rates in the West Africa market were up slightly this week as availability levels slipped. The WAFR‐UKC route gained five points to conclude at ws57.5. Waning VLCC demand in the region has been incrementally increasing Suezmax cargo availability since late January loading dates – and as charterers move to work through February program this week, demand is expected to jump in line with a decline in VLCC coverage for late‐February cargoes. This could keep rates on an upward trend during the upcoming week. In the Caribbean market, rates were softer in a lag of regional Aframaxes, despite stronger demand to service US crude export cargoes and the stronger West Africa market. The CBS‐USG route was unchanged at 150 x ws60 while the USG‐UKC route dropped four points to 130 x ws48”, said CR Weber.

Finally, “the Caribbean Aframax market saw rates steady at an affective floor tested last week. The CBS‐USG route was trading in the low ws80 for most of the week, concluding unchanged w/w at an assessed ws85. Meanwhile, the USG‐UKC route lost 2.5 points to conclude at 70 x ws62.5. Owners are keen to maintain present rates as the floor with some having earlier shown resistant to trades at lower levels. The disappearance of some units late during the week from position lists will likely be pointed to as a basis for modest fresh rate gains, though it remains to be seen if this will be sufficient to add to rates given that TCEs rose 42% this week on lower bunker prices”, the shipbroker concluded.

 

Tanker Ship Owners Are on Consolidation Mode (12/02)

As tanker freight rates are still reeling under the pressure of oversupply of tonnage, more and more tanker owners are entering consolidation mode, in a bid to improve economies of scale and avoid financial problems. In its latest weekly report, shipbroker Gibson said that “just before Christmas last year, the tanker market was greeted with the announcement of the proposed merger between two NYSE quoted tanker companies, Euronav and Gener8. At the time of writing this merger has still to be approved but, if the green light is given, the joint company will own 40 VLCCs and 28 Suezmaxes (incl. 4 newbuildings). Part of the deal includes the sale of 6 Gener8 VLCCs to International Seaways, another NYSE company which will raise their VLCC profile to 16 vessels. In a separate deal, concluded in March, DHT Holdings announced the acquisition of all 11 VLCCs from the BW Group (incl. 2 newbuildings). The BW Group promptly then placed an order in May for 4 VLCC newbuildings from Samsung HI for 2019 delivery at an attractive price. These were the only major “consolidation” deals concluded in 2017 in the large tanker sector. DHT had rebuffed several takeover proposals by Frontline earlier in the year”.

The London-based shipbroker added that “the beauty of the agreed deals is that both parties would grow their fleets without adding to the existing orderbook and as a result of clever acquisitions, bring down the age profile of their respective fleets. Euronav has a good track record of smart acquisitions without adding to the orderbook. In March 2015 the company purchased 4 brand new VLCCs from Metrostar. At the same time selling off the older units at good prices to keep the fleet modern. DHT has also been very active in this area too, selling off 5 units in November (all over 17 years of age) to reduce bank debt. Based on the VLCC fleet today (excluding VLCCs on order) and assuming the Euronav/Gener8 deal is ratified, Euronav will own 5.5% of the fleet, while DHT Holdings will own 3.2%. With the recent delivery of two units, Frontline now owns 3.0%, while International Seaways ownership could rise to 2.2%. Of course, consolidation has several strategic benefits for listed companies, as size does matter, making shares more liquid and more attractive to investors. Euronav’s acquisition of the Gener8 fleet will of course swell the Tankers International Pool at the expense of the VL8 pool, providing a stronger platform to counter the charterers”.

Meanwhile, “the VLCC supply is still dominated by the Asian giants such as China VLCC, Bahri and Cosco Shipping (CSET), with NITC’s share slipping. Apart from Euronav and NITC, all of the top ten owners have tonnage on order, which will swell the ranks by another 44 units. Maran, steadfastly remaining independent, will take delivery of 9 more VLCCs before the end of 2019. However, both China VLCC and CSET have substantial orderbooks, which will eventually give them an even more dominant position. The domination of the big fleets and the diverse ownership of the remainder of the VLCC fleet, most 10 units or less, is likely to limit any further consolidation in the short term”, Gibson said.

“The volatility experienced in the US stock market this week, pinned partly by concerns over the prospect of higher interest rates coupled with the current malaise across the tanker markets, heaps more pressure on beleaguered CEOs to keep the shareholders happy. With the prognosis of a tough year ahead for the crude sector, almost certainly, owners in the large tanker sector are unlikely to have further consolidation as a priority”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that it was“a much busier week for VLCCs…but that’s where the good news ended as the fresh demand was easily met by a solid wall of availability that remains standing as the very last of the February programme shakes out. Rates remained stuck within their lowest range of the year at down to ws 34 East for older units, and at no better than ws 40 for the most modern vessels with straight runs to the West at under the ws 20 mark. Chinese New Year commences later next week, and Owners will be hopeful of concentrated preholiday attention, though with March stem confirmations still to be awaited, there is no guarantee of that. Suezmaxes bumbled along with ballasting from the area not an economic option and a consequent easy tonnage list kept rates at down to 130,000mt by ws 62.5 to the East and to ws 26 West. No early change likely. Aframaxes trod water over the period with little/no support from the inter Far Eastern market either. 80,000mt by ws 85 still to Singapore, and nothing likely to shift that over the near term, at least”, the shipbroker concluded.

 

Tankers’ Newbuilding Deliveries a Major Obstacle for Market’s Restoration of Balance (10/02)

The single biggest stumbling block which is hindering the crude tanker market’s recovery and is bound to continue doing so, is the excess supply of ships, a trend which isn’t going away anytime soon. In its latest weekly report, shipbroker Intermodal said that “crude oil supply has been reported to have grown by approx. 2.5% reaching 40.1m bpd in 2017. However, tanker charter rates have been under pressure and have significantly been declining since Q3 of 2017 as a result of demand-supply imbalance. Lately, Brent crude oil has hit a 3-year high evidence that OPEC’s policy for supply cuts is supporting prices. Forecasts for 2018 indicate elevated oil demand that might lead to healthier tanker rates, subject to a number of other factors as well”.

According to Intermodal’s Katerina Restis, Tanker Chartering, “IEA forecasts global crude oil demand to rise by 1.3% mainly on the back of increased imports by China and India. China’s crude oil imports increased by 800,000 bpd in 2017, representing 50% of the global oil demand growth. China’s domestic oil demand continues to grow, while inland output is respectively descending. IEA projects China’s oil import dependence to rise to 80% by 2040. Additionally, India’s crude oil demand is increasing rapidly, with the country’s import dependence reaching 82% last year. India’s imports from OPEC’s countries declined during 2017, while total imports from non OPEC producers such as US, Canada, Russia and Kazakhstan significantly increased. BP projects the country’s energy demand to rise faster than any other major economy between now and 2035. India’s oil consumption averaged 4.6 million bpd in 2017 and it is projected that the country’s crude oil demand will increase 4.3% in 2018”.

The analyst added that “it is reported that OPEC will maintain output cuts, while demand continues to grow in 2018. Non-OPEC production is estimated to grow by 1.3 million bpd, with most of it sourced from the US, paving the way for significant ton-mile demand gains, as the USG to Asia represents one of the longest hauls possible. US exports have already started to increase, a trend which is probable bound to continue as OPEC sticks to current production levels. Asian refineries have already increased their oil orders from the Caribbean and Gulf of Mexico. Concurrently, the trouble in Venezuela could discourage ton-mile growth as Europe and Asia are important consumers of Venezuelan crude and exports to these regions represent one of the longest hauls. Therefore, as US exports continue to grow, much of this benefit may be offset by declining long haul routes out of Venezuela”.

Restis also noted that “when prices trended lower in past years, inventories built up and demand for storage spiked. Respectively, such demand diminished as inventories reached peak levels and storage became rarer. Nowadays, we are in the downward phase of this cycle almost after 5 years, as inventories are being utilized. Once inventory capacities return to more manageable levels, in line with historical averages, this would allow trade flows to stabilize, which could be a sort of tailwind for the crude tanker market once it all plays out. Of course the tanker deliveries that are scheduled for this year, estimated at around 10.7 million dwt, as far as crude carriers are concerned, will most probably offset part of this expected upside”.

“A healthier crude market is expected in 2018, with analysts anticipating most of the upside to take place closer to the end of the year. As discussed, various supply-demand essentials may disturb the trade patterns and as always numerous of currently unknown risks could also present themselves during the year. Undoubtedly it looks like all of these trends will require close monitoring in the year ahead” Restis concluded.

 

CPP Tanker Ton-Mile Demand (10/02)

In examining bilateral country trade flow data, we recorded a 2.1% rise in CPP ton-mile demand distributed across the four tanker segments we analyze (Figure). At 2.23 trillion ton-miles, CPP marine transportation requirements make up 17.3% of all tanker demand, the highest on record. By comparison in 2000, CPP marine transportation accounted for just 7.79% of total tanker demand.

LR vessels represent approximately 50% of clean transportation demand. We project annualized growth of 2.0% and 2.5% for the LR2 and LR1 sectors through 2022. We are likely to see more intra-regional trading in Asia for these tankers amid increasing volumes, but between shorter distances. At the same time, the US Gulf will continue to balance out deficits in the Caribbean and South America, while Europe’s Mediterranean region will exhibit significant intra-regional trading. We project MR2 demand to grow by 1% per annum through 2022.

We note a significant turnaround in European loaded barrels headed to the Far East, particularly naphtha. The Far East market is chronically short naphtha, a product used as a feedstock for petrochemical plants, but also in gasoline blending. In 2017, we note Far East supply of naphtha increased to 2.4 million b/d, while demand accelerated by a stronger 160,000 b/d to 3.6 million b/d. On the heels of relatively strong refinery margins for the Mediterranean complex, incremental supply growth was shipped out to the East to help offset the naphtha deficit. For the LR2 tanker class, this resulted in 16% growth year-on-year, with our projected balances through 2022, pointing to continued growth of about 4.9% per annum.

 

Tanker Market: Suezmax Segment In Worst Position Among Other Classes (06/02)

Owners of Suezmax tankers are worse off than their counterparts with focus on other ship classes, said shipbroker Charles R. Weber in its latest weekly report. The shipbroker said that the Suezmax market will face a prolonged course towards recovery, as a result of a lack of enough phase-outs, compared to other tanker classes. According to the report, “a broad decline in Suezmax rates since the start of the year has seen average pushed earnings to sustained lows with average returns hovering under $3,000 /day throughout this past week. Representing merely third of average daily OPEX, average earnings stand 35% below the low observed during 2017 – at a time when the market is still at seasonal strength”.

CR Weber said that “while hosts of factors have influenced trade dynamics to the detriment of demand distributed to the Suezmax class, the drivers of the extreme scope of the earnings downturn are far from complex: global fleet supply has expanded by 17% since 2015 while demand has decline by 8%. Indeed, in order to achieve earnings equivalent to the ~$42,280/day observed during 2015, we estimate that the fleet would need shed 111 units. Instead, we project that the 2018 orderbook will produce 33 deliveries by the close of the year. Net of a projected 21 phase‐outs, the fleet is likely to expand by 2.4%. During 2019, a further 24 newbuilding deliveries and 15 phase‐outs are projected, for a net growth of a further 1.7%”.

The shipbroker added that “Suezmax demand is not isolated and the class’ ability to compete in VLCC and Aframax markets implies that any advance improvements elsewhere in the crude tanker market will be supportive, to varying degrees, of Suezmaxes.  Inversely, challenges in those markets have applied strong negative pressure on Suezmaxes in recent quarters – something evidenced by the fact that Suezmaxes presently earn considerably less than Aframaxes on a TCE basis but are more expensive for charterers on a $/mt basis for comparable voyages.   At the time of the last downturn, at their lowest Suezmax earnings were earning 56% of Aframaxes were – and indeed today, the larger class is earnings 59% of the smaller.   Typically, Suezmaxes out earn Aframaxes by 132%”.

According to CR Weber, “encouragingly, the pace of demolition sales in the crude tanker market surged during 2017 amid 38% rise in $/ldt values.   Twelve Suezmaxes were ultimately retired through such sales, partly offsetting the 51 newbuilding units delivered; between 2014 and 2016, just 10 units were retired.  Expanding the pace during 2018 could help to lift the floor during the ongoing trough market.    It would be unreasonable to expect 111 units to be quickly phased‐out in the coming months – indeed, achieving that number would require nearly every unit under 16 years of age to be demolished, something unlikely given recent major maintenance undertaken on a large portion thereof.    Simultaneously, it would not be unreasonable to expect at least some pickup. Our base‐case phase‐out assumption, which is based on a granular analysis of the likely phase‐out time for each consistent of the fleet given a range on information pertaining to attributes like ownership, construction and deployment, is for 22 phase outs during 2018”.

“In a high scrapping scenario, we would assume that the commercial disadvantages of older tonnage and the prolonged earnings lull would change the mentality of owners around scrapping sufficiently that most units under 18 years of age would be phased‐out in during the year, totaling 38 units. Assuming that similar scrapping acceleration is observed throughout the crude tanker space, the impact would certainly be meaningful: we estimate that the difference between 22 and 38 phase‐outs during 2018 for earnings could be as much as $13,000/day”, CR Weber concluded.

 

Exploiting economy of scale effects for big tankers (06/02)

When Bow Pioneer was commissioned by Odfjell in 2013, building a chemical tanker of these enormous dimensions – 228 meters in length, 37 meters wide, and with a 14-metre draught – was considered by many as a daring step. But Odfjell, planning for the longer term, ordered the vessel in anticipation of the growing demand for liquid chemicals from new and emerging economies in Asia, most notably China and India.

And since size always promises benefits of scale, a key consideration in a highly competitive industry, Odfjell wanted to be able to offer economy of scale to its large-volume-moving customers.

Solid know-how

As one of the world’s top operators in the chemical business, Odfjell is an expert in transporting “anything liquid”, as the company motto says. With a fleet of about 74 specialized ships of all sizes, both owned and chartered, and a total capacity of around 2.2 million dwt, Odfjell has solid experience in worldwide operations and is present on all main trades between the US, Europe, Asia, the Middle East and South America.

The size of the fleet gives the company the flexibility to choose just the right vessel for a given voyage or shipment, whether customers want to transport as little as 100 to 150 tonnes or as much as 50,000 tonnes of cargo. Odfjell ships carry everything from organic and inorganic chemicals to vegetable oils and petroleum products.

Other business lines include gas carriers as well as operation of tank terminals in key ports around the world, an ideal match for the tanker business.

Bow Pioneer is a good example of Odfjell’s maxim of offering utmost flexibility: the vessel is capable of carrying 86,000 cubic metres of Type 2 chemicals and other liquids in 31 separate, inorganic zinc silicate-coated cargo tanks. Setting new standards in terms of fuel efficiency and versatility, the ship encouraged several other operators to order larger chemical tankers as well.

Fuel consumption per tonne mile, the main benefit of her size, translates to reduced transport costs for commodity chemicals, especially since a larger vessel does not require a larger crew, as Odfjell CEO Kristian Mørch points out: “The number of crew is about the same whether it’s a 20,000 tonner or an 81,000 tonner.“

Expecting growing demand

While the liquid chemicals segment expected to grow 3.8 per cent in 2017, Seaborne trade typically follows the general growth trend of the global economy, and experts are predicting a growth of 2% for 2018. “Both the US and the Middle East areas are instrumental for further growth in our segment,” says Mørch. “But what matters most is stable economies in consumer regions, while our biggest threats are geopolitics and obviously, risks inherent in the global economy.”

As the demand for commodity chemicals rises, so does the profitability of Bow Pioneer and her classmates. In particular, world demand for methanol is expected to increase substantially, especially from China.

Methanol is used as a feedstock for the manufacture of other chemicals, such as biodiesel fuel, formaldehyde, polypropylene and many synthetic products. It is also gaining importance as an ingredient of low-emission vehicle and ship fuels. Methanol and other commodities transported by product tankers are mostly produced in the Middle East, where major new refinery capacities are currently being added, and in the United States, where shale gas is expected to boost methanol production.

All this means that the demand for ship sea transport is likely to increase. Apart from China, Japan and India are also expected to import significantly more of these commodities in future.

Challenges are manageable

But size can also bring challenges, such as higher port fees, the need for extra tugboats, or berthing and unberthing operations being restricted to daylight hours only. While designed to fit the new locks of the Panama Canal, the vessel nevertheless still has to undergo a few minor modifications to meet requirements unknown at the time she was built before being able to pass, and charter parties need to be updated to clarify coverage of canal costs. Furthermore, a ship carrying multiple products must deal with additional scheduling and tank cleaning tasks, and the product supply chain has to be managed carefully because loading and discharge ports change frequently.

And since the number of ships the size of Bow Pioneer is still limited, some ports lack the right infrastructure to handle them. “The vast majority of chemical vessels are limited in size by the former Panama Canal restrictions,” says Odfjell CEO Mørch. “This limits incentives for terminals to invest in their existing infrastructure. However, we see that many new terminals are being built to a larger scale to fit the size of Bow Pioneer.”

As a tank terminal operator, Odfjell can influence this development, and its own tank terminal operations offer opportunities to develop new markets. Further tank terminal projects are currently under development on Fujian and in Changxing Island, China. So all these matters can be dealt with without compromising the benefits of size and fuel efficiency. And Bow Pioneer is well equipped to comply with upcoming environmental regulations as well, with a certified ballast water treatment system installed and a monitoring plan and emission reporting system in preparation.

 

Tanker Freight Rates At Below Operating Expenses Despite Seasonality Factor (05/02)

Although hardly a surprise, as most market delegates and shipowners were expecting a weak tanker market anyhow, January has proven to be quite the disappointment for tanker owners. Freight rates have fallen at below operating expenses rates, despite the fact that this part of the year should be a positive seasonality factor. In its latest weekly report, shipbroker Gibson said that “for quite some time the consensus in the crude tanker market has been that 2018 will be a disappointing year in terms of industry earnings. However, the extreme weakness in spot TCE returns across all tanker categories in January still left many surprised, taking into the account the traditional support lent to the market during the winter season. Spot TCE earnings on the benchmark VLCC trade from the Middle East to Japan (TD3) averaged just under $13,000/day at market speed last month, an unprecedented level for January since the turn of the century. The performance on key trades for other crude tanker segments was even worse. Spot earnings for Suezmaxes trading West Africa to UK Continent (TD20) averaged $6,500/day, while Aframaxes trading across the North Sea (TD7) returned on average $4,500/day over the course of last month, in both cases insufficient to cover fixed operating expenses”.

The shipbroker added that “without doubt, such a poor performance is largely attributable to OPEC-led production cuts, coupled with the rapid growth in the crude tanker fleet. Crude production in the Middle East, the largest load region for VLCCs and an important demand source for Suezmaxes and Aframaxes, is now at similar levels relative to volumes produced in early 2016, while the fleet size is notably bigger. At the start of 2018, the VLCC fleet stood at around 720 units, nearly 80 vessels more than in the beginning of 2016. In addition, back in 2016 a sizable portion of the VLCC fleet was tied up in Iranian and non-Iranian storage. This is no longer the case. VLCC storage of Iranian crude and condensate ceased to exist in November 2017, while storage of non-Iranian crude declined dramatically over the past three months. Overall, over 20 VLCCs were released from floating storage duties between January 2016 and January 2018, with the vast majority of these tankers resuming trading operations”.

According to Gibson, “the Suezmax and LR2/Aframax supply also witnessed a spectacular growth, with the fleet size up by 50 and over 75 units respectively over the past two years. In addition to the developments in the Middle East, crude trade on the Suezmax key route from West Africa to Europe remains weak, despite recovering Nigerian output. This is primarily due to the rebound in Libyan output, which has reduced the European refiners’ appetite for West African barrels. Furthermore, more crude is also being shipped from the US to Europe. The same factors aid Aframax demand; however, at the same time there has been a decline in Aframax trade from Latin/South America to the US, mainly due to lower flows from Venezuela. Finally, generally favourable weather conditions in January in a number of regional markets meant less weather driven delays and disruptions, one of the key support factors to the market during this time of the year”.

The shipbroker noted that “going forward, there could still be a few weather driven spikes in rates, particularly in the Northern Hemisphere. However, the rapid fleet growth will continue, as the anticipated pick up in demolition activity will provide only a limited relief from plenty of new deliveries expected to enter the trading market this year. To reverse the current fortunes, owners need notable increases in trading demand. At the moment, rising crude exports out of the US is the key area for growth but the industry also needs to see strong gains in exports in other parts of the world”.

Meanwhile, in the crude tanker market this week, Gibson said that it was “another difficult week for VLCC Owners here as Charterers see no reason to fix too far forward as the oversupply of tonnage again dictates. We may start to see Owners become apathetic and withdraw from the field of play until there is a necessity to fix. Currently levels achievable going East are 270,000mt by ws 39 and 280,000mt by ws 18 cape/cape to Western destinations. Suezmax rates have come under further pressure this week and in the earlier part of the week rates to the West bottomed at 140,000mt by ws 25 and after a flurry of activity rates only slightly rebounded up to ws 27.5. The East has seen little activity and levels remain suppressed at 130,000mt by ws 62.5/65. The Aframax outlook in the East remains bleak with rates slipping further this week. AGulf-East runs are now down to 80,000mt by ws85 even after a flurry of activity in the Agulf”, the shipbroker said.

 

Clean Tanker Market: New Bunker Specification Will Redefine Global Product Balances, Shifting Trade Flows and Tanker Demand (30/01)

A clear correlation between low product oil stocks and increased opportunities for tanker seaborne trade hasn’t been the case recently, as trade flows are in flux. In its latest weekly market report, shipbroker Gibson attempts to highlight the changing dynamics in the product tanker segment. It noted that “high product stocks, which have been a feature of the market in the wake of strong refining runs in recent years, can be a key barrier to international products trade. Therefore, Gibson closely monitors developments in refined product inventories to forecast tanker demand. However, in recent times, developments in onshore product inventories haven’t necessarily translated into the improved opportunities for product tankers. Is this a sign of changing dynamics or are other factors in play?”

According to Gibson, “looking at the latest data from the IEA on middle distillate and gasoline stocks, shore based inventories in OECD nations have returned close to historical averages. The latest data from November points to OECD gasoline and middle distillate stocks being just 10 million barrels above the five-year average, down from 100 million barrels above historic trends at the start of the year. This should therefore translate into increased products trading. However, when analysing stocks and trade into the key product hubs, lower stocks have not necessarily translated into higher seaborne imports”.

The London-based shipbroker added that “in the key distillate importing Antwerp-Rotterdam-Amsterdam (ARA) region, refined product stocks fell towards the end of 2017 to 1.917 million tonnes, down by 1.75 million tonnes from 2016’s peak. Historically, ARA has been a key outlet for US diesel cargoes, making stocks in the region an important barometer for product tanker demand in the Atlantic. However, even with a substantial fall in stocks, there has been limited impact on trade volumes from the US into the region. Whilst this has been partly driven by higher output in the region, a key factor behind this appears to be an insatiable appetite for US products in Latin America, which has often become a more attractive outlet for US exports”.

Meanwhile, “on the other side of the pond, gasoline stocks in the key US Atlantic Coast import hub currently stand at 63.219 million barrels, down 12 million barrels after peaking in early 2017 and the lowest seasonal level in 4 years. Has there been any material impact on gasoline trade from Europe to the US? No, volumes are down year on year, and would probably be lower had hurricane Harvey not disrupted US refining capacity last summer. Again, for European suppliers, other markets have proved more attractive, most notably West Africa (as covered in our 8 th December 2017 report) and at times, Eastern destinations. In the Far East, stocks remain elevated. Singapore inventories, which provide the most timely indication of regional supply and demand have built up substantially after dipping throughout the second and third quarters. Such stock levels have made trading arbitrage barrels of naphtha, particularly from the West, more challenging of late, whilst higher exports from China also compete with supplies from other regions”, said the shipbroker.

Of course, “the fundamental factors are set for a step change once again in just a few years’ time. Expanding refining capacity in the Middle East from 2019 onwards, and the change in the bunker specification will redefine global product balances, shifting trade flows (and tanker demand) accordingly. Yet in the short term, the key demand drivers emanate from developing nations with limited storage, insufficient refining capacity and incomplete data, making forecasting product tanker demand an interesting challenge” Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “VLCCs spent a slow-paced week searching for a bottom to the market. The ‘blip’ of a couple of weeks ago can more certainly be marked as a dead cat bounce, and an ongoing swathe of availability will continue to act as a heavy drag anchor to any further hopes of re-inflation. Levels to the East dipped into the low ws 30’s for older units with down to ws 18 cape/cape paid to the USGulf. Suezmaxes found reasonable short haul attention, but that could never be enough to positively influence the wider market and with India on holiday on Friday, even that cargo flow dried up. Rates settled at down to 130,000mt by ws 65 to the East and to ws 27.5 to the West with little early change likely. Aframaxes bobbed along on modest interest and rates remained set at ws 92.5 to Singapore accordingly with similar levels anticipated over the next phase too”, the shipbroker concluded.

 

Tanker Market: Will Oil Demand Growth in 2018 Turn Things Around? (27/01)

With oil prices hitting new highs by the day, things are getting more complex in the tanker market. However, if some projections about oil demand growth prove to be real in 2018, tanker owners could be in for a positive surprise in terms of freight rates. In its latest weekly report, shipbroker Allied Shipbroking said that “brent oil futures hit a three year high on January 16th touching around USD 70.30 before falling back down to around USD 68.60 at the time of this publication, the former figure being the highest it has seen since December 2014. This has been in part due to the weakened US dollar, a massive decrease in the total global crude storage, as well as the highest rate of OPEC conformity to their oil production cuts, which was announced this past week in the Joint Ministerial Monitoring Committee (JMMC), in Muscat, Oman. The committee is made up of OPEC and non-OPEC member states, and although its primary goal was not to discuss further production cuts, the question was on the table as to whether they would continue their plan through to 2019. The answer to that is very much like a social media relationship status, “Its Complicated”.

According to Allied’s Research Analyst, Gerry Lathrop, “as previously mentioned, oil prices are hovering around a 3-year high, having increased by at least 10% since OPEC’s last meeting in Vienna this past November, and more than 50% from 6 months ago. On the supply side, the number of US oil rigs in 2017 and 2018 reached a new high, surpassing the number of rigs operating in 2016, and leading to a 16% rise in US oil production which peaked at around 9.75m b/d. The International Energy Agency raised its forecast for US production growth to 1.35m b/d for this year, making up by far the biggest chunk of supply growth outside of OPEC countries. The IEA then went on to say, US crude production is on course to overtake Saudi Arabia and rival Russia, as it made an upward revision on its 2018 growth forecast and stressed that “explosive” expansion in shale was offsetting OPEC-led supply cuts”.

Lathrop added that “the IEA, which is the latest body to raise US estimates, following the US energy department’s statistics arm and OPEC’s own research unit, has said: “This year promises to be a record-setting one for the US.”US growth of nearly 1.4m barrels a day, to a record 10.4m b/d, will help propel non-OPEC supply by 1.7m barrels a day in 2018 (Total output from outside the cartel is forecast to reach 59.8m b/d), dwarfing the level of supply cuts in OPEC crude output. But its not all smooth sailing for people in the downstream oil market, the recent OPEC-led rally in crude prices is hitting refinery profits hard, flashing warning signs over oil’s bull run. Higher oil prices typically quench consumption and squeeze profit margins at refiners that convert the feedstock into products”.

Allied’s analyst went on to note that “benchmark profit margins in key refining hubs dropped sharply in recent weeks – by over 50% in the U.S. Gulf Coast and northwest Europe, Reuters data shows – increasing expectations that some refiners will reduce operating rates. However, a wave of refinery maintenance scheduled in spring could eventually put a downward pressure on crude itself. According to the IMF’s most recent upward revisions on its estimates for global economic growth, we are currently witnessing some of the strongest growth figures in years and these (relatively) low oil prices could well boost global oil consumption by a further 1.3m b/d this year, a number the IEA acknowledges is “conservative” compared with other forecasts. Others have predicted demand growth could approach 2m b/d this year, more than double the rate of 2011-2014. Given the above, 2018 could well prove to be the turning point in the tanker market that all of us have been hoping for or at least the spark that sets it in motion”, he concluded.

 

Tankers: McQuilling Services Predicts Weak Freight Market for 2018 (24/01)

McQuilling Services is pleased to announce the release of its 2018-2022 Tanker Market Outlook. This 200-page report provides a five-year spot and time charter equivalent (TCE) outlook for eight vessel classes across 23 benchmark tanker trades, plus four triangulated trades. Also included in the report is a robust five-year asset price outlook as well as a one and three-year time charter forecast through 2022.

With 21 years of tanker rate forecasting expertise, McQuilling Services is a leader in the industry and continues to support a variety of stakeholders in the energy, maritime and financial services industries with its annual Tanker Market Outlook.

Methodology

The McQuilling Services rate forecast is based on the evaluation of historical and projected tonnage supply and demand fundamentals in the tanker market within the current and projected global economic environment, including oil supply and demand expectations. The forecasting process begins with the development of quantitative models, which are used to measure the correlation between historical freight rates and tanker supply and demand. This fundamental approach has proven to be reasonably predictive over the past 21 years. However, the forecasting process evolves past the modeling stage when the quantitative results are balanced with experiential knowledge and reasonable market assessments.

Key findings from 2017

In 2017, global ton-mile demand to transport crude and residual fuels increased by 5.4%, supported by a 4.9% increase in VLCCs (which accounted for 62% of the total demand for dirty tankers). Suezmax demand accounted for 24% of all DPP demand in 2017, 1% higher than 2016 due to higher crude exports from the Southern Europe and North Africa load region towards the Asian refinery complex.

We note the Middle East’s largest producer, Saudi Arabia, cut crude exports to every region in 2017, except the Far East, where traded tons rose 2.4% using official trade data through September 2017. Contrarily, exports to North America were markedly lower by about 7-9% amid rising North American crude oil production and de-bottlenecking from improved land-based infrastructure.

In examining bilateral country trade flow data, we recorded a 2.1% rise in CPP ton-mile demand distributed across the four tanker segments we analyze. At 2.23 trillion ton-miles, CPP marine transportation requirements make up 17.3% of all tanker demand, the highest on record.

For 2017, we estimate that LR1 transport demand declined by 2.4%, following a 3.0% rise in 2016. With the estimated amount of transported tons remaining stable year-on-year at around 119 million, the reason for the ton-mile contraction can be explained by a reduction in mileage from 3,703 miles per voyage to 3,618.

Throughout 2017, we recorded 145 dirty vessels delivered to the fleet, an acceleration of deliveries when compared to the 101 ships observed in 2016. The Suezmax sector expanded significantly with a net fleet growth of 45 ships. On the clean side, we observed a similar trend with vessels additions rising from 55 in 2016 to 71 in 2017, additionally we also observed 60 MR chemical tankers join the fleet.

Vessel deletions totaled 91 ships in 2017, 64 from the dirty side and 27 from the clean side. About half the removals were dedicated to the VLCC and Aframax sectors with 24 and 25 vessels removed, respectively. In the clean space, we observed 27 deletions with the majority in the MR space at 21 vessels, while four LR2s and two LR1s were removed.

Newbuilding ordering activity rose 64% year-on-year in 2017 within the DPP sector amid much higher interest in the VLCC and Aframax segments. In 2016, 19 VLCCs were placed on order, which rose to 51 in 2017. Suezmax and Aframax orders also increased rising to 23 and 34 newbuilding contracts, respectively. Clean tanker ordering activity through 2017 represents a decline in comparison to the previous five years with 16 LR2s and five LR1s contracted. In the MR2 space, 67% of orders were chemical tankers, while in the handysize segment, owners increased this percentage to an absolute 100%, the first year this has occurred.

Looking forward

Global economic activity strengthened in 2017, following a year of the weakest growth since the financial crisis at 3.2% in 2016. According to the International Monetary Fund, global growth is on track to expand 3.7% in 2018, an upward revision from previous expectations.

Global crude demand is expected to rise by 840,000 b/d in 2018 amid significant growth in the East on the back of expanding refinery capacity. Global crude supply is projected to rise by 1.5 million b/d in 2018, despite continued efforts from OPEC and non-OPEC countries to rebalance the markets and normalize inventory levels.

Crude and residual fuel ton-mile demand is projected to increase by about 1% on an annual basis throughout the forecast period with a decelerating trend observed in the outer years of our forecast. We project 2018 demand growth of 1.8% supported by higher long-haul West to East crude flows, particularly out of the US Gulf, Brazil and Europe with pressure on demand continuing from reduced Middle East flows to the US.

We project a net fleet growth of 155 dirty ships through 2022 on the back of 591 deliveries and 436 deletions. Substantial growth of about 72 vessels is forecast for the VLCC fleet, while the Panamax fleet is on track to contract over our forecast period, as owners place emphasis on coated tankers of this size. On the clean side, we expect a net fleet growth of 56 vessels over our forecast period as the LR fleet expands, while the MR CPP fleet contracts; however, we note that the MR chemical fleet will continue to grow over this period.

On the basis of supply side pressure as well as demand indicators pointing to decelerating growth, we expect 2018 to be a weak year for rates of all dirty tanker classes with VLCCs averaging around US $21,700/day and Suezmaxes averaging US $12,100/day.

The story is quite different on the clean side of the market as supply fundamentals improve with growing demand. Spot market earnings in the LR2 and LR1 sectors are projected to average around US $14,600/day and US $13,100 in 2018, respectively. MR earnings on a round-trip basis are, in general, expected to rise in 2018 with TC2 TCEs averaging US $8,800/day; however, higher earnings of US $14,900/day can be attained on the basis of the Atlantic Basin triangulation. Potential for supply side pressure on clean freight rates becomes evident in 2020 based on analysis of our new long-term delivery forecast methodology.

The relationship between time charter rates and spot market earnings was strong in our analysis and formed the foundation for our time charter forecasts. For VLCCs, we project 1-year and 3-year time charter rates to average US $27,000/day and US $29,500/day in 2018, respectively.

Our 2018 price forecast for the 5-year old crude tanker sectors sees VLCC values averaging US $62.6 million, a 3.5% increase from the 2017 average price of US $60.5 million. Modern Suezmax tankers are projected to demand US $41.2 million in 2018; however, by 2022 we project the values of these tankers to reach US $51.2 million amid a pickup in earnings.

Clean tankers of this age group (5-year) are expected to see higher prices relative to their 2017 averages. For the LR2 space, we forecast a 2018 average price of US $37.1 million, a 5.0% increase from the average price recorded in 2017, while the LR1 sector is expected to see larger gains of 11% year-on-year to average US $31.2 million. The MR2 tanker is likely to appreciate 15% to US $27.1 million.

What’s New in 2018?

In the 2018-2022 Tanker Market Outlook we have incorporated a variety of new features to provide our clients with a more robust view of global trade flows and major tanker trades:

Enhanced vessel demand data for European land-locked countries with access to neighboring country ports, supporting our ability to exceed 95% coverage of global trade flows

Refined our long-term vessel delivery forecast methodology utilizing regression analysis of historical fleet behavior to forecast future deliveries in conjunction with the current orderbook

Adjusted our deletion profiles to factor in historical deletion patterns and apply corresponding ratios to each sector in order to gain a more accurate view of fleet evolution

Developed a spot rate/TCE forecast for the Suezmax AG/Med route in response to the robust growth of Middle East crude flows into Europe

Added two LR2 trades AG/UKC and Med/Japan as well as one LR1 trade South Korea/Singapore to expand our coverage of the clean sector and produce two triangulated voyages for the LR sectors.

 

VLCC Surplus in the Middle East Set for Reduction in the Coming Weeks Says Shipbroker (23/01)

A looming fall in VLCCs’ availability in the Middle East over the coming weeks could help boost the freight rate market in the weeks to come. According to the latest weekly report from shipbroker Charles R. Weber, “VLCC rates moved broadly higher this week as participants reacted to a narrowing Middle East availability surplus that materialized during January’s last decade loading program. The gains came despite a slowing of demand in the Middle East as draws on the region’s positions to service West Africa demand rose for a third consecutive week. The Middle East market observed 20 fresh fixtures, representing a 46% w/w decline. Meanwhile, demand in the West Africa market inched up by one fixture to a one‐month high of ten. Average earnings on AG‐FEAST routes surged 93% y/y to ~$20,411/day”.

According to CR Weber, “the supply/demand positioning appears set for successive further narrowing during the first half of the February program. We presently project that, net of draws to the Atlantic basin, Middle East availability will decline from January’s end‐month surplus of 16 units to 14 units at the conclusion of February’s first decade. Looking further ahead, the surplus could drop to 9‐11 units by mid‐February (though we note that there is greater uncertainty around mid‐month availability given the potential for “hidden” positions and/or a weakening of West Africa demand). Nevertheless, the 14 surplus units projected at February 10th represents the lowest surplus since November, when AG‐FEAST TCEs averaged ~$27,698/day, implying that there is further upside potential. Indeed, based on the first decade’s supply/demand positioning, our model suggest an AG‐FEAST TCE of around $25,000/day. An expected increase in Middle East demand during the upcoming week should allow owners to capitalize on the improving fundamentals, though it remains to be seen how a high presence of commercially disadvantaged units will influence rate progression. These units represent 29% of the position list through February 10th and 24% of the position list through February 15th.  A most likely scenario is for a wider rate differential between competitive and disadvantaged units, though this is subject to a normal distribution of inquiry between requirements that can and cannot work disadvantaged tonnage”, said the shipbroker.

In the Middle East, CR Weber noted that “rates to the on the AG‐JPN route surged 10.9 points to conclude at ws48.5 with corresponding TCEs rallying 91% to ~$21,921/day. Rates to the USG via the Cape added 2.5 points to conclude at ws22.4. Triangulated Westbound trade earnings rose by 17% to ~$20,340/day. In the Atlantic Basin, rates in the West Africa market were stronger in line with the trend in the Middle East. Rates on WAFR‐FEAST routes added 4.6 points to conclude at ws48.4. Corresponding TCEs rose by 30% to ~$18,572/day. Rates in the Atlantic Americas market continued to pare early‐month losses in line with last week’s improvement in demand and improving overall VLCC sentiment. The CBS‐SPORE route added $100k to conclude at $3.50m lump sum. Round‐trip TCEs on the route rose 9% w/w to ~$16,385/day”, the shipbroker concluded.

Meanwhile, in other tanker segments, “the West Africa Suezmax market was modestly stronger this week a charterers were busy working cargoes in January’s final decade, during which the spot cargo availability for Suezmaxes was at a one‐month high.  Rates on the WAFR‐UKC route added 2.5 points to conclude at ws57.5.  The positive direction of rates appears to have been arrested by a progression into early February dates, within which availability levels appear to have inched up slightly. Rates in the Caribbean/USG market were slightly softer at the close of the week after regional demand declined 25% w/w and the class’ $/mt premium to regional Aframaxes undermined demand for intraregional Suezmax voyages. The CBS‐USG route shed 5 points to 150 x ws60 while the USG‐UKC route was unchanged at 130 x ws52.5”, CR Weber said.

 

Tanker Demolitions in 2017 Reached 85 Ships of Over 25,000 dwt, As Prices Increased Says Gibson (22/01)

Tankers sold for demolition last year were one of the few silver linings, as activity rose on the back of diminishing freight rates. In its latest weekly report, shipbroker Gibson reported that “one of the few bright spots for the tanker market last year was the notable increase in recycling sales. Of course, this could be viewed as a double-edged sword as many of these sales could Ahave been a result of poor earnings across most of the tanker market sectors. Another factor to consider is that lightweight prices gained steadily throughout 2017, closing the year just shy of $450/ldt for sub-continent sales. By the end of December, lightweight prices for tankers were approx. $100 tonne higher than the corresponding month in 2016. However, tanker recycling activity could only improve after the low level of sales recorded for 2015 and 2016 and lightweight prices have continued to rise into the new year which we hope will attract more sales”, the shipbroker said.

According to Gibson’s data, “in deadweight terms tonnage sold for demolition in 2017 amounted to 9.78 million tonnes, 86 units (25,000dwt+). The young age of the tanker fleet continues to be a barrier to sales, however, changes to OPEC production quotas began to bite in 2017 and unlike the previous year, the continuous stream of newbuildings across most sectors began to impact on earnings heaping pressure on older units. Older tankers found it increasingly difficult to get traction in the market and some owners may have found lightweight prices to be tempting”.

The shipbroker added that “last year we witnessed 11 VLCCs committed for demolition (average age 21.5 years), with the last sale in December, PLATA GLORY (built 1999) achieving the highest reported lightweight sale price at $438/ldt. Five Iranian controlled VLCCs were sold to Indian breakers, accounting for 1.5 million dwt. Of the 86 tankers sold last year, Bangladesh breakers took 46 units (5.1 million dwt), while India took 35 (4.3 million dwt). The final destination of the remaining five units is yet unknown. Pakistan remains absent from tanker demolition for the moment, following a series of explosions at recycling facilities in 2016. Twelve Suezmaxes (average age 22.5 years) and a sizable 30 Aframax/LR2 sales (average age 21.4 years) were concluded, the highest number since 2013. Our statistics above include only tankers removed from the conventional trade for demolition. However, five additional VLCCs were removed permanently from the trading fleet to take on FSO/FPSO duties, which accounted for the removal of a further 1.5 million deadweight”.

According to Gibson, “last January we alluded to the impact that pending legislation would have on demolition sector. In the event the IMO bowed to pressure to lessen the impact on owners softening the implementation of the Ballast Water Treatment convention (BWT). Owners have now turned their attention to the new 2020 sulphur limits, which we believe in combination with BWT, will exert greater pressure to increase scrapping levels as we head towards the end of the decade. The recent price hikes in bunkering costs could also heap pressure on owners to scrap, particularly for tankers with less efficient bunker consumptions. Tanker market fundamentals have changed considerably from a year ago, all of which could combine to be the catalyst for higher levels of removals in the near future”, it concluded.

Meanwhile, in the crude tanker this week, in the Middle East, Gibson said that “a lone, last minute VLCC deal to the East at the very close of last week that paid a noticeable premium, jolted the market into a vigorous, and positive, reaction at the opening bell this week, and the relief/euphoria drove rates up to a peak ws 62.5 East as a result. Thereafter, Charterers looked around to see that good availability remained, and decided to shut the taps once again, demand then softened somewhat, and older units accepted down to ws 50 also. A more cautious approach likely over the next phase. Suezmaxes bumbled along with only modest interest hitting up against easy supply – rates remained stuck at around ws 70 (18 Worldscale) to the East and sub ws 30 (18 Worldscale) West with no real cause for early change. Aframaxes kept flat through the week, but are now starting to resist ‘last done’ 80,000mt by ws 92.5 (18 Worldscale) numbers to Singapore and may add a little to the scoreboard next week”, the shipbroker said.

 

Tankers: December Market at a Standstill (20/01)

Unlike the usual seasonal pattern, in December dirty tanker spot freight rates in general did not show any remarkable gains. Average dirty tanker spot freight rates were almost stable from a month before to stand at WS78 points, pressured by a decline of WS10 points in average spot VLCC freight rates during the month on the back of high vessel availability while tonnage demand remained limited, thus unable to support any growth in rates during the month. The increase in vessel capacity during 2017 weighed heavily on tanker market profitability as a clear sign of the current imbalance in fundamentals. Moreover, a reduction in transit delays – mainly in the Turkish straits – was another factor that led to a lack of support for spot freight rates in December. Suezmax and Aframax spot freight rates showed minor gains, with the market also affected negatively by ample vessel supply as seen in the larger vessel markets. Clean tanker spot freight rates strengthened in west of Suez as a result of more balanced conditions, as vessel availability was tighter, which led to a significant gain for medium-range tankers, mainly in the Mediterranean.

Spot fixtures

Global fixtures went up by 22% in December, compared with the previous month. OPEC spot fixtures rose by 1.62 mb/d, or 15%, averaging 12.8 mb/d, according to preliminary data. An increase in fixtures was registered in all regions, up by between 10% and 22% from the previous month. Compared with the same period a year earlier, all fixtures were higher with an only exception on the Middle East-to-East route.

Sailings and arrivals

Preliminary data showed that OPEC sailings rose by 0.5% in December, averaging 24.10 mb/d, remaining 0.6 mb/d, or 0.2%, higher than in the same month a year earlier. Arrivals in North America, Europe and Far East were up from the previous month, while West Asian arrivals declined by 0.32 mb/d, to average 4.55 mb/d

VLCC
In December, VLCC spot freight rates diverged from the usual pattern during the peak winter season, with average monthly VLCC spot freight rates dropping to the lowest level in 4Q17. The VLCC market was mostly flat over the month, as it did not benefit from the usual rising seasonal trend as vessel demand remained weak and earnings remained low on most routes. Furthermore, rates were under pressure on all selected routes as vessel supply remained ample. Freight rates continued declining despite some improvement in tonnage demand in the week ahead of the holidays, as the number of inquiries remained scarce in comparison to a high number of idle ships. Lack of delays and slow movement in the market also contributed to the fall in rates.

The imbalance in the market came mostly as a result of continuation of newly built deliveries to the market seen during the year. The drop in freight rates was registered on many routes as high vessel availability existed on all major trading routes. The highest monthly decline in freight earnings for tankers was seen on the Middle East-to-East route, dropping by WS15 points from a month earlier followed by rates registered on the West Africa-to-East route, where earnings declined by WS12 points to stand at WS57 points. Levels for West Africa were weak as the market suffered from general weak tonnage demand. Tankers operating on the Middle East-to-West route saw a drop in spot freight rates, down by WS3 points from the previous month, to stand at WS25 points. VLCC freight rates in December showed a drop on a monthly and annual basis on all selected routes, with no exceptions.

Suezmax
Suezmax spot freight rates showed some increases in December, though remaining below the levels seen in the same month a year before. Average Suezmax rates increased by WS6 points compared with the previous month. The gains in Suezmax rates were halted by charterers continuing to attempt to control the market and preventing rates from increasing despite an occasional increase in activity in West Africa, the Black Sea as well as some other areas. On the other hand, limited delays at the Turkish straits also prevented rates from registering remarkable gains at any stage of the month. Therefore, vessels operating on the West Africa-toUS route rose by WS8 points, to average WS87 points, while rates for Northwest Europe-to-US routes increased by WS4 points to average WS66 points. In December, Suezmax tonnage supply was sufficient despite an occasional thinning in vessel availability.

Aframax
Aframax average spot freight rates went up by WS8 points in December. The gains were driven by higher freight rates seen by tankers operating on the Caribbean-to-US route, where they averaged WS160 points showing a remarkable increase of WS43 points from the previous month, and a rise of WS23 points from the same month a year earlier. Firm sentiment in the Caribbean lasted for some weeks in December before rates started to gradually decline, as tonnage availability started to build up. On the other hand, Aframax rates on all other reported routes dropped from a month earlier. Vessel availability in the spot market was ample and many markets were lacking activity. Spot freight rates for the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes declined by WS2 and WS3 points, respectively, to stand at WS100 points and WS96 points, respectively. Aframax freight rates in the East were no exception. They dropped on the Indonesia-to-East route by WS9 points to average WS101 points.

 

Tonnage on the Water (20/01)

A beginning inventory figure for the eight vessel classes we track is extracted from our proprietary database during the Tanker Market Outlook process. For the clean sectors, we historically calculated supply for product carriers and IMO 3 class vessels only; however, are now including the Chemical IMO 2 fleet due to its increasing utilization for the marine transportation of refined products amid volatile chemical tanker demand. Chemical ships with an IMO II/III designation are evaluated on a monthly basis to determine whether their classification has changed and updates are reflected in our inventory numbers.

Throughout the year, we monitor additions to the fleet which are added to the inventory, while deletions, which are a result of vessels being sold for scrap or offshore conversion, are removed from inventory counts. The net result is the ending inventory and the average inventory for the year (beginning plus ending inventory divided by two).

At the start of 2018, the dirty tanker fleet consisted of 2,082 ships. The VLCC fleet begins the year with 711 vessels from an initial 2017 inventory count of 686, a 3.6% increase. The Suezmax segment began 2018 with 562 ships in its trading fleet; a significant increase of 8.7% from 2016’s starting level of 517 vessels.

The second largest dirty tanker fleet by number of vessels, the uncoated Aframaxes, commenced 2018 with 699 ships on the water, representing growth of only 1.0 % year-on-year. Crude carrying Panamaxes totaled 110 at the start of 2018, one ship decrease year-on-year.

The clean and refined product tanker fleet at the beginning of 2018 totaled 1,769 vessels, excluding vessels with IMO I and II classifications in January 2018. The MR2 class represents about 49% (down from 54% at the beginning of 2017) of the clean tanker fleet with 872 trading vessels on the water. MR2 sized vessels with an IMO II designation at time of writing totaled 714, up from 661 at the beginning of 2017, while chemical MR1 ships increased from 303 to 315 over the same period. At the start of 2018, there were 329 LR2 tankers (2 with an IMO II classification) in service, while we counted 289 LR1 sized vessels, up from 273 vessels at the beginning of last year, a 5.9% increase.

 

Tankers: Tonnage Oversupply to Remain an Issue during 2018 says Shipbroker, as VLCCs’ Earnings Could Fall by 30% (19/01)

Those who predicted that 2018 would be yet another challenging year for the tanker market, after a dismal 2017 as well, haven’t been far off. In fact, as shipbroker Charles R. Weber reiterated in its latest weekly report, things could very well stay that way for quite some time. In its latest analysis, the shipbroker said that “crude tanker earnings have commenced 2018 at seasonal lows not observed in decades as a large, ongoing newbuilding program continues to undermine fundamentals. Crude tanker earnings declined during 2017 by an average of 45% from 2016, led by a 46% decline in VLCC earnings to ~$25,309/day while Suezmaxes shed 45% to ~$13,838/day and Aframaxes fell 44% to ~$13,101/day. The annual averages in each segment were heavily supported by seasonal strength during 1Q17 which appears to elude the market presently, implying a potentially horrendous year for average earnings during 2018. Our base expectation is that VLCC earnings will conclude the year with a 30% y/y decline to under $18,000/day. We project a 40% y/y decline for Suezmax earnings to $8,250/day and a 12% y/y decline in Aframax earnings to ~$11,500/day”.

According to CR Weber, “supply Fleet growth remains the key catalyst to the prevailing earnings environment with a long list of units ordered between 2013 and 2014 delivering during 2016 boosting capacity. A subsequent wave of orders penned during the strong earnings environment of 2015 extended high levels of newbuilding deliveries during 2017 – and is ongoing. Phase‐outs concluded 2017 considerably above expectations as stronger $/ldt values against poor earnings incentivized a surge in demolition sales activity across all size classes while an improving offshore market saw conversion works progress on a number of units held for conversion in the VLCC space. All told, some 23 VLCCs were phased out during 2017 – a considerable increase from the just two and three units phased‐out during 2015 and 2016, respectively, and the most since 2011. Twelve Suezmax units were phased out, up from zero and one during 2015 and 2016, respectively and the most since 2012. Thirty‐three units were phased‐out from the Aframax/LR2 asset class, up from 6 and 9 during 2015 and 2016, respectively and also the most since 2012”.

The shipbroker added that “despite the stronger phase‐outs, net fleet growth was still high during the year (if lower than the more extreme levels observed during 2016), clocking in at 4.0% for VLCCs, 8.4% for Suezmaxes and 3.2% for Aframax/LR2s. For 2018, we project net fleet growth of 3.9% for VLCCs, 3.2% for Suezmaxes and 3.3% for Aframax/LR2s. While these levels are broadly within range of historical annual averages, coming on the back of the past two years’ fleet growth levels, any positive net supply growth would only serve to delay a progression into earnings recovery”.

In terms of demand, CR Weber says that “collectively, crude tanker demand rose by 4.0%, though a secular look shows that only VLCCs concluded in positive y/y territory. Demand for VLCCs returned to growth during 2017, posting an increase of 11% after a contraction of 4% during 2016. The gains were supported, in part, by an increase in voyages to Asia from the Atlantic basin, particularly during 1H17 due to OPEC supply cuts heavily distributed to Middle East producers and during September and October as US crude exports surged amid long‐lasting US Gulf Coast‐area refining outages after Hurricane Harvey and other storm systems”.

“Inversely to VLCCs, Suezmax demand was undermined during 1H17 due to OPEC supply cuts as more voyages from the Atlantic Basin to Asia oriented to VLCCs reduced cargo availability for the smaller class. These losses were partly offset by rising US crude exports (28% of which were serviced by Suezmaxes), but overall demand for the class concluded with a 1.3% y/y contraction. Aframax demand was the hardest hit among its crude tanker counterparts. Like Suezmaxes, demand losses on key routes were partly offset by gains in ex‐USG crude cargoes (for which the class serviced the lion’s share of 42%), but these did little to stem contraction in intraregional Caribbean voyages, and contractions in nearly all other markets. Overall, the class saw demand decline by 10.8%”, CR Weber concluded.

 

Tanker Fleet Utilization: Supply Rose by 12% in 2016/2017 (18/01)

The concept of real time demand using remotely sensed vessel position data is predicated on the ability to draw conclusion about a vessel’s condition at a certain point in time. The ability to capture daily demand is a step change in current methodologies of assessing ton-mile demand. Historically, tanker demand (measured by ton-miles) relied upon lagging data, often times incomplete and revised at a later point. Delving further into daily demand data, we explored the delineation of the data to account for disadvantaged tankers. At this stage, the definition is simplified to include vessels that are over the age of 15 on a given day. As we continue to “fine-tune” our process, we intend on expanding this definition to include vessels that are exiting dry-dock and are engaging in their maiden voyage.

In 2017, we measured an average of 137 million ton days for the VLCC fleet. A quick extrapolation of the data indicates that under a basic assumption that the average cargo quantity was 270,000 metric tons, demand could be measured as the equivalent of 507 VLCCs during the year. On a year-on-year basis, demand increased 3.8% (or 18-19 VLCCs), the lowest growth rate since at least 2014, the first year remotely-sensed data availability can be relied upon. In 2015 and 2016, we calculated ton-day demand to increase 10.1% or 11.2 million tons and 7.9% or 9.7 million tons, respectively. This indicates that the pressure on freight rates in 2016 and 2017 may also be attributed to the demand side.

The deceleration in demand growth coincides with elevated supply growth of about 12% over the 2016/2017 period. Our remotely-sensed vessel data analysis accounts for all tankers (by segment) reporting a satellite position. However, when a tanker does not report a position for more than 15 consecutive days, it is removed from the analysis. The aforementioned demand and supply statistics resulted in a 2017 VLCC fleet utilization of 61.9%, down from 64.24% in 2016, corresponding with a US $17,000/day decline in time charter equivalent earnings over that same period.

 

Tanker Market: Shale to the Rescue (15/01)

The US shale oil industry has been credited for the pressure exerted towards OPEC oil producers, in terms of market share and its resilience, despite the low oil price environment of the past couple of years. With oil prices rising once more, few are betting against shale this time around. For the tanker market in particular, the US shale oil industry’s boom hasn’t had the negative impact of the past, as the rise in oil production hasn’t dented the country’s oil imports, while at the same time, there’s been a notable boom of US oil exports.

In its latest weekly report, shipbroker Gibson said that “the US shale industry made a spectacular recovery last year, supported by firmer oil prices on the back of the robust growth in oil demand and output restraint exercised by OPEC and its partners. In December 2017, US crude production was assessed by the Energy Information Administration (EIA), the US energy watchdog, at just over 9.9 million b/d, up by a colossal 1.15 million b/d compared to December 2016”.

According to the London-based shipbroker, “in the past, such large-scale gains in domestic output triggered similar scale declines in the country’s crude imports but it does not appear to be the case this time around. In fact, US crude imports averaged slightly higher during the first three quarters of 2017 relative to the corresponding period of 2016. Interestingly, long haul crude shipments from the Middle East showed very little change year-on-year, trade from Canada continued to increase and a further decline was seen in short haul volumes shipped from Latin America, most notably Columbia and Venezuela. However, the picture changed in the fourth quarter. Preliminary weekly data provided by the EIA shows a sizable drop in the volume of crude imported between October and December 2017 compared to levels witnessed earlier in the year. Yet, this decline is partially attributable to disruptions caused by several major hurricanes in the US Gulf and the fact that refiners tend to reduce stocks at the end of the year in order to reduce tax liabilities. Nonetheless, even with less crude shipped towards the end of the year, annual average volumes in 2017 are likely to be very similar to those seen in 2016. Another key factor in the US crude trade last year is the relentless growth in the country’s crude exports. In the third quarter of 2017 exports averaged around 1.05 million b/d, up by nearly 0.45 million b/d year-on-year. Initial weekly estimates also suggest further growth in the fourth quarter, with exports averaging at record high levels at around 1.45 million b/d”.

There is more to come. Just a few days ago the EIA published its outlook for domestic crude production for the next two years. The latest forecast for 2018 is notably more bullish, which perhaps is not surprising taking into account the upward trend in oil prices in recent weeks, with Brent futures flirting with the $70/bbl mark and WTI rising close to $64/bbl. The agency now expects domestic crude production to reach record high levels in March, when output is forecast to climb above 10.1 million b/d. On an annual basis, production is projected to average over 10.25 million b/d in 2018, up by another 1 million b/d year-on-year. A further annual gain of around 0.55 million b/d is anticipated in 2019.

Such robust projections for output growth, coupled with the ongoing infrastructure improvements in the US to expand its export capacity suggest strong potential for further increases in exports. The same will also help to alleviate the downward pressure on imports. However, the future is far from certain. Perhaps the biggest uncertainty surrounds the OPEC response to a continued surge in US shale output.

Meanwhile, in the crude tanker market this past week, in the Middle East, Gibson said that “by any normal standards, volume wasn’t the issue for VLCC Owners – it was a busy period, but fat availability continued to weigh heavily, and rates became solidly boxed into a range capped at ws 50 to the East and ws 25 to the West, with marked discounts from that for older, and more challenged units. January needs are now all but covered, and February programmes will not be fully confirmed until late next week, so any potential momentum is likely to be lost. Suezmaxes posted no change to the previous rate structure – maximum ws 87.5 to the East and ws 37.5 to the West as tonnage lists continue to easily handle modest demand. Aframaxes had a sluggish week of it as maintenance schedules restricted demand and rates shuffled sideways at ws 92.5/95 to Singapore with little early change likely”.

 

Tankers: Crude Oil Supply Outlook (13/01)

Global crude supply growth is projected to rise by 1.5 million b/d, despite continued efforts from OPEC and non-OPEC countries to reduce output levels, according to data from JBC Energy. After feeling declines of about 545,000 b/d year-on-year in 2017 the Middle East is expected to make modest gains of 135,000 b/d this year. This figure could change considerably if we see a reduction of compliance or a failure of the extended accord; however, both are unlikely through 2018.

Crude supply in West Africa is on track to rise by 310,000 b/d in 2018, one of the largest years of growth since 2014. Continued growth is projected through 2020, albeit at a slower pace, although as we move into 2021/2020 fundamentals point to declines in crude supply of 30,000-80,000 b/d, which when coupled with the start-up of the Nigerian mega refinery, is likely to pressure exports volumes.

Europe experienced a large rise in crude supply (430,000 b/d year-on-year) in 2017, mainly supported by the Mediterranean region as Libya and Kazakhstan produced more crude, while Russia redirected export barrels from the Baltic Sea to the Black Sea. This trend was also a major contributor to the recent health of the European refining system as refiners could source cheaper feedstock from more proximate sources. Crude supply growth is expected to continue this year; however, at a slower pace of 260,000 b/d, again mainly supported by the Mediterranean.

North America is the main driver behind rising global crude supply next year as higher production is expected out of the US and Canada. The US EIA forecasts US production to reach 10 million b/d in February 2018, while the IEA expects Canadian production to rise to an average of just below 5.0 million b/d. As a result, JBC Energy projects the North American supply of crude to increase by 950,000 b/d year-on-year to 15.1 million b/d in 2018. This trend will further support the growing crude export market out of the US Gulf and pressure pricing of WTI-linked grades to incentivize purchasing from refiners in the East.

 

VLCCs: 2018 Marks Tough Start for Tanker Owners (09/01)

Hot on the heels of a troublesome 2017, the new year has proven to be just as challenging for owners of the largest tankers. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates continue to sour as the market progressed into 2018 as rising levels of surplus availability in the key Middle East market against lackluster demand continues to undermine sentiment. The VLCC surplus at the conclusion of the January Middle East program’s second decade is projected to stand at 29 units, which represents the highest level since September, when AG‐FEAST TCEs stood at about $11,600/day. TCEs on these routes are presently averaging ~$12,862/day, suggesting that further near‐term downside potential remains. In the coming week, we expect that rates will continue to decline to an effective floor just above OPEX”.

The shipbroker added that “thereafter, the surplus appears set to narrow modestly by end‐January loading dates in the Middle East market, though it is uncertain if commercial managers are hiding a larger number of vessels than usual. Given this uncertainty and the lagging nature of rates to fundamentals changes, we would not likely expect much rate improvement until charterers have progressed firmly into February loading dates, even if fundamentals do narrow during January’s final decade”.

Meanwhile, “the VLCC fleet grew by 4% during 2017 on a net basis (a level which was markedly lower than had been projected as rising $/LDT demolition values incentivized an unexpected surge in demolition sales during the year), and followed on 2016’s net growth rate of 7%, leading the market into its worst structural position in decades. Indeed, present average earnings of just ~$13,653/day represent a y/y decline of 71% ‐‐ and compare with average earnings during 2017 of ~$25,308/day. Coming at a time when the market is typically at a seasonal high, the indication is that 2018 will likely be an extremely challenging year for owners”, CR Weber concluded.

In the tanker market this past week, in the Middle East, rates to the Far East shed 0.82 points to conclude at ws40.23. TCEs concluded at ~$13,653/day. Rates to the USG via the Cape were unchanged at ws19.86. Triangulated Westbound trade earnings concluded at ~$15,616/day. Similarly, “the West Africa market saw rates unchanged at ws43.79 with corresponding TCEs concluding at ~$15,156/day. Rates in the Atlantic Americas were softer on a growing supply/demand imbalance on sluggish exports from both the US and Venezuela. The CBS‐SPORE benchmark route shed $400k to conclude at $3.20m lump sum. Round‐ trip TCEs on the route concluded at ~$15,156/day”, the shipbroker noted.

Meanwhile, in the Suezmax market, the shipbroker said that “demand in the West Africa market declined for a third consecutive week to its slowest pace since August.  Coming against a rise in availability, negative pressure on rates remained. The WAFR‐UKC route shed 4.2 points to conclude at ws61.2. A particularly strong demand run during December’s final decade (materializing on the back of widened cash discounts to Brent) have kept availability levels from rising further still; however, as the perfuming units return to availability, a fresh misbalancing may materialize and place rates under fresh negative pressure. Compounding woes, rates in the Americas market are declining on slower demand for long‐haul, extra‐regional voyages while slowing recent demand in the Middle East market could lead to westbound ballasts.  Limiting the extent of downside, average earnings in the class are already hovering around OPEX levels”, CR Weber concluded.

 

Tankers: The rate of newbuilding deliveries will determine the 2018 course of things in the market (08/01)

Ship owners active in the tanker market have entered 2018 in a numb state, as they have been looking for some positive news, after what proved to be a more than challenging year. In its latest weekly report, shipbroker Gibson said that “2017 was always expected to be a challenging year, however, for the crude sector at least, the first half of the year generated reasonable earnings. In contrast, product tankers suffered heavily during the first six months, but did at least witness increased volatility later in the year. 2018 looks set to be another painful period for tanker owners, with a continued wave of new tonnage and potentially challenging demand conditions”.

According to Gibson, “on the supply side, the key issue is of course the weight of deliveries expected for 2018. This year 40 million dwt of crude and product tankers (over 25,000 dwt) are due for delivery, compared to the 35.5 million dwt delivered in 2017, potentially making 2018 the busiest delivery year since 2010. Delays are, however, expected to be a factor in reducing the volume of tonnage entering the market this year. Interestingly in 2017, slippage (taking account of the scheduled number of deliveries vs. actual deliveries) across the crude sector fell relative to 2016. Actual deliveries for VLCCs fell just 11% below the scheduled number, whilst Suezmax slippage was somewhat higher at 21%. However, delivery delays in the product tanker sector, which had a more challenging year relative to the crude market, ran significantly higher. In the crossover Aframax/LR2 sector deliveries fell 27% below the scheduled number, whilst LR1 slippage rose to 38%. MRs, which didn’t fare as badly in the spot market as the larger product carriers, saw slippage of just over 28%. Given the anticipated fundamentals for 2018, delivery delays are expected to remain a feature, and for the crude sector in particular, and could increase relative to 2017. However, the same fundamentals are likely to encourage scrapping activity; which, when coupled with slippage, could help offset some of the supply growth for 2018”.

The shipbroker added that “supply is of course just one side of the equation. In terms of oil demand the IEA forecasts positive growth of 1.3 million b/d; slower than recent years but above long-term averages. However, the consensus is that OPEC will continue to limit output until the end of the year, giving little opportunity for export growth from the Middle East and perhaps West Africa. The focus is therefore outside OPEC. The US will of course remain one to watch over the year with the EIA expecting crude production to average 775,000 b/d higher in 2018, much of which expected to head for export. Elsewhere, output growth could be seen from Brazil, Kazakhstan and Libya. However, the threat of lower production exists elsewhere. Could Venezuela be 2018’s wildcard event?”.

Meanwhile, according to Gibson, “for the clean market, there is little reason to expect 2018 to be any worse than last year. In the West, the year has at least started on a better footing, even if weather is the primary factor. More fundamentally, oil products demand looks good. Refined product stocks, which had become a key barrier to arbitrage trade, have come down significantly, particularly in Europe, and to a lesser extent in the key US Atlantic Coast region, which should improve fundamentals in the Atlantic. Higher diesel exports are expected from the Baltic, whilst demand from Latin America and West Africa looks set to remain a key theme. The picture is a little more mixed in the East. In the Middle East, there are few refining developments set for 2018, whilst repairs at Ruwais are expected to last into 2019. In the Far East, Chinese product exports could rise once again, following the issuance of higher export quotas in the first quarter, supporting regional tanker demand. However, it remains to be seen whether these developments will be enough to make a real difference. Will the wait go on until 2019?”, concluded the shipbroker.

 

VLCC freight rates down by 65% in 2017, Suezmax and Aframax rates retreat in half (06/01)

It’s safe to say that 2017 has been a dismal year for the tanker market, with average rates down by at least 50% across the board. While this has also been reflected – for the most part – in asset prices as well, creating investment opportunities, most ship owners are looking for some respite in 2018. In a recent weekly report, shipbroker Allied Shipbroking said that “as we start to slowly wind down during the final days of the year, it is a good time to take a look back on what we saw and were we stand in the tanker markets. Average TCE VLCC rates for the year are hovering below US$ 10,500pd which is around a third of the average of 2016 rates which were US$ 30,400pd. On a slightly better note, Suezmax TCE rates, although down year on year have only fallen to around half of what they were, with the TCE having average at US$ 12,500pd this year”.

According to Allied’s, Gerry Lathrop Research Analyst, “similar to the Suezmax market, average Aframax TCE rates have also fallen to around half of what they were, with the TCE having averaged at US$ 9,000pd for the year so far. Overall the product tanker market has been doing slightly better. In 2016 MR vessels averaged around US$ 12,250pd, whereas in the year so far they have averaged US$ 13,000pd Although this rate is improved, it is likely due in part to the spike in rates caused by hurricane Harvey in the Atlantic which for a while created a market mismatch and rerouted several cargoes from other destinations to the USG”.

Lathrop said that “given this round up of gloomy figures being seen in the freight market during the past 12 months it is no surprise that things were mirroring an equally poor performance in the SnP market. Prices have taken a severe beating over this period, though in many cases this drop has been more theoretical than actualized given the very limited activity being noted and reflecting the gross mismatch present between sellers’ and buyers’ ideas. Modern vessels have fared slightly better, with this age group holding its value in most of the size segments, while in some case such as that of VLs, we even managed to see some slight improvement. Some of the biggest drops in value seemed to have been noted in the vintage Suezmax and Aframax categories, with the former having lost about 20% of their value and the latter having lost about 15%”.

Allied’s analyst added that “the MR size segment seems to have been the only sector which has performed better this year, with resales and 5-year assets having gained 3.0% and 6.5% respectively, while the value of 10-year old units remaining unchanged. In terms of fleet growth per sector this year, we have seen a somewhat similar pattern from the year before, with the overall growth figures having kept under check fairly well. In particular, MRs in 2016 saw a rise by 111 vessels in the in service fleet, while in 2017 this figure scaled back down to 67 vessels. The Aframax segment saw a smaller net fleet growth with a net increase of 44 vessels in 2016 and 32 vessels in 2017. Conversely the Suezmax has seen its net increase almost double from last year, with 2016 noting a net growth of 22 vessels, while in 2017 this rose to 42”.

Lathrop concluded that “things were slightly better for VLCCs thanks to increased scrapping activity, with the net change having gone from 43 vessel increase in 2016, down to a 36 vessel increase this year. In terms of deliveries scheduled for 2018, we expect to see roughly 58% of the current orderbook being delivered which is equal to around 7.7% of the current inservice VLCC fleet. For Suezmaxes these respective figures are, 60.5% and 8.2%, while Aframaxes fairing slightly better with roughly 53% and 7.1%. The MR segment is holding some of the most promising prospects in this regard, which although is expecting 101 vessels to be delivered next year (49% of the orderbook), will likely only translate to an increase of about 4.2% to the total in-service fleet”, Allied’s analyst concluded.

 

Product Tanker Dynamics in Constant Shift (04/01)

Ship owners active in the product tanker market are looking to capitalize on constantly evolving market dynamics, but a lot of insight will be needed, together with good market reflexes. In a recent weekly report, shipbroker Gibson said that “for many years the main driver behind the Atlantic product tanker market was gasoline trade into the US. When the gasoline arb opened, freight rates on the UK Continent to US Atlantic Coast (TC2) route usually spiked. However, in recent years, the surge in refinery output in the US and higher stocks has seen import demand ease off. The volatility induced by TC2 in recent years has been limited, with arbitrage opportunities being few and far between, and primarily created by freak events, such as pipeline outages or extreme weather. Shipowners have had to look elsewhere for signs of demand growth in the Atlantic”.

Gibson added that “refined product imports in to West Africa have evolved into one of the key drivers behind the product tanker market and at times, a significant generator of freight volatility. A spike in freight costs back in March and April this year was primarily driven by a surge in import demand into West Africa, whist similarly the spike seen last week was primarily driven by high demand for gasoline in Nigeria ahead of Christmas. In fact, December 2016 saw a similar story, with surging gasoline demand often being observed in the country ahead of Christmas. Demand into the region may have now eased off, following heavy fixture activity in recent weeks, but could soon re-emerge, particularly considering consumer panic buying in recent weeks and expected high consumption over the festive period”.

Meanwhile, “moving further forwards refined product imports into West Africa look set to see continued growth. Outright oil demand in the region is rising, whilst refining capacity additions remain some way off. The biggest threat to product import demand growth into West Africa remains the construction of the 650,000 b/d Dangote refinery near Lagos. Construction work is well underway, with an official completion date scheduled for 2019. However, the actual impact on the tanker market is likely to be somewhat later. Some reports still suggest the swampy ground is still being prepared in many areas of the site, despite some construction (storage tanks) already being evident. At this point in time, 2019 might seem overly optimistic, with any major impact on the markets likely to be a few years later. Key challenges will have to be overcome, with state controlled refining in Nigeria not having the best track record. That being said, Dangote, Africa’s richest man has a proven record in other industrial projects”.

According to Gibson, “in the medium term, shipowners can therefore expect to see continued demand down to West Africa, whilst at times, seasonal trends and erratic demand is likely to support freight volatility, with the run up to Christmas and end of Q1 often being key periods. In the longer term, the threat of expanding refining capacity may pressure regional product tanker demand but right now it remains unclear as to when such capacity will come online”, the shipbroker concluded.

 

The US Crude Export Market Emerges (04/01)

The main driver behind the interest in US crude has been pricing incentives as considerable pressure has been placed on WTI in comparison to other benchmarks. US crude production rose 4% year-on-year to an average of about 9.2 million b/d in 2017, while Canadian output is also up around 4-5% in 2017. As a result, the North American crude balance is on track to expand by 4.7% in 2017 to 14.2 million b/d putting significant pressure on WTI relative to Brent. The wide differential between these benchmarks and the upward pricing pressure on Dubai due to OPEC production cuts has given refiners (especially in the East) ample incentive to source US crude. The differential has been particularly wide since September, bolstered by Hurricane Harvey, which correlates with a significant rise in US crude export volumes.

In 2016, 61% of US crude headed for Canada; however, this level has since shrunk to 30% or 307,000 b/d through the first 10 months of 2017. The Far East and South East Asia have gained a lot of interest for US crude in 2017, importing about 336,000 b/d per month on average through the first 10 months. China has become a major importer, taking around 448,000 b/d in October 2017 alone, while we have also seen increase flows into Korea, Singapore and India for the first time ever. Europe has also taken its fair share of US shale oil in 2017 with volumes up 90% year-on-year through October 2017. Volumes into the Netherlands and UK have averaged 77,000 b/d and 80,000 b/d, respectively.

 

Tankers: Newbuildings Up by 17% in 2017, up 340 ships changed hands in the S&P Market (30/12)

The tanker market is geared for a transition period in 2018, as tonnage oversupply and the oil price fluctuations are bound to keep adding pressure at freight rates. In a recent note, shipbroker Intermodal said that over the course of 2017, market fundamentals have been casting a shadow of uncertainty over 2018’s performance.

“In a rather unconventional development, despite the fact that earnings for the sector have continued to move lower this year, tanker newbuilding orders have actually increased year to date by 17%, compared to 2016. The most logical explanation for this has been the admittedly attractive newbuilding prices that still continue to tempt a number of owners into ordering despite a rather challenging freight market. When it comes to SnP activity, things have been rather steady; we are counting around 340 SnP tanker transactions so far, compared to the 333 transactions we have on record for the same period in 2016”, Intermodal noted.

According to the shipbroker, “tanker asset prices have consequently moved down this year as well, with tonnage older than ten years naturally noting the biggest declines in value. Saying that, there has been some rather decent resistance especially in prices for more modern vessels, which of course could be succumbed if pressure on earnings resumes in 2018. Indeed, taking into account the scheduled deliveries next year and the fairly young average age of the tanker fleet that sets a rather low ceiling to the number of potential demo candidates, we wouldn’t be surprised to see way more attractive second-hand prices next year and a consequent spike in SnP interest/activity”.

Intermodal’s Research Analyst, George Panagopoulos said that “as far as oil prices are concerned, the latest decision taken by OPEC and its partner nations, who have agreed to extend crude output cuts until the end of next year, has offered additional support to the commodity. Following this, analysts are now expressing a more positive view for next year. Goldman Sachs is optimistic on global oil demand growth and actually expects the output cuts to end earlier, in Q3 2018. Moreover, Credit Suisse raised its 2018 oil price forecasts citing strong OPEC adherence to pledged output cuts. A survey recently conducted by Reuters also showed that the rally on oil prices is expected to continue in 2018. Rounding up the positive expectations, OPEC anticipates oil demand to rise by 1.51 million bpd next year, up 130,000 bpd from previously, to 98.45 million bpd”.

He added that “despite the very positive vibe in the investing community as far as the price of the commodity is concerned, U.S. production continues to cast a shadow over bullish sentiment. After all the higher prices go the more sense it makes for US to increase its production from a commercial point of view and last month’s US crude inventories revealing the highest monthly production since 2015 is solid proof of that. This is not bad for tankers though, as a balanced oil price is naturally much more appealing and supportive of demand”, Panagopoulos concluded.

 

Pumping Out Of Persia: The Comeback Of Iranian Crude (30/12)

Iran has the fourth largest proven oil reserves of any country in the world. However, sanctions placed on the country in 2012 due to concerns over their nuclear activities led to Iranian crude oil exports tumbling by more than 50% in just one year. Following the removal of some sanctions in 2016, Iran’s crude exports have returned to levels last seen in 2011, but the future outlook seems increasingly uncertain.

Feeling The Squeeze

Prior to the introduction of US, EU and UN-led sanctions in early 2012, Iran was the world’s third largest exporter of crude oil, exporting around 2.3m bpd and accounting for 6% of global exports in 2011. Around a third of Iranian exports were shipped to Europe in the same year, with the remainder largely being sold to Asian nations. After sanctions came into force, the sale of Iranian crude to the EU was banned altogether, and other major importers required a waiver from the US. As a result, by 2013 Iran had fallen out of the top ten exporting nations, with the country’s crude exports dropping to around 1m bpd in 2H 2012 as flows of Iranian crude into Europe all but ceased, and Asian buyers such as South Korea sought to diversify their supplies.

A Rapid Recovery

However, in 2015, the P5+1 group of countries signed the historic Joint Comprehensive Plan of Action (JCPOA), agreeing to alleviate sanctions in return for Tehran limiting its nuclear programme, starting from January 2016. Following the deal, Iranian crude exports rebounded dramatically, expanding by 90% y-o-y in 2016 and accounting for half of annual global seaborne crude trade growth. By early 2017, oil production has risen by around 1m bpd compared to late 2015, supporting a recovery in seaborne crude exports to 2.4m bpd in 1H 2017, edging above the 2011 average of 2.34m bpd. In addition to expanding exports to Asia (most notably to India), Iran’s shipments to Europe grew significantly, with European countries importing around 0.5m bpd of Iranian crude in 1H 2017. About 70% of this volume was imported by Italy and France.

Trouble In Tehran?

A range of monthly data indicates that Iranian crude exports so far this year have largely remained fairly steady in a range of 2.1-2.3m bpd. Tehran has made it clear that it plans to continue ramping up crude output, primarily through development of the oil-rich fields in the West Karoon area. However, the future is not so clear cut. The rapid rebound of Iran’s crude production could call into question their exemption from the OPEC-led deal to cut production, under which the country has been allowed to increase output from the October 2016 baseline by 90,000 bpd to help regain their market share. The outlook has become more uncertain still following President Trump’s decision to decertify the JCPOA, raising the possibility of sanctions being re-imposed, despite lack of support for fresh measures among other world leaders.

So, while Iranian crude exports took a heavy blow in 2012-15, since the lifting of sanctions last year Iran has raised shipments to levels last seen six years ago. However, with geopolitical risks mounting, oil market watchers will certainly be keeping a close eye on the situation.

 

Tanker Market in 2017: Oversupply of tonnage, demand bumps and new policies hurt freight rates (27/12)

In its latest weekly report, shipbroker Gibson said that “the tanker market remained challenging with freight rates under pressure from a constant barrage of tanker supply, while the demand side was impacted by OPEC’s crude decision to implement production cuts which also impacted in a lack of arbitrage opportunities. One of the few exceptions to the bearish picture was the spike in rates witnessed as a result the surge in demand on Continent-USAC (TC2) route following the outage of US refining capability in the wake of Hurricane Harvey. This spike was short lived and quickly reverted to previous levels. Since June, the Brent oil price has risen by around $20/barrel which has had more of an impact on owners earnings. However, unfortunately the supply and demand balance is still some way off particularly given the wave of newbuilding added to the existing orderbook”, Gibson noted.

According to the shipbroker, “ordering activity was already brisk even before Trafigura announced in June their intension to order initially 22 newbuild crude and product carriers placed through Asian partners and leased back to with purchase options. Of course, this is only part of the story, attractive newbuilding prices still continue to tempt owners into ordering across all tanker sectors despite challenging freight markets. The tanker orderbook surpassed 200 by early December with firm numbers for VLCC orders representing more than 27 per-cent of the final total. Aframax/LR2 also showed similar numbers while there was steady ordering of MRs throughout the year. We are also aware of many owners who have indicated their interest in adding to these numbers either as replacement tonnage or speculative asset plays. Second-hand asset prices also continued to be pressed down with tonnage older than 10 years registering the biggest decline. Charterers have plenty of younger units to ‘cherry pick’ heaping more pressure on the older tonnage to find employment. This is clearly demonstrated by the unwinding of VLCC floating storage in the second half of the year resulting in an increase of older units finding it difficult to get back into conventional trade”.

Meanwhile, Gibson added that “impending legislation became a major talking point during the year. A sigh of relief was almost audible as the IMO bowed to pressure amending the BWM Convention by delaying implementation of the requirements for a further two years for most owners. However, the major concern for all shipowners is the rapidly approaching 0.5% sulphur fuel limits effective from January 2020. The IMO, under pressure to fulfil the Paris climate change accord, have stated several times that there will be no movement on this legislation and owners have little choice but to comply, the real issue is what the cost of compliance will be? Tanker market earnings have had more of an influence of scrap levels. However, the closer we get to 2020 compliance with these two items of legislation coupled with vessel age, will be the main drivers for higher scrapping levels going forward”.

The shipbroker also noted that “in January 2017 we witnessed the inauguration of a new US President who entered the White House on a policy of “putting America first” and in particular, providing energy security as well as providing jobs for American workers, a major part of the Trump election campaign; meaning less dependence on crude imports. US dependence on crude imports had in fact been diminishing long before Trump entered the Oval office, but we have witnessed US shale oil exports reaching an all time high of 2 million b/d in October. However, US policy on a number of political issues may have a major impact on the tanker market in 2018. The issue of Iranian sanctions was put back on the agenda by the administration, while the thorny issue of North Korea still hangs like the “Sword of Damocles” poised to fall. Events in Venezuela also present a major concern to the tanker market”.

 “The year ends with the announcement of the merger of Euronav with Gener8 (still to be ratified) which may be an early sign of more such partnerships in 2018. For sure next year will be full of challenges for the tanker market and not just from a supply and demand perspective. However, global politics may also play a significant role on how quickly the tanker market will get back on its feet”, Gibson concluded.

 

What is the Tanker Market Outlook? (23/12)

Forecasting the future in most industries is an activity characterized by imprecise results. Nonetheless, firms must develop some basis for planning for their future business activities. This is especially true for those in the tanker shipping industry where marine logistics is a key part of the supply logistics chain and ships represent capital investments.

Twenty–one forecasting cycles ago, marine transport consultancy, McQuilling Services, recognized a need for tanker freight rate forecasts, which is why they developed what’s known today as the “Tanker Market Outlook.” This report, produced on an annual basis, provides market participants with a five-year tanker freight rate and TCE forecast as well as a five-year outlook for time charter assessments and asset prices.

In the early years of producing the report, the group created a multi-dimensional approach to developing the outlook, which combined analysis with experience and observation. Included in this, is the evaluation of mathematical models using regression analysis combined with experiential observations from spot brokers and the consideration of freight forward curves for various tanker sectors. The analytical process is based on many assumptions concerning economic growth rates, oil prices, oil demand, fleet additions and exit velocities. Regression modeling is used to evaluate the utility of many different possible explanatory variables in estimating spot market rate behavior in each sector.

As the industry evolved, so did the Tanker Market Outlook and major enhancements to the forecasting process have been made over the past 21 forecasting cycles. In 2012, a more robust approach to characterize historical tanker demand projections was implemented. McQuilling Services defined 15 geographical regions representing existing and emerging trade flows for tankers trading clean and dirty and assigned the countries of the world participating in maritime petroleum trade to these regions. A 15×15 matrix of load and discharge regions was created, 225 trades in all.

In addition to developing enhanced forecasting methodologies, new features have been added to the report over the years, including new trades, an asset price forecast, expanded sections that cover the world economy and oil supply and demand. In 2016, the group was proud to include in the report a time charter rate forecast and with an expansion of trade data information was able to provide 95% coverage of global trade flows.

In the 20th Anniversary Edition, published in 2017, the group incorporated “big data” by utilizing remotely-sensed position data to track real time fleet deployment and utilization across the various tanker segments. Through this rigorous data distillation process, McQuilling Services is able to quantitatively determine and convey to clients daily demand and supply signals that may be leading indicators of directional movements in short term freight rates. Augmenting this new analytical tool to the group’s traditional demand/supply fundamentals methodology enables clients to gain valuable insight for their strategic planning requirements.

The 2018-2022 Tanker Market Outlook brings new enhancements and methodologies, inducing a further expansion of the use of remotely-sensed vessel position data to better illustrate fleet utilization statistics and current trends in the market. Three new trade routes have been added to the forecast table, which provides an outlook on spot rates and TCE earnings over the next five years. Utilizing these new trades, the team has developed two new triangulated routes to better display market earnings within the long-range clean sector. This year’s annual report will also feature the latest long-term fleet supply forecast methodology, which, through regression modeling, forecasts forward vessel additions based on historical fleet evolution and the current orderbook to reflect the cyclical nature of this market.

 

Product Tankers: Edible Oil Markets in Opposing Direction (22/12)

The edible oil markets are heading into opposite directions as 2017 nears its end. According to the latest weekly report from shipbroker Intermodal, “while the veg oil market ex South America has been steadily soft for the past two months, the long haul palm oil market from South East Asia has strengthened, reaching new highs for the year. Despite a fair CPP market across the Atlantic basin, freight rates from South America remain subdued. This comes as no surprise, since cargoes quoted so far are scarce and demand for veg oil tonnage limited. Freight rates are still moving sideways and around last done levels at USD low-mid 30s pmt bss 2/2 on min 40,000mt. Moving on to the next year, the general outlook is still rather disquieting”.

Stelios Kollintzas, Specialized Products with Intermodal noted that, “this is not primarily because of market fundamentals though, but mostly due to the weather conditions that are expected to prevail in the beginning of the New Year such as droughts or floods. Indeed, Argentina’s usual extreme weather conditions are likely to hamper its soy and other crops and the prevailing drought in the region is likely to affect the first months of 2018. Looking into the Black Sea market, things have been rather busy lately, with a noticeable increase in sunflower oil export volumes. Such movement along with a firm CPP market is already reflected on a slight rates increase, especially on the bigger parcels over 30,000mt. The ice season is expected to further support this, which is naturally much anticipated by owners”.

Kollintzas added that “evidently, the last two months have been the best period for the long haul palm oil market. Increased demand before entering into the festive period coupled with higher bunker prices enabled Owners to push TC Trip levels up to USD 18,000/day. However, heading towards the end of the year we have seen rates to level off down to about USD 16,000 USD/day. At the moment, the regional palm oil market looks rather challenging. India has been on an import tax spree announcing its second hike on edible imports in just a three month period. The tax for crude palm oil is 30% tax, for refined palm oil at 40%, for crude soy oil at 30% and for refined soy oil at 35%”.

“Obviously, cargo volume has since been considerably decreased along with a consequent decrease on rates, which has nonetheless been rather soft so far on the back of tight tonnage availability and delays of ships in Indian ports. However, while China’s stocks are piling up and buyer’s inevitably holding back on imports, more ships are going to become available at some point. Taking an overall view one could say that they year ahead looks brighter for the west bound palm oil market compared to the regional market. For what it is worth, according to the Malaysian president’s economic report, Malaysian output is forecast to rise to 20.5 million tonnes in 2018 due to better yields and expansion into matured areas. It remains to see how this output will flow”, Intermodal’s analyst concluded.

 

Tankers: Some Christmas Cheer for the Asian Aframax Market (22/12)

Asian Aframax rates recovered from recent lows as charterers rushed to book year-end cargoes before the Christmas holidays, leading a flurry of activity especially in the Indonesia/Singapore region. Rates for the key Indo/Japan route basis 80 kt jumped by w13 points w-o-w to w110 as of today while rates for the key AG/East route grew by w8.5 points on the week to w112.5.

Potential weather delays in the Far East as well as higher bunker prices contributed to more bullish owner sentiment. In the Indonesia/Singapore region, firm owner resistance regarding longhaul trips to Australia forced charterers to pay a premium to cover such cargoes. The subsequent pick-up in fixing activity helped to clear out most prompt tonnage and shorten the position list. As such, market participants began to cover cargoes privately with ships disappearing from the position list without much details.

In the AG segment, a lack of ballasters from the East over the past couple weeks has tightened vessel supply (especially for modern ships). Owners also showed a preference to ballast over to Med in hopes of a winter spike with delays in Turkish Straits. The unexpected shutdown of the North Sea Forties pipeline and subsequent surge in Brent-Dubai EFS spread has led to greater demand for regional Dubai-linked crudes such as ESPO and Sokol. As reported by Reuters, ONGC recently sold February-loading Sokol crude at the the highest premium in 2 months. Higher demand for regional crudes is likely to lend support to the Asian Aframax sector in Q1 next year.

 

Tanker Market: “The American Energy Express” Sets New Dynamic for Ship Owners (19/12)

The impact of the US oil and products exports is gradually making waves in the tanker market, shifting the market’s dynamics. In its latest analysis, shipbroker Charles R. Weber said that “the U.S. has transformed itself into a fossil fuel export express! In their latest Short Term Energy Outlook the EIA estimates that U.S. crude oil production averaged 9.7 million barrels per day in November, up 360,000 b/d October. Most of the increase is in the Gulf of Mexico, where production was 290,000 b/d higher than in October as production returned post hurricanes. The EIA forecasts total U.S. crude oil production to average 9.2Mnbd for all of 2017 and 10Mnbd in 2018, which would mark the highest annual average production, surpassing the previous record of 9.6Mnbd set way back in 1970”.

According to CR Weber’s John M. Kulukundis, “for dry natural gas production the EIA forecasts an average 73.5 Bcf/d in 2017, a 0.7 Bcf/d increase from the 2016 level. In 2018 they forecast that nat gas production will be 6.1 Bcf/d higher than the 2017 level. In 2016 LNG exports averaged 15,323MMcf vs 51,587MMcf Q1‐Q3 2017.    On the dry side, U.S. coal exports for the first three quarters of 2017 were 69 MMst, 68% (28 MMst) higher than exports for the same period in 2016. This total for the first three quarters of 2017 is already 14% (8 MMst) higher than total annual coal exports in 2016. The EIA expects that exports will total 89 MMst in 2017 and 74 MMst in 2018. After a weak 2H16 (+1% y/y), which curtailed annual 2016 growth to just 2.8%, growth in US refined product exports have been accelerating through 2017 (+7.1% y/y based on trade statistics up to third quarter 2017). The momentum was maintained despite the damage caused by Hurricanes in late August, indeed third quarter growth (+9.2% y/y) was the highest since 2Q16”.

Kulukundis added that “naphtha has been by far the best performing product export up 34% y/y. Gasoil/diesel has been the next best performer up 10.5% y/y followed by kerosene/jet fuel (+7% y/y), and gasoline (+5% y/y). Focusing on the top 30 largest trades of 2017 for the year to date, the most important growth trades include gasoil/diesel exports to Brazil (+200% y/y) and gasoil/diesel to Peru (+60% y/y).   There are a number of factors underlying the strength of US product exports, not least the discount of WTI to other  crude benchmarks and the resurgence of US shale production against improving oil prices. The latest US Total production figures for week two of December hit a new all‐time high of 9.78Mmbd, a sixth consecutive week when the record had been broken  ‐  having initially surpassed the previous record set 5 June 2015 of 9.61Mmbd in early November. Strong domestic demand coupled with rising production has seen refinery throughputs hit record levels. The strength of the post hurricane recovery, along with the continued growth in US production ‐ with the EIA predicting an increase of 700,000 b/d in US production next year – suggests that the acceleration in US product export growth might have further to run and “The American Energy Express” may be gaining momentum”, he concluded.

Meanwhile, over the past week, CR Weber noted that “the VLCC market experienced a strengthening of demand in the Middle East market and a surge in West Africa demand to a six‐year high.    The Middle East market observed 33 fixtures, representing a 27% w/w gain.  In the West Africa market, 13 fixtures were reported – the most since late 2011 and ten more than last week’s tally.  Monday’s halting of the Forties crude network due to the discovery of a crack stoked a firmly open arbitrage window for US crude exports and raised expectations of a surge in USG regional demand; however, these failed to come to fruition with a number of participants noting US tax disincentives to loading crude cargoes before year‐end.  It is unclear if US export fixtures will rise in the coming week as charterers move further into January loading dates though with Forties operator Ineos declaring force majeure on Thursday, noting that repairs are likely to take weeks, the economics of US crude exports seems to be bolstered.  EIA data shows that US crude production rose last week for an eight‐consecutive week, extending a directional rise that has seen volumes rise by 10% since the start of the year. After surging in October, VLCC demand to service US crude exports pulled back sharply in November but have been expected to normalize towards the YTD trend line in the coming months, which raises prospects for a modest improvement in rates during Q1”.

The shipbroker added that “meanwhile, the supply‐side looks equally promising during Q1, when VLCC newbuilding deliveries will offer a temporary respite. We are projecting six deliveries during the quarter (including slippage of remaining 2017 units) before rebounding to 11 and 17 units during Q2 and Q3, respectively.    Already, fundamentals have narrowed slightly.  The number of surplus Middle East positions we project for the conclusion of the December program has dropped to 18 from 22 a week ago, reflecting draws to West Africa above expectations.  On this basis – and provided that demand remains elevated during the upcoming week as charterers seek to cover remaining December and early‐January cargoes ahead of the holidays – rates could experience further modest gains during the upcoming week”, CR Weber concluded.

 

Tankers: What’s Next for Aframaxes as Segment is Looking to Deal with Oversupply Issues? (18/12)

With 75 tankers of the Aframax class looking likely to enter the global fleet in 2018, on top of the 67 LR2/Aframax ones already entering into the global fleet this year, it seems that tonnage oversupply could plague the market for the years to come. What about demand though? In its latest weekly report, shipbroker Gibson noted that “crude exports out of the Former Soviet Union (FSU) are one of the biggest demand drivers for the Aframax market in the Atlantic Basin. The significance of regional trade has been further boosted by the decline in Aframax shipments in the Caribbean and in the North Sea. Strong gains in FSU seaborne crude exports were seen in 2015/2016 and trade continued to increase this year despite OPEC led production cuts, being driven by rising crude exports through the CPC terminal in the Black Sea. CPC exports averaged over 1.15 million b/d between January and October 2017, up by 250,000 b/d versus the corresponding period last year, following the start-up of the giant Kashagan oil field in the Caspian Sea. There also have been some modest gains in Russian exports of its Arctic crude, which more than offset a minor decline in crude shipments in the Baltic”.

According to Gibson, “next year there is potential for further growth in volumes lifted from the CPC terminal. The Kazakh energy ministry expects to see another 120,000 b/d gain in Kashagan output, which suggests the country is unlikely to meet its production pledge under the Opec/non-Opec output deal. The picture could be different when it comes to Russia. According to Argus Media, the expansion of the ESPO pipeline branch, that runs through Heilongjiang province in China to Dalian, is nearly complete. This project will increase the ESPO blend shipments through the spur from 320,000 b/d currently to around 600,000 b/d next year. If Russian crude production and refinery throughput are being maintained next year at similar levels relative to those seen in 2017, exports through other established routes are likely to decline. Taking into account Russia’s ambition to grow trade volumes with its Asian partners and significant oil backed loans with China, seaborne exports from the Kozmino terminal on the Russian Pacific coast are unlikely to witness a major decline. This clearly puts under threat shipments from the West, particularly seaborne, as flows through the Druzhba pipeline are mostly committed to refineries, for which it is challenging to find an alternative supply source”.

The shipbroker adds that “if there is indeed a decline in Russian crude exports out of the Baltic and the Black Sea ports, it will be another piece of bad news for Aframaxes, plagued by rapid supply growth. This year 67 units in the LR2/Aframax size group have been delivered and another 75 tankers are scheduled for delivery in 2018. Considering weak demand prospects and rapid fleet growth, it is unlikely the sector will see a notable improvement in freight levels anytime soon. In the longer term, continued growth in world oil demand and the eventual phase-out of the production cuts will aid demand for tonnage. On the supply side, the Ballast Water Treatment (BWT) regulation and the introduction of global 0.5% sulphur limit in 2020 also offer structural support, with promise of stronger demolition activity and with it, slower fleet growth. The prospects for intense demolition post 2020/2025 are particularly strong in the ice class Aframax segment, where over 60% of fleet are within the 11 to 15 year old bracket. Ice class tonnage is more expensive to run due to higher bunker consumption and as such, following the implementation of the BWT and global sulphur cap, these units are likely to come under additional downwards pressure and so could exit trading operations prior to their natural retirement age”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “VLCC Owners resisted further falls and then managed to claw back a little lost ground as Charterers moved to mop up remaining December positions. Rates for the most modern units broke through the ws 50 barrier to the East, but more challenged units still had to accept little better than ws 45 with runs to the West moving again in the low/mid ws 20’s. The January programme will be in hand from early next week and Owners will be hoping for pre-Holiday momentum to help out, and counter ongoing easy availability. Suezmaxes started with hope, but then had to settle for a rather non-descript back half to the week with rates easing towards ws 85 East and into the high ws 30’s West with little change anticipated over the near term. Aframaxes put a handbrake on recent retreat and a busy week allowed Owners to propel rates to 80,000mt by ws 130 to Singapore with a continuation of that over the next phase likely”.

 

Tanker Market on Stable Mode During November (16/12)

In November, tanker spot freight rates for dirty vessels mostly maintained the gains achieved in the previous month, as seasonal tonnage demand strengthened. Nevertheless, dirty spot freight rates showed a decline of WS8 points on average from the previous month. The drop in the average spot freight rates came on the back of lower rates registered in the Aframax class, which closed the month with freight rates down from the previous month by WS20 points. The VLCC market was mostly balanced and freight rates were supported by end of December requirements, with increased port delays at Asian ports further helping to maintain rates. Similarly, the Suezmax class maintained its spot freight rates at similar levels of the previous month with weather delays in different areas supporting Suezmax rates and preventing them from dropping, despite increasing vessel supply. Aframax freight rates dropped on average; this was driven by low tonnage demand and depressed activity in many areas. Clean spot freight rates were mostly stable in November, on the back of limited requirements and low market activities in both the East and West of Suez.

Spot fixtures

In November, OPEC spot fixtures were up by 4.1% from the previous month to average 11.24 mb/d, according to preliminary data. The increase came as all spot fixtures increased in different areas. Fixtures from the Middle East-to-East rose by 0.25 mb/d in November to average 5.67 mb/d. the Middle East-to-West and outside Middle East fixtures both increased by 3.8% and 3.6%, respectively, to stand at 2.04 mb/d and 3.53 mb/d.

Sailings and arrivals

OPEC sailings increased by 0.30 mb/d, or 1.3%, in November to stand at 23.98 mb/d. At the same time Middle East sailings dropped by 0.18 mb/d, or 1.0%, over the previous month to average 16.93 mb/d. Crude oil arrivals were higher in most regions in November. Arrivals at North American, European and West Asian ports rose by 0.8%, 0.8% and 1.5%, respectively, compared with the previous month. However, Arrivals in Far Eastern ports were the only exception, showing a decline by 0.5%.

VLCC
In the dirty market, VLCC spot freight rates held the gains achieved in the previous month. In November, VLCC average spot freight rates stood at WS55 points, flat from one month before. The VLCC market had strong start with sentiment strengthening as supported by the third decade chartering requirements and port delays in Asia. Tonnage demand in November favoured older ships as modern vessels showed higher cost with higher rates. The chartering market was quiet in the North Sea and the Caribbean, however the general optimism related to winter requirements maintained rates at last done levels. Generally, spot freight rates on most routes were broadly unchanged from one month before. VLCC Middle East-to-East spot freight rates decreased slightly in November to WS67 points. Freight rates registered for tankers trading on the Middle East-to-West route remained stable at WS28 points. The VLCC spot freight rate on the West Africa-to-East route edged up by WS1 point m-o-m to average WS69 points.

Suezmax
In November, average Suezmax spot freight rates also showed no changes in the dirty market, similar to the VLCC sector, on average maintaining the gain achieved one month before to stand at WS70 points. Suezmax rates were pressured in early November as activity in West Africa slowed leading to an increase in vessel offerings. Reduced weather delays affected rates further in the Black Sea and Mediterranean, however an increase in delays in the Black Sea helped to recover some of rates losses seen earlier in the month, followed by firmer sentiment as a result of increased loadings in the East leading to a balancing of market fundamentals. Consequently, spot freight rates for tankers operating on the West Africa-to-USGC route were flat in November to stand at WS79 points, while rates on the Northwest Europe (NWE)-to-USGC route showed a minor average gain by WS2 points to stand at WS62 points.

Aframax
Unlike freight rate developments in the bigger vessels, average Aframax spot freight rates declined on all major reported routes from one month before. Average Aframax spot freight rates showed a drop in November by WS20 points, to stand at WS107 points. In the Baltic and North Sea, Aframax rates experienced a gradual decline at the beginning of the month as the tonnage list widened on the back of slim activity in the market. The weak sentiment for this class was also seen in the Mediterranean and Black Sea tonnage market. Delays in the Turkish straits remained within the average transit time and port maintenance in several ports did not grant any higher rates to Aframax in November. Consequently, spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to NWE Europe routes were the main contributors to the average rate decline. Both routes reflected lower rates by WS33 points and WS34 points, respectively, from one month before to stand at WS102 points and WS99 points. Freight rates on both routes show a drop in November from the same month a year before. Spot freight rates for Aframax operating on the Caribbean-to-USEC route dropped to a lesser extent, down by WS8 points from one month earlier to stand at WS117 points. Similarly, spot freight rates for tankers trading on the Indonesia-to-East routes showed a minor decline by WS3 points to stand at WS110 points.

 

Tanker Scrapping Could be on the Rise, Despite Current Lull (15/12)

What little hope there is for renewed ship scrapping activity lies on the back of tanker owners, as the latest surge in dry bulk freight rates means that older bulkers will likely remain in service for quite some time. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “with little market tonnage being negotiated this week following a busy couple of weeks in the recycling industry, rates have remained firm somewhat and a stable period has descended on the market, a rare event this year. With tanker freight rates still not gaining the momentum that is normally expected at this time of year, it will be interesting to see whether some tanker Owners can be tempted to circulate such type of vessel into the market before their vessels turn another year older. It certainly appears from recent sales that Owners will benefit as the positive feedback from the recycling yards continues and demand currently remains ebullient.

A slight dampener edged into the market only today with the news that the Pakistan rupee devalued by almost 5%. It remains to be seen what affect this will have but the majority in the market appear less concerned that any major impact will reflect this. But, as evidenced in the past, some recyclers will use anything to create an advantage for themselves and thus all eyes will certainly fall on the shores of Gadani next week. The saving grace could be the surprisingly low tonnage flow. It is hopeful that the stability now seen will continue with no sudden price corrections. It is also hoped and expected that the Pakistani Government will address this current currency issue to stem any negativity and thus looking towards the end of the year, the indications are that the lack of tonnage may continue but price levels should continue in this current positive vein”, Clarkson Platou Hellas said.

In a separate note, Allied Shipbroking said that “after the skyrocketing volume noted in the ship recycling market during the course of the past two weeks, things have now scaled back significantly. Activity this week drop down to a slow trickle , with ever fewer demo candidates coming to market despite the still enticing price levels being quoted by most of the breakers. Given by the fact that we are close to the year’s end most breakers are likely to intensify their interest and their competition on each and every candidate that comes to market. The main three destinations in the Indian Sub-Continent are that ones driving the recent price spike in the market, with the increased appetite and improved fundamentals having helped support the sharp price hike in scarp steel during this time frame. Turkey has showed some positive movement, both in terms of volume as well as in terms of prices. We are still waiting to see any reaction from China though things seem to be remaining subdued there, with most of the volume it attracts being linked to full green recycling”.

Meanwhile, according to the world’s leading cash buyer, GMS, “the late year pre-Christmas buoyancy witnessed in the sub-continent markets of late continues on from previous weeks, with the sale of a particular Panamax container capturing the attention of much of the industry, for the extraordinary price paid for it. It was only last week that Greek owners Polembros cashed in on the sale of their Aframax and Suezmax tankers at previously unthinkable levels. This week, it was the Greek market in the recycling limelight once again as Goldenport managed to achieve an incredible price that is drawing gradually closer to the USD 475/LDT mark – the first time since the bullish days of early 2015 (and before the crash that saw the market lose nearly half of its value). As such, it would not be surprising to see several more sales take place in a similar vein before 2017 ends (probably even higher), especially as owners eagerly look at opportunities to exploit the current market positivity.

On the flip side, the number of viable candidates remains largely at a trickle (rather than a deluge) and it is this shortage (more than anything) that is permitting the markets to sustain some of the clearly impressive rates witnessed in recent weeks. Meanwhile, local steel plate prices remain firm across the board and even though the currency in Pakistan suffered a surprising and worrying depreciation of about 5% this week, demand has continually improved of late, even after the brief fourth-quarter blip in sentiment / pricing. Notwithstanding, this currency concern in Pakistan is not expected to be a long term hurdle and is linked to a liquidity crisis, which should be alleviated in the next / coming week(s) once the government pumps more cash into the system”, GMS concluded.

 

Forties Pipeline Outage a Mixed Bag for Crude Tanker Market (15/12)

ICE Brent futures surged to their highest in more than 2 years on Monday, crossing the $65/bbl mark due to the unplanned shutdown of the Forties crude oil pipeline for several weeks for repairs. The pipeline is a major artery which carries up to 450 kb/d from the North Sea to Scotland, with the Forties grade making up the largest stream in the dated Brent benchmark. The shut-in of Forties production and subsequent deferment of cargoes in the North Sea is expected to weigh on VLCC demand in the Atlantic Basin, affecting the longhaul trade to the East.

An average of 4-5 Hound Point-Far East fixtures are seen every month, with 3 fixed for December loading so far. Cargoes are typically shipped to South Korea or China. More significantly, the corresponding jump in the Brent-Dubai EFS spread to a 1.5-year high is expected to have wider implications for the crude tanker market as WAF crudes are increasingly unattractive to Asian buyers. For the VLCCs, December ex-WAF cargo volumes were fairly disappointing for owners with at least 5 fixtures failing subjects after OPEC’s agreement to extend the ongoing production cuts until the end of next year. Suezmaxes trading in the Atlantic Basin may see some gains as more WAF crude likely to be diverted to Europe to meet winter demand, boosting cargo demand.

The ongoing widening of the Brent-WTI and Dubai-WTI spreads are also expected to significantly improve the economics of moving US crudes to the East. The Brent-WTI spread is currently trading at around $6/bbl, a level last seen in late September which led to an influx of US/Caribs crude moving to Asia. A potential pick-up in long-haul arb flows from the Americas to Asia and subsequent growth in ton-mile demand remains the bright spot in the depressed VLCC market although we have yet to see any jump in cargo enquiries.

 

BIMCO: US crude oil exports now more important to shipping than US oil product exports (13/12)

The United States (US) government lifted their restrictive policy on crude oil exports in December 2015. In September and October 2017, increased demand from Asia and Europe has caused US seaborne export of crude oil to surpass the US seaborne export of oil products in terms of billion tonne miles.

This is due to US crude oil being exported twice the sailing distance of US oil products. In October the seaborne exports of crude oil amounted to 46 billion tonne miles whereas the US export of oil products was equivalent to 43 billion tonne miles.

Despite the US seaborne exports of crude oil, being half the amount of seaborne oil product exports in October 2017 (in terms of volume) it is now more important to the tanker shipping industry. This is due to the average sailing distance per exported tonne of crude oil being more than double the distance than the exported oil products.

BIMCO’s Chief Shipping Analyst Peter Sand comments: “The increased US crude oil exports during 2017 benefits the crude oil tanker shipping industry. The demand on that trade is up by 151% compared to last year. Not only are the volumes more than doubling, the sailing distances are increasing as well.

US crude oil exports are now more important to shipping than US oil product exports.

Asia and Europe are the importers demanding most US crude oil in 2017. With Asia in particular being responsible for the longer sailing distances”.

Asia and Europe demand US crude oil 

For the first 10 months of 2017, the US seaborne export of crude oil has increased 151% compared to same period last year. This amounts to an additional 20 million tonnes of crude oil being available to the shipping market, equivalent to 7.5 VLCC cargoes being exported more per month compared to last year.

While the average distance per exported tonne of US crude oil for the first 10 months of 2016 was 4,277 nautical miles, it has been 7,090 nautical miles for the same period in 2017. In October alone Europe has already taken an amount of crude oil similar to the amount imported in each of the previous quarters of 2017. Thereby, the average sailing distance has dropped a bit from Q3 2017, but still remained above 7,000 nautical miles.

In terms of volume, the three largest importers of US seaborne crude oil in 2017 are China, Canada and the United Kingdom. China is by far the main player, importing 25% of total exports, while Canada 15% and United Kingdom has imported 9%. Despite Canada being one of the largest importers in terms of volumes, they generate a low amount of tonne miles. This being due to the close geographical proximity to the US and thereby limited sailing distances.

China diversifies portfolio of crude oil partners

China, being the main importer of US crude in 2017 is not only due to rising Chinese crude oil demand. BIMCO’s recent report covering Chinese oil imports showed that the Middle Eastern countries share of Chinese crude oil import has declined three years in a row. China imported 55% from the Middle East in 2015, whilst importing 45% from the Middle East during the first 10 months of 2017. Countries such as the US, Angola, Brazil, Venezuela, Russia and United Kingdom have experienced rising Chinese imports.

“China is diversifying their crude oil supplier portfolio by shifting away from being too dependent on Middle Eastern crude oil. China sourcing more crude oil from the US instead of the Middle East benefits the crude oil tanker industry with longer distances. As 97% of all seaborne US crude oil is exported from the US Gulf. The sailing distance to China is double the distance of Middle Eastern export to China and thereby tonnage is tied up for longer periods, benefitting crude oil tanker demand” adds Peter Sand.

Corpus Christi is by far the biggest crude oil exporting port in the US

Texas based ports’ market share has surged, together with the US seaborne exports of crude oil. US has exported 79% of all crude oil via sea from Texas during the first 10 months of 2017, up from 69% for the same period in 2016. In terms of volume, the Texas loading area has ramped up their export of crude oil by 186% for the first 10 months of 2017 compared to the same period in 2016. This amounts to an additional export of 17.3 million tonnes, 85% of the total increase in US seaborne crude oil exports.

The most influential ports are Corpus Christi, Beaumont, Houston and Gramercy, exporting 33%, 21%, 15% and 14% of US seaborne crude oil respectively. Thereby, only four ports export 83% of the total US seaborne crude oil. Corpus Christi has since 2016, where it exported 24% of US seaborne crude oil, extended its lead and has developed into the largest crude oil export port in the US – by far. Corpus Christi port will have VLCC accommodating terminals by the end of 2018. Thereby crude oil destined for China will travel 15,000 nautical miles instead of 10,000. This will bring considerable extra tonne-miles to the crude oil tanker shipping industry.

 

VLCC Tanker Market Hits the Rocks (12/12)

The VLCC market sentiment was firmly in negative territory this week as fundamentals continued to sour said shipbroker Charles R. Weber in its latest weekly report. “In the Middle East market, cargo volumes during the first two decades of the December program have come in below expectations, raising concerns that the final decade will not be much better and that the month will conclude with total volume at its lowest level in a number of months. Meanwhile, draws from Middle East positions to service demand in the Atlantic basin has declined markedly in recent weeks; comparing the last four weeks to the preceding four weeks, VLCC fixtures from the USG are off 88% and those from West Africa are off 26%.

According to CR Weber, “the direction of demand in these areas paints an equally somber picture, as there were no USG fixtures reported this week and the West Africa fixture count this week was at its lowest level since early August. This week’s Middle East fixture tally was off by one from last week to 24 – and COA coverage thereof was very high.  Net of COAs, the number of fixtures openly worked was just 14, or the fewest in three months. On the back of the souring demand profile, available tonnage levels continued to rise this week, dragging up surplus tonnage.   We project that there will be 22 surplus units at the conclusion of the December Middle East program, representing a 57% m/m gain.

The shipbroker added that “based on historical performance, our models guide a base‐case AG‐FEAST TCE of about $18,600/day for the current supply/demand position. The low case estimate is $11,500/day while the high case estimate of $20,000/day is unlikely given the absence of positive momentum ahead of the holidays‐fractured working environment of the balance of month.   AG‐FEAST TCEs presently stand at an average of ~$15,301/day, at which level fundamentals are already largely priced‐in and, as such, we envision only modest rate fluctuations accompanying changes to the immediate demand environment on a day‐to‐day basis during the coming week. Middle East Rates on the AG‐JPN route shed five points to conclude at ws49.  Corresponding TCEs fell 12% to ~$15,626/day.  Rates to the USG via the Cape were off by three points to ws23. Triangulated AG‐USG/CBS‐SPORE/AG earnings were down 9% to ~$24,389/day.    Atlantic Basin The West Africa market saw rates decline in line with those in the Middle East.  Rates on the WAFR‐FEAST route shed nine points to conclude at ws53.5 with corresponding TCEs declining by 23% to ~$17,870/day. Rates in the Caribbean market remained soft on sluggish demand amid an absence of ex‐USG fixtures and rising regional arrivals.   A small number of units were seen ballasting from the region in a reversal of the trend observed during Q3 when units were speculatively ballasting to the region from Asia.    The CBS‐SPORE route shed $100k to conclude at $4.0m lump sum.  Round‐trip CBS‐SPORE TCEs, were off 3% to ~$24,668/day”, CR Weber concluded.

In the Suezmax market, in West Africa “rates were firm this week on declining availability replenishment and expectations of above‐average remaining Suezmax cargo availability for the December program, as VLCC coverage has been light.  Rates on the WAFR‐UKC route added 5 points to conclude at ws92.5.    Rates are likely to remain on a positive trend during the upcoming week as the remaining December cargoes are worked and charterers progress into January dates. Rates in the Caribbean/USG market were also strong this week on sustained demand, and particularly for intraregional voyages from the USG.    Rising Aframax rates helped by reducing charterer interest in narrowing cargo stems to capture the smaller class’ $/mt discount.    Rates on the CBS‐USG route added five points to conclude at 150 x ws95 and the USG‐UKC route added 7.5 points to conclude at 130 x ws77.5.  The USG‐SPORE route was unchanged at $2.90m lump sum”, said the shipbroker.

Meanwhile, “the Caribbean Aframax market remained firm on ongoing delays on Mexico’s east coast and the combination of both sustained demand regional demand and rates for alternative Suezmax tonnage at a strong $/mt premium.    Last month’s Keystone Pipeline issues do not appear to be a factor in the gains; since throughputs were halted on November 17th due to a leak (the line was restarted on November 28th with reduced volumes), Aframax fixtures from Venezuela have been at half the average weekly volume as that observed during the year up to mid‐November.  Rates on the CBS‐USG route added 10 points to conclude at ws175.    Although owners are expected to maintain that fundamentals remain in their favor at the start of the upcoming week, there are a number of inbound ballasts, including some which are likely to accept below market rates to secure quick employment, which will likely weigh on rates once their impact is fully realized.  Losses could accelerate thereafter as weather delays in Mexico subside”, the shipbroker concluded.

 

New Year celebrations for chemical tankers? (09/12)

Styrene plant turnarounds will increase China’s dependence on imports, which along with price arbitrage will aid rates for chemical tankers over the next few weeks.

China imports 40% of its requirement

China is the net importer of styrene with an annual demand of about 10 million tonnes, of which around three to four million tonnes are covered by imports. Between January and October 2017, China imported 2.53 million tonnes, of which 49% (1.23 million tonnes) came from Northeast Asian countries.

South Korea is the dominant exporter of styrene to China. In 2016, it exported 1.23 million tonnes of styrene to China, which is about 36% of Chinese imports and 13% of the country’s overall demand. Other main exporters of styrene to China include Taiwan and the US.

China’s reliance on imports is set to increase as six styrene plants with a combined capacity of 1.2 million tonnes per year are to be shut down for maintenance between November and December 2017.

Freight rates on Intra-Northeast Asia route to strengthen

Styrene is the second-largest chemical shipped on the intra-Northeast Asia route, and it accounted for 9.3% of total volume shipments on this route in 2016. However, an anti-dumping (ADD) investigation by the Chinese Ministry of Commerce has affected styrene shipments on North Asian trades in 2017. This commenced in June 2017 and will run until June 2018, with a possible extension to December 2018.One immediate result of the ADD investigation is that China’s imports of styrene from South Korea and the US have decreased, while imports from the Middle East have risen.

Notwithstanding, with plant shutdowns in China, we expect Chinese imports from South Korea, Taiwan and the US to rise. With high imports of styrene expected, freight rates are likely to strengthen on the intra-Northeast Asia route in the near future. Further, inventory restocking by buyers before the Chinese New Year should also assist freight rates.

Price arbitrage to increase Chinese imports from the US

Another stimulus to styrene trade has been price arbitrage. The chart below depicts the arbitrage window for styrene between the US and China which opened in November. The China-CFR price increased because of a shortage of styrene supply and low inventory in coastal areas. In November, there was a gap of $84/tonne between the Fob US-Gulf and CFR China price and this price differential was clearly more than the freight cost of $64/tonne to transport styrene from the US to China on a 5,000- tonne vessel. Hence, arbitrage will encourage additional styrene shipments from the US to China.

Overall, we anticipate that Intra-Northeast Asia freight rates should strengthen from January 2018 on the back of higher imports by China and as buyers restock inventories before the Chinese New Year in February. We also expect freight rates from the US to Northeast Asia to remain firm over the next few weeks, assisted by price arbitrage.

 

VLCCs See Counterseasonal Drop in Demand (08/12)

The Asian VLCC market has been facing unrelenting downwards pressure in recent weeks, with rates for the benchmark AG/Japan route plunging by w15.5 points m-o-m to w54.5 as of today. This translates into $7.99/mt, which is 44% lower than that of the year before. A smaller December loading program in the AG as well as build-up of tonnage in key loading areas weighed heavily on market sentiment, dashing owners’ hopes of a winter spike.

Lower cargo demand can be attributed to an expected ease in Chinese crude imports in December as the powerhouse loses its once voracious appetite for stockpiling on high crude prices and some independent refiners run short of import quotas. China’s October crude imports hit a 13-month low at 7.3 mmb/d as the backwardated structure in crude incentivized the drawdown of commercial oil inventories. According to the official Xinhua news agency, Chinese crude commercial stocks plummeted by 9.5% m-o-m to a multi-year low of 197.6 mmb at end-October as refiners ramped up crude runs to the second-highest level on record of 11.26 mmb/d. Looking ahead, we may see a slight rebound in January crude imports on the back of higher crude import quotas for independent refiners in 2018. This will provide some temporary relief for the struggling crude tanker market, which continues to face delays in any substantial recovery.

The recent extension of the ongoing OPEC production cuts until end-2018 does not bode well for the VLCC market, which has seen a fall of around 10% in ex-AG fixtures per month amidst rapid fleet growth of 7.5% this year. The massive drop in floating storage this year has also released older units into the trading fleet, further lengthening vessel supply. While emerging long-haul trades from the Americas to Asia and subsequent growth in ton-mile demand remain the silver lining in the cloud, cargoes continue to move on an opportunistic basis. Rising scrap prices may also encourage more tanker scrapping and help to alleviate the current supply glut.

 

VLCC Tanker Market Could Rally Until The Holidays, But Rising Trend Not Sustainable (05/12)

Despite the weakened market sentiment in the VLCC tanker market, things could perk up in the coming weeks, before they “die down” again by the start of next year and into the first quarter of the new year. In its latest weekly report, shipbroker and tanker market specialist Charles R. Weber noted that “VLCC rate sentiment weakened considerably this week as rising available tonnage continued to disjoint fundamentals. In the Middle East market, there were 25 fresh fixtures this week although representing a 25% w/w gain and a one‐month high, it was still below the YTD average—and well below many participants’ expectations”.

Meanwhile, the shipbroker added that “demand in the West Africa market improved by one fixture to six – though this was also below the YTD average and expectations. The Atlantic Americas market saw muted demand as well; among this week’s three fixtures was one for USG loading, marking the first ex‐USG crude fixture in three weeks (comparing with an average pace during October of 2.5/week). Compounding negative sentiment, several fixtures failed on Thursday after news of OPEC’s agreement to extend cuts surfaced”.

According to CR Weber, “surplus tonnage in the Middle East market has risen progressively since briefly narrowing to nine units early during the November program (its lowest in ten months). By the conclusion of the month the surplus rose to 14 units and has remained in a positive trajectory, presently showing 17 units through December’s second decade. Supply fundamentals were considerably worse during the summer and the September program concluded with a three‐year high of 29 units. So while the summer’s earnings lows approaching $11,000/day is not likely anytime soon, the market appears likely to remain soft early during the coming week as earnings adjust to match prevailing fundamentals”.

However, “as December progresses, there is potential for a fresh rallying of rates. Periodic rushes to cover cargoes during the weeks ahead of the holidays and amid seasonal holiday events could bolster demand sentiment. Meanwhile, supply surpluses are not likely to rise further for December cargoes as most units currently servicing the October surge in USG crude exports are not projected to be available in the Middle East until January loading dates and our projecting of other units next positions does not indicate a further buildup. The extent to which rates may rally will ultimately be guided by the extent of the remainder of the December program—which itself remains elusive. Heading into 1Q18, however, fundamentals look set to weaken again. Availability levels could rise rapidly while demand could sag as Middle East OPEC suppliers show early resolve in adhering to their extended quotas, both representing substantial threats to the earnings view”, CR Weber concluded.

The shipbroker said that in the Middle East, “rates on the AG‐JPN route shed 10 points to conclude at ws52.5. Corresponding TCEs were off 31% w/w to ~$17,728/day. Rates to the USG via the Cape were off by one point to ws26. Triangulated AG‐USG/CBS‐SPORE/AG TCEs declined by 11% w/w to ~$26,681/day”. In the Atlantic Basin, rates on the WAFR‐FEAST route shed 6.5 points to conclude at ws62.5. The VLCC Fleet Growth corresponding TCE was down 17% w/w to ~$24,446/day. Rates in the Atlantic basin remained soft on sluggish regional demand. Rates on the CBS‐SPORE benchmark route shed $300k to conclude at $4.1m lump sum. Round‐ trip TCEs on the route were off 12% w/w to ~$25,341/day”, CR Weber said.

 

Tanker Market to Keep Suffering from Dip in Venezuelan Oil Exports (04/12)

In its latest weekly report, shipbroker Gibson said that “for those of us, who are involved in the tanker market, interest in Venezuela is not just a case of mere curiosity but also a prudent necessity, considering the importance of the country’s oil industry for tanker demand. The frequency, with which Venezuela appears in the international news headlines, has intensified notably over the past few months. Back in the summer, the election of the controversial Constituent Assembly and the resulting US sanctions, banning US institutions from dealing with refinanced Venezuelan debt issues, received wide international coverage. More recently, the focus has shifted to Venezuela’s colossal $150 billion foreign debt. Just over two weeks ago Venezuela missed a deadline to make $200 million in interest payments on two government bonds, translating in Standard & Poor’s formally declaring the first default. Around the same time, the Venezuelan president stated the country’s intention to restructure its foreign debt. Separately, the Russian Finance Ministry announced that Russia and Venezuela had signed a debt restructuring deal, allowing Caracas to make “minimal” payments to Moscow over the next six years to help it meet its obligations to other creditors”.

According to the shipbroker, “the latest developments highlight the severity of the debt situation, following the collapse of oil prices from over $100/bbl. Setting the politics and geopolitics aside, the economic challenges faced by Venezuela have direct implications on the domestic oil sector. The country’s crude production has been in steady decline over the past couple of years, largely due to the lack of investment, the shortage of available funds and ill-maintained production infrastructure. According to IEA data, crude output averaged just over 1.9 million b/d in October 2017, down by 0.55 million b/d or 22% compared to October 2015. The decline in crude production has had negative implications for Venezuela’s crude exports, although not to the same extent. Financial problems faced by the country also hit the domestic refining sector, where the lack of maintenance has led to a notable decline in domestic throughput volumes, reducing the downward pressure on international crude exports”.

Gibson added that “the decline in Venezuelan crude trade to the US is one of the biggest consequences of the economic and political problems faced by the country. Between January and August 2017, crude shipments to the US averaged 0.69 million b/d, down by 175,000 b/d compared to the same period in 2015. In addition, the EIA weekly estimates suggest that this trade has declined further in recent months, averaging just 0.5 million b/d since early September. Interestingly, Venezuelan crude exports to China have actually increased. During the first eight months of this year, shipments to China averaged 0.44 million b/d, up by 100,000 b/d compared to the same period in 2015”.

The shipbroker noted that “apart from direct trade implications, it is also reported by Reuters that PDVSA is increasingly delivering poor quality crude to its international customers, which is translating into repetitive complaints, cancelled orders and demands for discounts. There are also reports of logistical issues and disputes over payments. For tonnage that calls at Venezuelan ports, the above translates into additional, and at times extended, delays and sporadic cancellations. Despite the recent firming, oil prices are still notably below the level needed by Venezuela to balance its financial requirements. As such, the difficulties faced by the country at present are unlikely to disappear anytime soon. The recent debt restructuring with Russia will help to ease the most immediate pressures but it is unlikely to be sufficient to reverse the slide in domestic crude production and exports”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, the shipbroker said that “VLCC demand continued to hit up against a solid wall of availability and Owners had no option but to discount further so that rates ended at little better than ws 55 to the East and ws 25 to the West with lower values payable for older units. Roughly halfway through the anticipated December programme now and unless something very surprising happens, the soggy environment looks set to remain in situ. Suezmaxes did little initially, but then enquiry picked up to prune tonnage lists and allow for some gentle re-inflation to ws 92.5 East and to ws 45 West with premiums over that for Kharg liftings. Aframaxes moved through a clear-out, but rates moved towards a lower 80,000mt by ws 100 to Singapore none the less. Perhaps the rebalancing will now provide a platform for a degree of rebuilding next week though”, Gibson concluded.

 

Tanker Acquisitions Looking More of a Bargain Compared To Bulkers says Shipbroker (02/12)

Ship owners looking to invest in today’s market has plenty of options available. The dry bulk market’s rebound has spiced things up, but tankers are also attractive thanks to lower prices. In its latest weekly report, shipbroker Intermodal noted that “in line with most expectations for the end of this month, during the past days the Dry Bulk market realized a significant rebound that sent the BDI above 1,500 points once again. Given the quickly approaching holidays in December that are followed by the Chinese New Year festivities, it is certainly too soon to tell whether and for how long this uptrend will last for”.

According to Intermodal “as far as SnP interest is concerned we could say that this remains flat in terms of active buyers, whereas in some cases we have witnessed a slight softening in asset values as well. This does not mean though that owners have withdrawn their interest for acquisitions; in contrast, they are closely monitoring the market in order to be able to make their move at the right time. When the will the right time come is – as usual – the million dollar question, however coming close to the end of the year one cannot overlook the fact that the dry bulk market has improved massively since the lows of last year, neither the fact that whenever freight rates have come under pressure during recent months strong resistance has been displayed”, the shipbroker said.

Vasilis Moiris, SnP Broker with Intermodal noted that “even though asset values have more than doubled in some cases, it seems that there could still be more upside on the way as we have only recently started coming out of the worst market in about 30 years. As far as the tanker market is concerned, it is evident that we are on the low side of the cycle and many inevitably draw a comparison to what we have seen in the dry bulk market during last year. Even though the entry restrictions are more complicated in this case compared to the dry bulk market, we are seeing new players entering the sector with a expectations to see a significant appreciation of their ships in the years ahead in the same way those who invested in bulkers did”.

Moiris added that “in the SnP market, a lot of interest has been drawn into the larger crude tanker sizes like VLCCs and Suezmaxes where we have recently seen the most transactions being concluded. Clients of Ridgebury Tankers have reportedly acquired a quartet of older VLCCs, whereas Greek buyers have been linked to some of the most recent acquisitions in the Suezmax and Aframax sectors. One could point out that the current orderbook in these sectors is not particularly light, specifically in the VLCC segment; however being at this point of the market even a fractional improvement on freight rates could have a positive impact on asset values”.

He concluded his analysis by noting that “all in all, the question raised could be which sector to invest in and when. Well, there are various parameters to take into account but from a long term point of view things might not still be great in the dry bulk market but the ball is rolling compared to last year and we have seen a couple of positive spikes this year which have added to improvement in values and rates. At the same time tankers have been struggling this year and this could be a good opportunity for owners to make an asset play similar to what we have witnessed in the last couple of years in the dry bulk sector”.

 

Tankers: South Korea’s October Oil Demand Growth Proves Unstoppable (30/11)

South Korea’s overall petroleum product demand saw remarkable growth in October, rising by 0.5% m-o-m and 3.8% y-o-y to an eightmonth high of 2.58 mmb/d. Demand growth was largely led by naphtha which surged by 16.1% y-o-y. Booming petrochemical demand drove naphtha demand to an all-time high of 1.32 mmb/d as high prices rendered LPG an uneconomical feedstock. As such, steam crackers had no alternative but to maximize naphtha consumption. In order to meet the jump in demand, South Korea’s naphtha imports surged by 26% y-o-y to 452.7 kb/d. In contrast, LPG consumption continued to decline by 12.6% y-o-y to 283 kb/d. We expect the strength in naphtha demand to sustain throughout Q1 2018 as firm winter heating demand underpins LPG prices.

Fuel oil demand in South Korea plunged by 33.6% y-o-y to 74 kb/d in October as the fuel continues to be backed out by increased nuclear and coal capacity for power generation. However, net fuel oil imports in South Korea grew by 39.9% y-o-y as plummeting production outweighed that of demand. Winter power generation demand and nuclear reactor outages are likely to lend some incremental demand to South Korea’s fuel oil consumption and imports in the coming months. Kowepo and Korea East-West Power recently tendered for a 45kt and 40 kt cargo of high sulfur fuel oil respectively for December delivery, marking their first spot purchases since July.

 

Product Tanker Markets Stable During the Week (28/11)

Things have been far from moving in the product tanker markets this past week. In the clean products markets, in the East, shipbroker Gibson said in its latest weekly report that “it has been a very quiet week on the LR2s, but a fairly busy one on LR1s. LR1s saw a fair number of cargoes and rates edged up accordingly with 55,000mt naphtha AGulf/Japan up some 5 points to ws 130. West rates are steady though and back to where they started the week with 65,000mt jet AGulf/UKCont at $1.325 million. LR2s have struggled with very little business quoting. 75,000mt naphtha is down 10 points at ws 112.5, after one cargo finally quoted yesterday. 90,000mt jet AGulf/UKCont is also down with $50,000k taken off the rates down to $1.775 million. We expect to see more of this rate going into next week”.

Similarly, it’s been “an incredibly slow week on the MRs, which have seen very little movement at all. Silver lining as far as Owners are concerned, is the fact that we have seen a fair amount of longhaul fully fixed back end of last week and beginning of this. The list has therefore been able to withstand a reduction in the supply of cargoes and therefore cling on tightly to last done levels. Westbound cargoes have been very much untested this week, unsurprising given the considerable softening seen on the larger tonnage; it makes far greater economic sense to stem up any cargoes where possible and focus on the weak LR2 market. These finish the week at $1.2 million, but should be negatively tested on the next done. Eastbound again have been treading water at the 35 x ws 180 levels, put on subs and failed towards the back end of the week, but same argument applicable here in terms of Charterers pinpointing larger tonnage. EAF now sits at ws 212.5 – a tried and tested favourite amongst Owners at the moment which Charterers seem happy to clean away at last done levels. Shorthaul sits at the $210k levels, although a healthy supply of prompt tonnage means that prompter dates will be covered sub $200k. Runs into the Red Sea have not moved off the cheap $500k levels seen last week. Although there is little being loaded in the Red Sea, much of the tonnage there is sitting off on Financial Hold so workable tonnage remains thin. With LR2s due an active week next week, we are likely to see another lack-lustre start. Action could pick up in the latter stages of the week”, said the Gibson.

In the Mediterranean market, Gibson said that “fresh enquiry has persisted throughout week 47 which has allowed owners to claw back some Worldscale points with near enough every fixture. A main catalyst for this was the strong demand seen from the East Med, area which has now pushed rates up to 30 x ws 170 for XMed. With the tonnage list now tight especially in Central and East Med this could see rates continue to rise and also may put some strain on Black Sea stems, but for now that route trades at 30 x ws 175. The opposite was seen on the MRs this week with enquiry seen at a sluggish rate throughout meaning Owner’s weren’t able to capitalise on tight tonnage to drive rates up. Rates going East traded around the $825k mark for Med-AGulf runs however, if enquiry picks up at the beginning of next week, owners may be able to achieve more than last done levels”.

Meanwhile, in the dirty products markets, in the MR segment, Gibson said that it was “a very static week in the continent, hardly surprising, considering the lack of naturally placed tonnage throughout. With the positions list only showing two potential candidates for Charterers to choose from we had to wait until midweek for levels to be tested. Elsewhere trend in the Med suffered a similar fate to the surrounding Handies with gains being seen week on week. That said, it would appear that once peaks were set we are now enduring a brief quieter spell where the market is being given the chance to reconcile recent events. Looking ahead, this sector is expected to be somewhat resilient to severe negativity where forward supply looks balanced”.

In the Panamax segment, the shipbroker added that “as expected this week, Thanksgiving in the US has given us a pre-holiday rush in the US where levels reacted steadily to the increased demand. Here in Europe where vessels for the short term at least ballast units do not wish to head, we have had to draw upon natural tonnage to recover the steady requirement seen Monday through Friday. In turn, this creates a sector poised for movement come Monday, but in which direction is yet to be decided as strength totally depends on what demand we see States side when markets reopen”, Gibson concluded.

 

MR Segment Remains Bright Spot in Tanker Market (24/11)

The Asian MR segment is holding firm in all three key regions (AG/WCI, Singapore and North Asia). Rates in all regions have been creeping up steadily since the start of November as cargo demand outpaced vessel supply, tightening position lists in the region. In the AG/WCI market, robust demand to move naphtha cargoes East as well as CPP cargoes to East Africa pushed rates for the key AG/ Japan route to their highest this year at w180. Unquenchable demand for naphtha in Asia has led to naphtha cracks hitting a near two year high last Monday on the back of unattractive LPG prices as well as steam crackers running at maximum utilization rates.

Tender data indicates that Tanzania and Kenya are importing around 917 kt of diesel, jet/kero and gasoline in November, up by 8.3% m-o-m. The unusual strength in MR rates is likely to prompt a switchover to their larger sisters- LR2 and LR1 rates for an AG/Japan trip are currently lower by $8.58/T and $7.56/T respectively. Higher gasoline imports into Indonesia as well as mixed aromatics cargoes into China have tightened the position list in Singapore, leaving less tonnage available for ballasting over to the AG/WCI region.

Rates for a Singapore/Australia trip basis 30kt and Singapore/Japan voyage basis 30kt have surged by w37.5 points and w20 points respectively since the start of the month. Pertamina recently turned to the spot market to fill its supply gap due to planned maintenance at its TPPI splitter in November. As such, Pertamina tendered for at least 1.5 mmb of 92RON gasoline for November delivery. Firm demand for long-haul shipments such as North Asia/Australia and North Asia/US-Mexico has boosted the MR segment up in the North.

Around 660 kt of CPP from North Asia has been booked so far to move to the US and Latin America for November loading, up from 435 kt in October. Mexico has been importing increased volumes of diesel ahead of market liberalization reforms next year. As such, MR rates in North Asia have jumped with rates for a South Korea/USWC voyage basis 40 kt up by $250,000 to $1.25 million since the start of the month. Rates for a South Korea/Singapore run basis 40 kt grew by $70,000 over the same period to $470,000. The recent release of a new batch of Chinese export quotas (5 mmt) is expected to keep cargo flows steady, lending support to MR rates for the rest of Q4.

 

VLCC Fixture from the Middle East on the Decline (21/11)

Activity in the VLCC Middle East market plunged further over the course of the past week. In its latest weekly report, shipbroker Charles R. Weber said that “rates in the VLCC market were largely range bound this week with an expected upward push prevented by the appearance of hidden positions, which altered the supply/demand balance for the Middle East market’s November program.  A pause by charterers between the Middle East market’s November and December programs also tempered the positive undertones that had prevailed at last week’s close and led to modest losses at the start of the week, which were ultimately pared as the week progressed”.

According to CR Weber, “there were 16 Middle East fixtures this week, marking a 24% w/w decline. Meanwhile, there were six fixtures in the West Africa market, a gain of one on last week’s tally. Draws on Middle East positions were augmented by one fixture for loading in South Africa and two speculative ballasts to the Atlantic basin. With the November Middle East program now complete, we note that the month’s availability surplus was unchanged from October’s 14 units. Looking forward to the first decade of the December program, the surplus is likely to narrow to eight units, which should substantiate a positive progression from the narrow range of rates observed over the past month. Furthering the likelihood of gains during the upcoming week, we note that the number of commercially disadvantaged units populating tonnage lists has declined markedly, implying that requirements will be more heavily vying for competitive units”.

The shipbroker added that “historically, the supply surplus narrows progressively during the December program and the declining replenishment of units on position lists from an earlier surge in Atlantic basin demand is likely to contribute to this year’s trend, which will likely see rates extend gains through the conclusion of the December program. Middle East AG‐FEAST rates concluded off by two points to ws68. Corresponding TCEs were off 6% to ~$29,045/day. Rates to the USG via the Cape lost two points to conclude at ws26.5. Triangulated AG‐USG/CBS‐SPORE/AG TCEs declined by 3% w/w to ~$30,623/day. Atlantic Basin Rates on the WAFR‐FEAST route shed two points to conclude at ws70. The corresponding TCE was down 2% to ~$30,311/day. Rates in the Atlantic basin remained soft on a decline in regional demand, including, notably, no fresh US crude export fixtures from the USG for the first time in nearly two months. Rates on the CBS‐SPORE benchmark route shed $50k to conclude at $4.50m lump sum. Round‐trip TCEs on the route were largely unchanged, concluding at ~$30,367/day”, CR Weber concluded.

Meanwhile, in the Suezmax market, “rates in the West Africa market were soft through most of the week, though there was a modest paring of losses on Friday. Demand levels were unchanged from last week with 11 fresh fixtures. Demand in the Middle East market rallied to a YTD high following two weeks of very slow demand and Caribbean market busied as well, with both having the effect of reducing the specter of ballasters into the West Africa market. Rates in the WAFR‐UKC route shed 5 points for the week to conclude at ws77.5, having touched a low of ws75 at mid‐week. Rates could extend their gains during the upcoming week as demand is poised to strengthen. Low VLCC coverage of the first two decades of December program implies greater Suezmax cargo availability as charterers progress into month”, CR Weber said.

Finally, in the Aframax market, the shipbroker said that “rates in the Caribbean Aframax market commenced the week with an extending of the soft trend of recent weeks. However, as demand levels improved considerably and progressively reduced availability levels, rates reversed direction towards the end of the week. The CBS‐USG route added 2.5 points on the week to conclude at ws112.5 – having dipped earlier to the ws100 level. With owners expected to remain bullish at the start of the upcoming week, further rate gains should materialize, particularly if demand remains elevated ahead of the Thanksgiving weekend”, CR Weber concluded.

 

Product Tankers: Far East Market Heating Up (20/11)

The product tanker market is exhibiting mixed fortunes for ship owners, depending on which part of the world they elect to trade their ships. In its latest weekly report, shipbroker Gibson noted that ‘product tankers trading in the Far East are having a better second half of 2017 relative to the first half, and on average, have outperformed the Atlantic markets. Whilst earnings in the West have generally had a difficult second half (despite some firming this week), the Far East market has been the consistent performer, gradually firming into Q3 and only easing marginally into the first half of Q4. Part of the strength has followed typical seasonal trends. However, this year the market received an extra boost from the aftermath of hurricane Harvey, with demand emerging late summer/early autumn to fill shorts on the West Coast of North and South America. Whilst this demand has now faded, the product markets may still be feeling a longer lasting impact in terms of thinner tonnage lists from displaced vessels, stronger refining margins and higher trading demand, particularly from North Asia”.

According to Gibson, “increased activity from China has been a key support factor in recent weeks and looks set to continue to underpin the markets for the balance of the year. Earlier in the month the Chinese government issued an additional 5 million tonnes of product export quota to the state-owned refiners to use by year end. This, coupled with good margins, has encouraged refineries across China to boost runs and push more product into the export market. Whilst the independent refineries have not been granted the same export rights, they have positioned themselves to fill the gap left behind by the state-owned refiners who have less restrictive access to the external markets. All of this points to higher export demand emanating from North Asia for the balance of the year. The country’s ban of >10ppm diesel in ships and tractors has also forced some players clear storage and boost exports of the higher sulphur grade. Elsewhere in the region, strong demand for naphtha from the petrochemical sector is driving trading of the light distillate across the region. Tighter supplies and firmer LPG prices are making naphtha more appealing to petrochemical producers, cracking margins have also been firm of late, even with some recent softening. Whilst this is supporting flows from the Middle East and Europe, further trading opportunities have been created within the region”.

The shipbroker added that “moving into 2018, Chinese product export quotas may need to be raised further. The Chinese government has raised crude import quotas for independent refiners by 55% to 2.85 million b/d. Whilst undoubtedly part of this increase in import quota will supply domestic markets, there is scope for further increases in refined product exports. New refineries coming online will also boost Chinese refining capacity. PetroChina’s Anning refinery (260,000 b/d) in Yunnan is now supplying regional demand, whilst CNOOC’s Huizhou Phase 2 (200,000 b/d) plant is in start-up mode. Aside from these plants, limited regional expansions are scheduled for 2018. However, higher regional refinery runs from recently commissioned and existing plants will continue to support products trade across the region, even if the growth is slower than in recent years”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “VLCC Owners had their patience sternly tested as November enquiry became quickly finalised and December programmes were still awaited. Rates edged lower from the top end of the recent range to slide into the high ws 60’s West with levels to the West dipping to sub ws 25. The expectation of busier times to come prevented further damage, but it will need concentrated attention from early next week to recreate momentum and give any chance for the market to rebound. Suezmaxes moved through a welcome active phase with demand to the West particularly apparent. Rates responded accordingly to move into the high ws 40’s West and to ws 87.5 to the East, but that seems to be a high tide mark just for the time being. Aframaxes slid lower, as expected, on thin enquiry and heavier availability. Rates now stand at 80,000mt by ws 115 to Singapore and are likely to move lower over the next fixing phase too”, the shipbroker concluded.

 

Of Oil Prices and Tankers (18/11)

Oil prices are stealing the show once more, when it comes to determining the future course of the tanker market. In its latest weekly report, shipbroker Cotzias Intermodal Shipping noted that “for another week, oil seems to be the most volatile and interesting commodity to watch. In this segment we’ll look at some of the major factors affecting the commodity price as a whole. Brent price closed yesterday at $62.90 down from 64.65 last week, which was the highest level reached since June 2015. Efforts by OPEC and Russia to cut output by the on-going policy, which is already expected to extend throughout the first quarter of next year as well, have curbed excess supply in an effort to prop up the commodity price and seek and end to the global supply glut which has sent prices plummeting over the past two years”.

According to Linos Kogevinas, Commercial Executive with Cotzias Intermodal Shipping, “OPEC has also continually revised its global demand outlook upward since July, noting an expected increase to 33.42m barrels next year. OPEC and other producers will meet again on the 30th of November in Vienna and are expected to agree to a further extension of production possibly for another 9 months up until the end of 2018. The recent wave of arrests in Saudi Arabia has been touted as a corruption purge. However, seeing as this is also an empowering move for Mohammed bin Salman who has been an outspoken supporter of OPEC’s production cuts past 2018, it further increases the chance of these cuts being extended further”.

The shipbroker added though that “however, these efforts are being undermined by a 12-month continual increase in US shale oil which has been triggered by the increased price. US Shale production is set to further increase in December by approx. 80,000 barrels, with the US rig number increasing quickly during the past months. Reports have been actually confirming another nine rigs added during the past days, which brings up the total number up to 738 rigs, an increase in excess of 60% compared to twelve months back. While global stocks are falling for the first time since 2013, we won’t be surprised to see the increase in US and other supplies halting this decline within next year and together also halt the upward path the price of the commodity has followed in the past months”.

Meanwhile, Kogevinas added that “one of the wild cards to keep an eye on is Venezuela which has been facing various issues in repaying its massive debts. Following a $1.1bn payment on state-oil company PDVSA’s issued bond last week, President Nicolas Maduro announced that this would be the final time it paid its creditors fully and that his intent is to seek a restructuring regarding future debt payments, which is putting Venezuela’s ability to pay its debts altogether into question. Formally defaulting, could quite conceivably put further stress on the country’s oil output and therefore on the commodity price. Venezuela’s oil production has already been under considerable pressure in the past year, with October marking its lowest production in 28 years, at 1,863m barrels per day. The aforementioned issues place oil prices in a tenuous, unstable situation. With caution regarding the rising US production, which could possibly result in a price correction, expectations for next year should perhaps be less bullish than what they currently are”, he concluded.

 

Slowdown in China’s crude stoking activity to hurt tonnage demand in the crude tanker shipping market in 2018 (17/11)

Crude tanker freight rates are expected to decline further in 2018 following a sharp decline in 2017, according to the latest edition of the Tanker Forecaster, published by global shipping consultancy Drewry.

Although tonnage supply growth in the crude tanker market is expected to be low next year after surging in 2017, this will not be enough to push tonnage utilisation rates higher as demand growth is expected to be sluggish. A slowdown in global oil demand growth and a likely decline in China’s stocking activity will keep growth in the crude oil trade moderate next year.

After a sharp decline in 2016, freight rates in the crude tanker market have declined further this year despite strong tonnage demand growth in these two years, thanks to a surge in tonnage supply. Fleet growth is expected to come down to 3.2% in 2018, after increasing by close to 6% each year in 2016 and 2017. However, this is unlikely to provide any respite to owners as rates will continue to decline in 2018 on account of a slowdown in crude oil trade growth as global oil demand growth is expected to fall to 1.4 mbpd in 2018 from 1.6 mbpd in 2017.

In addition to this, a likely slowdown in China’s stocking activity poses a big risk to tonnage demand in the crude tanker market. China’s stocking activity, which remained one of the leading factors behind the strong growth in the crude oil trade over the last two years, may fall significantly in 2018. According to the IEA’s data on China’s implied stock changes, the country should have accumulated close to 520 million barrels since 2015, well above the total special petroleum reserve (SPR) capacity that was supposed to fully come online by 2020. A sharp decline in stocking activity in the third quarter of this year to 0.5 mbpd from 1.2 mbpd in the second quarter suggests that we might see a significant decrease in the inventory build-up by China in 2018.

“We expect China’s stocking activity to decline to 0.25 mbpd in 2018 from an average 0.75 mbpd in 2017, curbing global trade growth,” commented Rajesh Verma, Drewry’s lead analyst for tanker shipping. “The anticipated decline in China’s stocking activity added to a slowdown in worldwide oil demand will keep global crude oil trade growth modest in 2018, which in turn will keep rates under pressure despite some slowdown in fleet growth,” added Verma.

 

Tanker Market Improved During October (15/11)

In October, tanker spot freight rates for dirty vessels edged up across all classes trading on most major routes ahead of winter season requirements. VLCC spot freight rates achieved the strongest growth compared with the smaller classes on the back of healthy tonnage demand on the main trading routes.

In the dirty segment, VLCC, Suezmax and Aframax average spot freight rates increased by 37%, 12%, and 12%, respectively, over a month earlier. These gains in spot rates were mostly driven by higher seasonal tonnage demand, as well as increased transit and port delays. Clean tanker freight rates dropped on all reported routes with no exception in October, dropping for East and West of Suez routes by 9% and 4%, respectively. The clean tanker market was mostly uneventful in October, while vessel oversupply persisted. Despite lower monthly rates, clean tanker rates remain well above the levels seen in October a year ago.

Spot fixtures

In October, OPEC spot fixtures dropped by 9.6% from the previous month to average 10.82 mb/d, according to preliminary data. The drop came on the back of lower spot fixtures on the Middle East-to-East and Middle East-to-West routes, which went down by 0.45 mb/d and 0.15 mb/d, respectively, in October to average 5.39 mb/d and 1.99 mb/d. In addition, fixtures outside the Middle East were down by 0.55 mb/d.

Sailings and arrivals

OPEC sailings dropped by 0.26 mb/d, or 1.1%, in October to stand at 23.69 mb/d. Middle East sailings also dropped, down by 0.16 mb/d over the previous month to average 17.11 mb/d. Crude oil arrivals increased in October at North American and West Asian ports, up by 0.4% and 4.6%, respectively, over the previous month, while arrivals in European and Far Eastern ports showed a drop of 1.4% and 2.1%, respectively, from the month before.

VLCC
Approaching winter, VLCC spot freight rates showed notable gains in October from a month before across all reported routes. On average, VLCC spot freight rates soared by 37% m-o-m to stand at WS55 points, up by 4% y-o-y. Rates increased on all major trading routes, mainly on the Middle East-to-East route where spot freight rates went up by WS24 points from a month before to average WS68 points. Similarly, the chartering market in West Africa (WAF) strengthened and earnings in both WAF and Middle East were higher. The VLCC market saw high activity to eastern destinations, despite holidays in the Fareast. VLCC spot freight rates on the WAF-to-East route rose by 33% to average WS68 points. October tonnage availability saw an occasional tightening as market activities saw the usual seasonal uptick.

VLCC Middle East-to-West spot freight rates recovered, though to a lesser extent, up by 22% in October to stand at WS28 points, but remained below the level in the same month a year earlier. Generally, VLCCs saw healthy demand in October on all major trading routes though spot freight rates gains varied, with a noted difference in old and modern vessel rates.

Suezmax
Suezmax spot freight rates continued to rise by an average of 12% in October from one month earlier, despite an excess in ships with all replacement requirements having been met easily. Average Suezmax freight rates remained healthy, supported by higher rates registered for tankers trading on the Northwest Europe (NWE)-to-US Gulf Coast (USGC) route, which gained 8% to stand at WS60 points. Suezmax spot freight rates for tankers operating on the West Africa-to-USGC route went up by 17% from a month before to stand at WS79 points. The Suezmax market experienced occasional softer sentiment in West Africa as activity levels varied. In the North Sea, Suezmax saw limited inquiries, while rates in the Black Sea and Mediterranean were supported by vessels tightening and a spill-over effect from the firming Aframax market, which supported Suezmax demand on a part-cargo basis as a suitable alternative.

Aframax
Spot freight rates in the Aframax market saw mixed movement on different routes. Average Aframax spot freight rates rose in October, although the larger vessel classes saw much stronger gains. Average spot Aframax rates increased by WS11 points from a month earlier, as a result of higher rates seen on different reported routes. The Caribbean-to-US East Coast (USEC) route was an exception, decreasing by 13% in October on persisting tonnage over supply, reversing part of the essential gains that were achieved on that route in the previous month, though remaining well above rates of October 2016.

Aframax spot freight rate gains were mainly driven by higher rates in the Mediterranean on the back of tightening Aframax availability for early November and increased transit delays in the Turkish straits. Spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes rose by 26% and 27%, respectively, from the previous month to stand at WS135 and WS133 points. Aframax rates went up despite competition seen from Suezmax vessels on part-cargo loadings. The Aframax market in the North Sea and Baltics strengthened, as rates experienced an uptick on the back of lesser tonnage availability and a busy fixing programme, with severe weather conditions and ullage problems further supporting rates.

 

Suezmax Tanker Oversupply Still Prevalent, But Fortunes Could Soon Change for the Better (14/11)

The Suezmax tanker market has been suffering for quite a while. However, the negative outlook which has come as a result of tonnage oversupply, could be eradicated in a couple of years’ time, signalling a reversal of fortunes. In its latest weekly report, shipbroker Charles R. Weber, said that “during the first half of the 2010s, a surging Suezmax fleet against tighter fundamentals in alternative crude tanker size classes saw rising levels of encroachment in non‐traditional regional markets usually serviced by larger and smaller counterparts. The geographically disjointed nature of these markets decreased Suezmax efficiency rates, helping to minimize earnings downside in soft markets and enhance earnings in stronger markets”.

The shipbroker added that “since the middle of the decade, further demand losses in traditional markets – particularly the West Africa region – and stabilizing overall demand in non‐traditional markets, have meant fewer options for owners to cope with a fresh round of fleet growth. There are presently 502 Suezmax trading units, representing a net increase of 17.3% since the start of 2015 and a net increase of 44% since the start of the decade. The present balance paints a somber picture for Suezmax owners – and that the disjointed supply demand balances has also contributed to an erosion of asset values certainly doesn’t help. Though fleet growth levels are projected to moderate, from a net gain of 9.7% during 2017 to 3.2% during 2018, demand levels appear likely to lag, suggesting that 2018 will remain a challenging year”.

According to CR Weber, “by 2019, however, the Suezmax fleet will likely enter into a negative fleet growth territory as aging units reach likely phase‐out ages. By then, demand dynamics should also be firmly more supportive. In the West Africa market, Suezmax demand during 2016 was hit heavily by large‐scale forces majeure in Nigeria and lower volumes sustained during 2017 as Asian buyers increasingly looked to the region to make up for OPEC supply cuts heavily distributed to the Middle East, boosting the VLCC class’ coverage of regional supply. Eventually, this situation should abate, allowing Suezmaxes to command a better share. Elsewhere, US crude exports have been rising and benefitting all crude tanker size classes with Suezmaxes capturing 28% of this trade. As US crude exports continue to mature through the end of the decade, the associated gains for Suezmaxes should help to lead to a fresh and substantial geographic diversification of trades” CR Weber concluded.

Meanwhile, in the VLCC tanker market, the shipbroker said that it “commenced with a measure of softer sentiment at the start of the week on uncertainty around the Middle East supply/demand balance and expectations that the week’s demand levels would be muted amid industry events in Dubai. As the week progressed, however, demand levels exceeded expectations and participants took stock of what appears increasingly likely to be a more active November Middle East program, prompting rates to pare earlier losses and conclude largely unchanged from a week ago. There were 26 fixtures in the Middle East market this week, one more than last week. Of this week’s tally, just two were covered under COAs vs. nine last week, meaning that charterers were actively working more cargoes, which positively influenced sentiment. Demand in the West Africa market was softer, however, as charterers were working fewer cargoes following two successive weeks of strong demand. There were five fixtures concluded there, off from nine last week. In the Atlantic Americas, US crude export cargoes were level at recent highs of two per week while an additional two fixtures materialized in other loading areas in the region, representing a collective gain of one fixture from last week”, CR Weber said.

It added that “with sentiment starting to turn positive and fundamentals supportive, we expect that after spending nearly a month range bound, rates will start to command fresh upside during the upcoming week. For its part, the view of surplus vessels at the conclusion of the November Middle East program stands at 9 units (one more than last week’s view). Last year’s November program concluded with eight surplus units and AG‐FEAST TCEs for the month averaged ~$51,472/day. Successive availability declines occurred during the December’166 program, guiding TCEs to ~$65,284/day. As availability replenishment is likely to decline during the coming weeks as units servicing recent long‐haul demand will take longer to reappear than usual, the 4Q17 structure does not appear much different. At present, AG‐FEAST TCEs stand at an average of ~$30,518/day – near levels they moved to as the Middle East surplus narrowed from 29 units at the conclusion of the September program to 14 units at the conclusion of the October program”, CR Weber concluded.

 

Fitch: Tanker Shipping Oversupply to Keep Rates Low in 2018 (14/11)

A glut of new vessel deliveries and limited scrapping of older ships means the global tanker market will remain oversupplied in the near term, Fitch Ratings says. This will keep freight rates low and shipping company credit metrics under pressure in 2018.

We expect capacity to have increased by 5%-6% by end-2017 from a year earlier. We forecast capacity to rise a further 4% in 2018. This reflects orders placed in 2015 when tanker rates were high, with a large share of orders coming from Greece and China.

Vessel scrapping has increased slightly, helped by higher steel prices. But only five very large crude carrier (VLCC) class tankers were scrapped in the first seven months of this year, while 36 new VLCCs were delivered in roughly the same period.

Demand growth will probably trough in 2017 due to high global oil inventories and OPEC production cuts. We expect rising global oil consumption, higher US exports and gradually moderating oil inventories to drive a moderate increase in tanker demand in 2018. Demand could therefore rise by about 4%, potentially matching supply growth.

This should halt the market’s deterioration, but tanker rates are unlikely to receive a significant boost without further vessel scrappage or slower capacity growth. As a consequence, we expect tanker rates to remain at current low levels throughout 2018 though they should avoid the sharp falls of the last two years. Rates for Suezmax vessels dropped by 39% in the first 10 months of 2017 following a 52% decline in 2016.

This will keep credit metrics at shipping companies under pressure in the year ahead, although liquidity risks are limited due to generally healthy cash positions that are further enhanced by credit facilities. Companies with a large share of long-term contracts, such as Soechi and Sovcomflot, should be able to maintain relatively healthy operating profits, while those with few long-term contracts are likely to break even at best.

 

Tanker Newbuilding Ordering Slows Down After “Frantic” First Half of 2017 (13/11)

Tanker ordering activity has slowed down over the past few months, after a very busy first half of the year. In its latest weekly report, shipbroker Gibson said that “earlier this year a rebound in tanker ordering activity had been observed, at a time of plenty of new deliveries and weak/falling industry earnings. Investment in new tonnage had been predominantly focused on VLCCs and LR2/Aframaxes, although there were orders placed in other segments as well. The interest in new tonnage had been in part driven by the collapse in newbuilding prices, following the malaise in the shipbuilding industry. Shipbuilders went through several years of very limited new order intake from all sectors within the shipping market, forcing yards to compete aggressively by pushing their prices lower and lower, down to their lowest level since 2003/2004. In the 1st half of 2017, 139 tankers above 25,000 dwt had been ordered, double the level for the whole of 2016”.

However, according to Gibson, “ordering activity has slowed down notably over the past few months, with just 37 units ordered since July. In the VLCC segment, 9 firm orders have been placed, versus 38 during the 1st half of the year. The change in investment appetite has been more dramatic in the Suezmax and LR2/Aframax segments. Just 4 Suezmaxes and 2 units in the LR2/Aframax size group have been ordered over the past four months, versus 16 and 44 correspondingly between January and June 2017. The only sector that has remained somewhat active is the MR segment (25,000 to 55,000 dwt), where 39 orders were placed in the 1st half of the year and another 22 orders since. Yet, even at these levels ordering activity is still limited, particularly when compared with investment levels witnessed back in 2012/13, when 340 MR orders were placed”.

Gibson added that “undoubtedly, the accelerating turmoil in the tanker market is a contributing factor to the latest slowdown in appetite for investment in new tonnage. Crude tanker earnings fell below the OPEX break-even mark over the summer months and in early autumn, while earnings in the product tanker market have faired similarly for most of this period. When earnings are low, it is challenging to argue the case for investing in new ships. There also have been several public statements by high profile individuals within the tanker industry, warning against ordering in the current weak market conditions”.

The shipbroker also noted that “however, it will be interesting to see whether we will see more activity in the newbuilding market in months ahead. The industry has entered the typical, seasonally strong period for tanker earnings. Demand for tonnage tends to increase in the 4th quarter, while weather related delays and disruptions also aid the tanker market over the winter months. Already, TCE returns for crude tankers have moved up notably in October and product tanker earnings have also benefited from more trading opportunities. In terms of asset values, although prices witnessed a minor uptick earlier in the year, they still remain at very low levels. The combination of firmer spot returns and rock bottom newbuild values may prove too attractive to resist. Yet, more orders now will only extend the period of rapid growth in the tanker market, delaying the sustainable recovery in the industry returns”, Gibson concluded.

Meanwhile, in the crude tanker market this past week, in the Middle East, Gibson said that “we have had a disjointed VLCC market this week with the gathering in Dubai. Although the week has been relatively active for 3rd decade cargoes, the momentum has not been great enough to force any meaningful change and levels remained rangebound throughout the week. Modern tonnage achieving low ws 70’s East with older units moving into high ws 50’s. West runs have paid ws 28 Cape/Cape. It was always a case of how low Suezmax rates were going to test down too this week after a couple of weeks of relative inactivity, they duly did with 140,000mt by ws 35 being paid twice for Basrah light to European destinations. On the back of this new low expect to see the market being more active. Aframaxes have experienced a sluggish week, enquiry levels have been minimal enabling Charterers to trim rates across the board. Levels to the East have fallen to 80,000mt by ws 125 and look set to come under further examination during next week”.

 

Tanker Market Suffers from Anti Corruption Campaign of Saudi Arabia (10/11)

Oil markets have been feeling the pressure from the anti-corruption crackdown which has been going on since the past weekend in the Kingdom of Saudi Arabia. However, it seems that besides the oil market, tanker owners are bound to feel the pressure as well. In its latest weekly report, shipbroker Allied Shipbroking said that “at the start of the week oil prices were on a surge hitting their highest mark since July 2015 and Brent crude futures surpassing the US$ 62 per barrel mark. Many now see a further tightening of production levels with most seeing a stronger effort emerging form the world’s largest oil exporter”.

Allied said that “the Saudi Crown Prince Mohammed bin Salman’s planned reforms are starting to show face in the Kingdom, with part of these reforms being the planned listing next year of the state-owned oil company Saudi Aramco, along with major infrastructure projects for the modernizing of the countries image. Most see the sum of these moves as a dedicated action towards an increased target for crude oil prices, with large investments needed to be raised in order to fund most of these projects. The roundup of prominent royals, ministers and investors as an effort to crackdown on corruption is part of the clean sweep of the countries reputation, while the shakeup should help further boost investment prospects and help drive the economy which has been suffering from anemic levels of growth during this three-year market downturn. The higher oil prices and a better and more friendly and transparent image for business should also help the Aramco IPO”.

According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations said that “this sudden surge in prices however seems to have dealt a temporary blow to the freight market during its seasonal high, with freight rates from the Middle East Gulf weakening amidst slower interest and an excess of open tonnage in the region. This coupled with the overall slower activity being noted from traders in the Far East left the market in waiting. This should prove to be a temporary move and it is highly likely that the disruption is mainly as a temporary pause before traders get a real feel as to the clear direction things will take moving forward”.

Laaridis added that “taking a look however at a more forward view and the market difficulties keep rising, with the possible demand levels to be seen in the year ahead likely to be under squeeze as further production cuts take effect. There is however the possibility for a counter to these cuts by OPEC, with non-OPEC members likely to take up the opportunity and ramp up their production levels taking a share of the pie left behind. Beyond all this taking place, a general surge in the price of industrial commodities seemed to be the overall theme of the past week, with several other niche metals shooting up to multiyear highs as the overall sentiment got buoyed by the strongest and most widespread global growth figures since the financial crisis of 2008. This could be a partial sign that the commodity cycle appears to be turning and we may well see demand levels in general show healthier growth figures in trade in the years to come, though this should be taken with a pinch of salt as it should not be taken as a sign of the repeat of the so-called “commodities supercycle” that came to an abrupt end in 2011”.

Allied’s analyst concluded that “demand levels are looking good for crude oil moving forward and despite any dampening effect that may well be caused by the tightening of supplies and the prices hikes these may cause, the overall consumption growth especially from emerging markets in the Far East should still help provide a good level of growth in trade and likely an even better increase in tonne-mile demand. The herd-like optimism amongst investors may well be overshooting the markets potential but it still reflects the much better fundamentals now being noted in the market”, he concluded.

 

VLCC Tanker Market Looking to Gain More Positive Momentum, Despite Weekly Drop in Fixtures (07/11)

Stagnation was the “name of the game” for the VLCC tanker market this past week, but according to shipbroker Charles R. Weber and tanker market specialist, the current fundamentals support further rises in the near future. In its latest weekly report, CR Weber said that “VLCC rates were largely stagnant this week with no clear immediate near‐term direction amid a slowing of Middle East demand between the November program’s second and third decades against a sustaining of elevated demand in the West Africa market. The Middle East market observed 25 fixtures, representing a 32% w/w decline while the West Africa market was unchanged with nine fixtures. One fixture for loading in North Africa contributed to draws on Middle East positions. Elsewhere, the Atlantic Americas market was markedly slower with three fixtures materializing, as compared with last week’s eight”.

According to CR Weber, “fundamentals continue to point to a near‐term strengthening of rates. The November Middle East program is progressing with m/m demand strength with the first two decades collectively yielding 8% more cargo volume. Simultaneously, draws on Middle East tonnage to the Atlantic basin are up 14%. Availability replenishment, meanwhile, has declined due to an earlier surge in demand in the Atlantic Americas that drew units away from the Middle East on to trades that consume the performing units for substantially longer than traditional AG‐FEAST runs. Additionally, the number of idle units (including those engaged in storage, undertaking maintenance, servicing STSs, etc.) has risen by 40% to 28 units over the past two months. Accordingly, the November Middle East program appears likely to conclude with just eight surplus positions, off 43% m/m – or the fewest since the December 2016 program. On this basis, we expect further directional gains to materialize during the coming weeks, with timing thereof dictated by the timing of charterers’ progression in earnest into November’s final decade”.

In the Middle East, Weber said that rates on the AG‐JPN route concluded unchanged at ws70. Corresponding TCEs were off 1% to ~$32,821/day on higher bunker prices. Rates to the USG via the Cape were unchanged at ws29. Triangulated AG‐USG/CBS‐SPORE/AG TCEs rose by 2% to ~$33,689/day. In the Atlantic Basin
Rates in the West Africa market modestly softer on the slower pace demand in the Middle East market. The WAFR‐FEAST route concluded with a loss of 0.5 point to ws72. Corresponding TCEs were off 4% to ~$32,333/day. Rates in the Atlantic Americas were stronger on forward sentiment. The CBS‐SPORE route gained $200k to conclude at $4.60m lump sum.

Meanwhile, in the Suezmax market, “the West Africa market was slower this week, leading rates off of recent highs. There were nine fixtures, representing a 44% w/w decline. Meanwhile, heavy recent VLCC demand in the region implies lower cargo Suezmax availability as charterers move forward on coverage dates, leading to further rate losses. The WAFR‐UKC route shed 7.5 points to conclude at ws90. In the Caribbean market, rates were also moderately softer on an easing of regional demand and an absence of fresh US crude export fixtures. Rates on the CBS‐USG route shed 2.5 points to ws85. A considerable and expanding freight discount on regional Aframaxes, together with souring sentiment in the West Africa market, will likely lead to further near‐term rate losses, failing a surge in demand for long‐haul voyages. Elsewhere, the Middle East market was markedly slower with the regional fixture tally off by two‐thirds to a seven‐week low of just five fixtures. Rates were stable on the back of largely unchanged VLCC rates, but the demand losses could push more tonnage into the West Africa market”, the shipbroker concluded.

 

Tanker Market Looking To Take Advantage of New Dynamic in Oil Prices (06/11)

The new oil market landscape which is shaping up can turn out to be a boon for tanker owners as well. In its latest weekly report, shipbroker Gibson said that “sentiment in the oil market has changed. Brent, which just a few months ago struggled to stay above $50/bbl now seems firmly above $60/bbl having set a 29 month high earlier this week. For some time, many doubted OPEC’s willingness, commitment and ability to rebalance the market in the face of rapidly growing non-OPEC supply. Indeed, prior to the implementation of the deal, many OPEC members increased production, which boosted the volumes of oil on the water, and even with strong compliance, crude oil stocks grew throughout the first quarter, denting market confidence and sending prices lower into the summer. However, this should have hardly come as a surprise, particularly when it is considered that seasonal demand is typically softer in the first quarter. It was always going to be about the second half of 2017, even if some market participants were slow to recognise this. Now, with strong demand, and discipline from OPEC, oil stocks are finally drawing”.

According to the shipbroker, “the road to rebalancing has been far from smooth. Hurricanes and refinery outages have led to short term distortions in supply and demand, whilst going forwards other hurdles can be expected. Nevertheless, the trend is now clear. Crude oil futures are in backwardation and floating storage, which is often a leading indicator of oversupply in the oil markets, has consistently reduced over the past 4 months. Shore based stocks also appear to be falling but the data for many regions is lagged and subject to constant revisions”.

Gibson noted though that “however, despite demand surprising to the upside, it is expected to seasonally weaken into Q1 2018, which could lead to stock builds and with that, short term pressure on pricing. Risk is also influencing prices, perhaps more so than it has in recent years. The dispute in Kurdistan, Trump’s stance on Iran, continued instability in Libya, financial strife in Venezuela and a latent threat of insurgency in Nigeria, have all contributed (even if marginally) to higher prices”.

Meanwhile, “support is also being found from OPEC and Russia’s longer-term commitment to the cause. Consensus is growing that OPEC will extend its current arrangement beyond March 2018, quite possibility until the end of next year. Of course, compliance is critical, but provided it remains high enough, OPEC should see continued progress towards its goal. There is, however, a wildcard in the pack; US shale. In theory,$60/bbl price should stimulate more marginal production. But the expectations for the sector are constantly evolving. Costs are reported to be rising, and whilst most still expect production growth, some are starting to revise forecasts downwards in line with a falling rig count, among other factors. However, the rig count often lags oil price changes by a few months, so the response to higher prices may not be apparent just yet. In any case, US supply continues to flood the market, with exports hitting a record 2.133 million b/d last week. Shale remains a formidable challenge to OPEC but also an opportunity for the crude tanker sector. Prices are moving in the right direction but production from within and outside OPEC remains a threat in the longer term”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “for the third week in a row VLCCs failed to break through, or even challenge, previous peaks and are now operating in defensive mode as the last quarter of the November programme becomes ‘in play’. Next week there is widespread personnel displacement to the Dubai functions and a likely disrupted cargo, and information, flow is unlikely to work in Owners’ favour. For now, modern units hold at close to ws 70 East with older units moving into the mid ws 50’s with West runs marked at around ws 27 Cape/Cape. Suezmaxes flattened off after last week’s slight gains but rate ideas still hold at around ws 85 East and ws 42.5 to the West upon hopes/expectations of a busier week to come. Aframaxes remained steady with occasional upside for prompter needs and Owners are optimistic for next week’s campaign. Rates operate at no lower than 80,000 w127.5 to Singapore now, and for the next fixing phase too”, the shipbroker concluded.

 

Low Orderbook Bodes Well for Future of MR Product Tanker Market says Shipowner (04/11)

The still historically low orderbook for MR product tankers is boosting the long-term prospects of the product tanker market, said shipowner Capital Product Partners during the past week. According to the company’s market review and outlook after the end of the third quarter, “the product tanker spot market modestly improved in the third quarter of 2017 compared to the previous quarter, although rates remained on average at relatively depressed levels. The improvement was fueled by firm oil demand on the back of robust economic growth in Europe, the US and Asia, as well as high oil product imports into Latin America. The product tanker spot market saw a short-lived increase in oil product movements in the wake of Hurricane Harvey, which led briefly to a significantly tighter Atlantic MR market. The impact was more sustainable east of the Suez Canal, as the reduced availability resulting from vessels being diverted to ship oil products to the United States and Mexico applied upwards pressure on rates. This trend notwithstanding, incremental product tanker demand during the third quarter was mostly offset by high tonnage availability following relatively firm fleet expansion since the beginning of 2017. In addition, high oil product inventories continued to weigh on the product tanker market. However, over the last few months, OECD oil product stocks have been decreasing, which bodes well for product tanker demand in the medium to long run. In the U.S. in particular, gasoline stocks declined in September to their lowest level since November 2015 at approximately 219 million barrels. In the period market, rates remained flat compared to the previous quarter, while activity was dominated by short-term charters of up to one year”, said the shipowner.

Capital Product Partners added that “on the supply side, despite somewhat increased activity in terms of new orders for product tankers in the first nine months of 2017, the orderbook remains at historically low levels. The MR product tanker orderbook currently stands at 7.2%, the lowest level on record. In addition, product tanker deliveries continued to experience significant slippage during the first nine months of 2017, as 33.5% of the expected MR and handy size tanker newbuildings were not delivered on schedule. Analysts estimate that net fleet growth for product tankers will amount to 4.5% in 2017, below the 2016 growth rate of 6.2%. On the demand side, analysts expect growth of 3.7% in 2017 on the back of growing intra-Asian and Middle East-Asia products trade and firm products imports into Latin America”.

Meanwhile, in the Suezmax Tanker Market, “sentiment in the Suezmax spot market was soft during the third quarter of 2017, as rates further retreated compared to the preceding quarter. Rapid fleet growth was a key factor for the weak spot rate environment, as newbuilding vessels continued to enter the market at a high pace. At the same time, demand was seasonally weaker, with crude oil imports to China in particular dropping to an eighth-month low in August. The seasonally soft demand was further exacerbated by the lower crude oil output and exports, as a result of the oil production cut agreement between OPEC and Non-OPEC oil producers. On the positive side, Nigerian and Libyan oil production further recovered in the third quarter, while volumes on long-haul routes from the Atlantic to Asia remained firm, partly offsetting the pressure on Suezmax rates. With spot freight rates at subdued levels during the third quarter, the time charter Suezmax market was marked by low activity and rates”, it said.

According to the company, “on the supply side, the Suezmax orderbook represented, at the end of the third quarter of 2017, approximately 11.0% of the current fleet. Contracting activity continues to be limited, as 12 Suezmax tankers have been ordered since the beginning of the year. Analysts estimate that slippage for the first nine months of 2017 amounted to 15.5% of the expected deliveries. In terms of demand, Suezmaxes are projected to experience solid growth of 7.2% in full year 2017, driven by a significant increase in US exports this year, higher crude volumes from the Atlantic to Asia and strong Chinese crude oil imports. Finally, it is worth highlighting that overall tanker demolition activity has increased with 7.1 million dwt being sold for scrap in the first nine months of 2017 – representing an increase of 5.6 million dwt over the same period last year”.

 

Tanker market sees boost from higher ton-mile demand says shipbroker (28/10)

The tanker freight market has come alive over the past few weeks, together with the rise of oil prices. This can be attributed to a host of factors, however, according to Allied Shipbroking, this is down to a surge in demand, mainly from the Far East markets, which in turn is also good for ton-mile demand. Allied said in its latest weekly report, that “crude oil prices have been seeing some support emerge this past week as supply disruptions in Iraq and a drop in US drilling has helped bolster oil investors to jump back in as they start to see the market showing a more attractive face. This surge in interest comes just weeks after both Saudi Arabia and Russia further reinforced their commitment to uphold and even possibly extend supply cuts to the end of 2018. However, despite these aspects, there still seems to be some resistance being noted in the market. The price of crude has managed to pivot around the US$ 58 per barrel mark, a level higher than what we were seeing 12 months back and one of the highest levels noted this year, yet still short of that psychological barrier of US$ 60 per barrel level”.

According to Mr. George Lazaridis, Allied’s Head of Market Research & Asset Valuations, said that “in part many will attribute this resistance on the upper barrier brought on by US shale drillers, with an estimate that at crude oil prices above this level the market would start to flood once more in an excessive supply glut which would inevitably bring prices back down fairly quick. In this effort for holding off the excess supply, OPEC’s secretary general expressed his confidence in the effort being made and that there is no doubt that the market is rebalancing itself at an impressive rate”.

Lazaridis added that “it looks to be more of a case of boosted demand however, rather than restrained supply. China’s insatiable appetite for this energy commodity continues strong and it looks to still have a considerable way to go before we can even consider that its peaked demand level has been reached. At the same time several other developing countries, such as India, show an equally promising boom in imports. In the past both China and India would have been seen as more troubling for the crude oil tanker market, given their positioning close to the Middle East Gulf, the world’s largest producing region of crude oil. Yet with the shale revolution in the US having been thrown into the mix and having transformed the price arbitrage between crude oil prices in the West and in the East, an opportunity has arisen that bears more tonne-mile potential than would have been considered”, Allied’s analyst noted.

According to him, “this has been no doubt the prime driver behind the recent support noted in freight market, with the Far East having shown a strong influx of cargo demand and having helped keep things busier than usual. Yet this recent improvement in rates has only been marginal and has taken place during a seasonal high for this sector. The winter months are typically characterized by stronger demand for imports, as consumption of heating oil goes up in the western hemisphere. Albeit all these positive developments that look to have taken place during the past couple of months, the disparity between sellers and buyers in the secondhand market continues to hold. It is no surprise that during the course of 2017 activity in the crude oil tanker space has been minimal while prices have remained under pressure for an even longer time. The reality of the matter is that buyers have only recently shifted their focus to this sector and at the same time look upon it as an opportunity for bargain hunting. Given this, their price perception is considerably lower than what is currently being offered, while at the same time ship owners are refraining from becoming keen sellers at this time given that earnings are still able to hold at relatively fine levels. Which side will break first and which direction prices will eventually take is an interesting conundrum being faced right now, while a whole lot is still riding on the developments of the crude oil trade”, he concluded.

 

VLCC Tanker on a High Roll (24/10)

Despite the decline of tanker fixtures in the Middle East market, VLCC rates remained in positive territory through much of the past week, as the market continued to react to narrowing fundamentals and sentiment remained positive as participants expect a further narrowing going forward, while a modest paring occurred on Friday. In its latest weekly report, shipbroker Charles R. Weber, said that Indeed, the gains came despite a slowing of demand as charterers were slow in progressing into October dates and demand in the West Africa market eased. There were 20 fixtures reported in the Middle East market, representing a 33% w/w decline. Meanwhile, in the West Africa market, just three fixtures were reported, off from eight last week.

According to CR Weber, “the softer demand in West Africa boosted Middle East availability levels through the November program’s first decade as draws will now likely come from subsequent decades. Some previously hidden positions also appeared and contributed to surplus availability. We presently estimate that there will be a surplus of 10 units in the period; previously, the supply/demand view raised the potential of zero surplus units. The revised estimate remains 40% below the surplus seen at the conclusion of the October program, however; and the likelihood is that as November progresses past the first decade, the surplus will continue to decline. This follows a rise in long‐ haul fixtures in recent months, for which the absence of the performing units has yet to be fully observed in Middle East positions (relative to previous average turnaround time). As such, the market remains poised for directional gains through the remainder of Q4, though during the upcoming week rates could stabilize. Historically, a surplus of 10 units has guided AG‐FEAST TCEs to around $33,100/day – which compares with ~$32,145/day presently. Past next week, as charterers progress further into the November program, we expect that a fresh tightening of fundamentals will positively influence rates, accordingly”.

It added that “rates on the AG‐FEAST routes gained 2.5 points to conclude at ws67.5. Corresponding TCEs rose 7% to ~$31,767/day. Rates to the USG via the Cape gained one point to conclude at ws29. Triangulated AG‐USG/CBS‐SPORE/AG TCEs rose 6% to ~$33,512/day”.

In the Atlantic Basin, rates on the WAFR‐FEAST route posted modest further gains from last Friday’s jump to ws70 but subsequently these pared back with the route concluding unchanged. The route’s TCE concludes at ~$32,232/day, off 1% due to higher bunker prices.
Rates in the Atlantic Americas continued to rise on the back of last week’s demand surge and a sustaining of elevated demand levels this week. The CBS‐SPORE route added $150k to conclude at $4.40m lump sum.

Meanwhile, in the Suezmax tanker market, CR Weber said that “rates in the West Africa Suezmax market remained at strength this week following last week’s demand surge and as availability replenishment is declining. Suezmaxes competing with Aframaxes in the Black Sea and VLCCs in the Middle East added to positive sentiment, as has a slowing of VLCC coverage during November’s second decade, which raises the specter of forward demand gains for Suezmaxes once charterers progress on dates. Rates on the WAFR‐UKC route added 10 points to conclude at five‐month high of ws87.5”, the shipbroker concluded.

 

Tanker market gaining traction (21/10)

While all headlines monopolized by the dry bulk market’s newest rally, it seems that the tanker market has slipped into oblivion. However, things are shaping up rosy in the wet segment as well, at least in terms of its long-term prospects. In its latest weekly report, shipbroker Allied Shipbroking said that “there was a flood of fresh news this week which clouded the overall prospects of the crude oil market. Just one week prior Saudi Arabia and Russia, the two countries which together produce roughly one fifth of global oil supplies, made a joint announcement reaffirming their commitment to cut back production and help alleviate markets from the glut in supply faced right now. On the back of these positive news the price of crude oil started to show signs of life, with an increase of more than US$ 1 per barrel being seen just hours after the news came out”.

Allied added that “moving on to last Monday and there was already a considerable amount of market activity, while most kept a keen eye out for what key findings would be given from OPECs monthly report as well as the US Energy and Information Administration’s weekly inventory report. OPEC’s in-house analysis in its monthly oi market report did not disappoint, quoting a considerable increase in its forecast for demand next year. It noted a more than 0.6% increase compared to its previous month’s forecast levels, basin this largely on much stronger demand levels now being expected from OECD countries and the lower estimates of non-OPEC supply. The market reaction was almost imminent with the price of Brent crude reaching just under US$ 57 per barrel. This gain seemed to have been further boosted on early Friday as the EIA’s weekly inventories figures showed a decrease by 2.8 million barrels from the previous week while it also reaffirmed the sense of weakening shale oil production figures moving forward. The rally continued on for most of Friday and looks to still have steam in early hours of trading today. In the midst of this we continue to see a big volume of U.S. crude heading to the East, with the increased price gap between WTI and Brent pushing for an increase in Far East appetite for U.S. oil, and the U.S. having already noted a record exports of 1.98 million barrels per day by late September. This opening of this trade has helped the tanker trade, adding a fair amount of miles per tonne of crude oil imports made by major importers such as China”.

According to Allied’s, George Lazaridis, Head of Market Research & Asset Valuations, “all this has helped boost the image of the crude oil tanker, with freight rates having already seen a fair rise over the past couple of weeks and things looking to gain in strength over the coming months as the winter season demand spike starts to show face. This in combination with the slower fleet growth being seen of late and we have started to see some improvement in prospects moving forward for these large crude oil carriers. In combination with the increased refining capacity being established in the Far East, and we may well see an increase in trade that could well push for a further overall improvement in the market. It seems as though the prospects for 2018 have improved and there is more and more confidence that the difficulties faced during the second half of 2016 as well as in the year so far may well be behind us. That is not to say that anyone is holding out expectations for any extraordinary rally to take place, but rather that a better market balance could be reached than the one faced right now. This balance may just turn out to be exactly what the crude oil tanker markets needs right now”, Allied’s analyst concluded.

 

Elevated Chinese Crude Imports to Support VLCC Rates (20/10)

Chinese crude imports saw a swift rebound from August’s 8-month low, hitting the second highest level recorded at 9 mmb/d in September. September crude imports into China jumped by 12.5% m-o-m and 11.9% y-o-y on the back of winter stockpiling demand, the return of refineries from maintenance, new crude import quotas for teapot refiners as well as the start-up of new refining units. According to the official Xinhua news agency, Chinese crude commercial stocks fell by 3.4% m-o-m to 218 mmb at end-August which led to the replenishment of stocks in September. The latest batch of crude import quotas stand at 19.8 mmb, bringing the year’s total to 692 mmb which is up by 7.8% y-o-y. The ramping up of Petrochina’s 260 kb/d Yunnan refinery after its start-up in August as well as phase II of CNOOC’s 200 kb/d Huizhou refinery undergoing trial runs lent support to Chinese crude buying in September as well. China’s crude imports are expected to remain elevated for the remainder of Q4 due to the continued ramp up of new refining capacity, independent refiners’ attempts to fully utilize their crude import quotas as well as seasonal winter demand, contributing to the ongoing recovery in VLCC rates.

Total refined product exports from China plunged to a five-month low of 3.82 mmt in September, down by 17% m-o-m and 11.2% y-o-y. This is most likely due to robust domestic demand for gasoil after the lifting of the annual fishing ban in the South China Sea as well as harvest season. The negative effect of lower Chinese exports on MR rates in Asia were masked by tight tonnage in the region after several vessels were taken on transpacific voyages post-Harvey. Restricted quotas (down by 19% y-o-y) are expected to cap Chinese product exports in Q4, weighing on MR freight rates.

 

Tanker sector looks beyond hurricane season to firmer Q4 fundamentals (20/10)

An unusually high level of disruption from the hurricane season in the Caribbean and Gulf of Mexico has shaken up the tanker market, with turbulence impacting the spot market while timecharter rates remained stable, reflecting weak fundamentals.

However, beyond the headlines there have been some important and constructive shifts in the market which are positive for future conditions.

Oil demand growth has been out-performing expectations, with the IEA’s most recent estimate for global growth this year at 1.7%, supported by a very strong Q2. Q4 is looking healthy for demand and will see a major increase in refining activity which drives our expectations of increasing spot rates across the market. Although MSI sees only limited upside for T/C rates, positive fundamentals are likely skewing the risks to the forecast to the upside.

“Contributing to the improving platform for the tanker market have been two key features of the second half of 2017: global oil stocks are being drawn down and scrapping is increasing,” says MSI Director for Oil and Tanker Markets, Tim Smith. Although not supportive for immediate trade volumes – because stock draws will displace imports – a rebalancing of the oil market is clearly required to generate long-term trade growth – it is a necessary hurdle to pass.”

Reduced floating storage also means more tonnage returning to the market. OPEC estimates a 40 million barrel drop in floating storage since the start of 2017. Compliance with OPEC output quotas has been lapsing, but nonetheless has contributed to the rebalancing.

Whether the cartel decides to extend and/or deepen cuts at the end of March 2018 remains to be seen but the MSI expectation is closer to an extension rather than another substantial cut.

The second major driver to the improvement – scrapping volumes – have shifted up a gear to the point where sizeable amounts of tonnage are being removed from the market. The impact of recent activity will be limited but should this trend continue – and MSI expects that it will – it will be supportive for earnings.

As a result, MSI forecasts that at the end of Q4, a seasonal pick up in refining and demand will see average spot rates on the key TD3 route will rise to $34,300/day and support the increase in T/C rates to around the $26-$27,000 /day mark. At this stage though we are not expecting major support in Q1 18, unless we see a sustained surge in global demand growth.

 

Aframax Tanker Market and the Kurdish – Iraqi Standoff (17/10)

Geopolitical tensions have often served as the “bread and butter” of the tanker market and the recent standoff between the Kurdish autonomy movement and the official Iraqi government is no exception. In its latest weekly report, shipbroker Charles R. Weber said that “this week Iraq announced plans to reopen their Kirkuk‐Ceyhan pipeline to Turkey, which has been out of action for a number of years. The federally‐controlled pipeline was destroyed by militants in 2014, prior to ISIS capturing territory that the pipeline ran through. Iraq had mostly stopped shipping oil via the pipeline, but now that U.S.‐ backed Iraqi forces have recaptured most of the oil infrastructure in the northern regions, they are keen to ramp up their exports. The Iraq Oil Ministry stated they hope to not only restore but possibly expand exports through the pipeline”.

According to CR Weber, “Iraq’s oil minister, Jabar al‐Luaibi, announced on Tuesday that preparations to begin the process of restoring and reopening the Kirkuk‐Ceyhan pipeline are going to start now that “the area has been cleared of “terrorist gangs.” He stated that he had asked North Oil Company, the State Company for Oil Projects (SCOP), and Iraq’s state pipeline company to restore the pipeline to full operation. Iraq hopes to restore exports from the pipeline to pre 2014 levels of between 250,000 bpd and 400,000 bpd”.

The shipbroker said that “the 1970 commissioned line consists of two pipes with a nameplate capacity of 1,100k and 500k Bbl/day respectively. The Pipeline will reportedly need a great deal of repair after a series of attacks and over two years of disuse. One oil analysts, quoted in the FT, expressed skepticism as to how fast the repairs could be completed. Also pointing out that sections of the pipeline pass through territory controlled by Kurdistan in order to reach Turkey’s border, which could cause further tensions between Baghdad and Erbil”.

CR Weber says that “the move by Iraq will result in a bypass of the pipeline used by the Kurdistan Regional Government (KRG), posing threats of increasing economic sanctions in the wake of Kurdistan’s referendum for independence, which was held on September 25th. Results of that referendum showed approximately 93% of votes were cast in favor of independence. Despite reporting that the independence referendum would be non‐binding, the semi‐autonomous Kurdistan Regional Government (KRG) characterized it as binding, although they claimed that a positive result would trigger the start of state building and negotiations with Iraq rather than an immediate declaration of independence. The referendum’s legality was rejected by the federal government of Iraq”.

Meanwhile, according to the shipbroker, “the Kurdistan Regional Government (KRG) operates its own pipeline that connects to Kirkuk‐Ceyhan at Faysh Khabur on the border with Turkey. In 2013, the Kurdistan Regional Government of Iraq completed a pipeline (Green) connecting the Taq Taq field through Khurmala (150,000 Bbl/day capacity) the northwest sector of the Kirkuk field and Khumala to Dohuk to Faysh Khabur (700k ‐ 1 Mn Bbl/day capacity) on the Turkey‐Iraq border and then connected to the Kirkuk‐Ceyhan pipeline. The pipelines allow the export of oil from the Taq Taq and Tawke oil fields. On 23 May 2014, the Kurdistan Regional Government announced that the first oil transported via the new pipeline was loaded into a tanker at Ceyhan. While Kurdistan produces around 600,000 bpd of crude oil a day, or about 12 percent of Iraq’s total output, Turkey is crucial to their 500,000 + Bbl/day crude exports. This is because most Kurdish oil is moved through the existing pipeline to Ceyhan”.

On the day of the Kurdistan referendum, Turkish President Recep Tayyip Erdogan said that Turkey could cut off the crude oil flow from Kurdistan. “After this, let’s see through which channels the northern Iraqi regional government will send its oil, or where it will sell it,” he said in a speech. “We have the tap. The moment we close the tap, then it’s done.” A few days later Turkey said that it supported Iraq’s decision that all Iraqi oil trades should be done only by the central government, reaffirming it would deal only with Baghdad. Following that Iraq, Iran, and Turkey took a unified stance against. Kurdistan’s oil sector, increasing further pressure on the region after the referendum. According to the media office of Iraqi Prime Minister Haider Al‐Abadi , Iraq’s Ministerial Council for National Security discussed measures “…to stop all commercial transactions, especially on the export and sale of oil with the Kurdistan region and this be dealt with exclusively by the Iraqi Federal Government.”

“While no official timeline or completion date has been set for the reinstatement of the Kirkuk‐Ceyhan Federal pipeline, in the medium term an increase in throughputs and clearer provenance on the exported crude should positively impact Aframax liftings from Ceyhan. It of course remains to be seen how the Kurdistan Regional Government will react to the threat of export isolation with no clear oil export routes available to them – though we would hazard that political and economic compromise may well keep all northern Iraqi export crudes flowing and a restored pipeline could double exports through Ceyhan”, CR Weber concluded.

 

Long-haul tanker shipments on the rise as US exports double (16/10)

The emergence of the US crude export trade is a boon for crude tanker owners, as ton-mile distance has increased considerably. In its latest weekly report, shipbroker Gibson said that “one of the headlines in the international press in recent weeks has been the surge in US crude exports to record highs. Preliminary data from the US government agency EIA shows that the country’s crude exports hiked to nearly 2 million b/d in the week to September 29, surpassing the 1.5 million b/d record set the previous week. This latest spike in shipments is likely to be temporary; however, the bigger picture is that US crude exports have undeniably witnessed a notable step up in volumes this year relative to 2016”.

According to Gibson, “records from the IEA, the international energy watchdog, show that US crude exports averaged 0.93 million b/d during the 1st half of this year, nearly double the level over the same period in 2016. About one third of total exports was destined for Canada, while over 20% was shipped across the Atlantic to Europe. More importantly for the tanker market, long haul shipments to Asia Pacific increased rapidly, averaging over 0.3 million b/d between January and June 2017, versus just 20,000 b/d over the corresponding period in 2016. The analysis of trade flows using AIS tracking suggests that US crude exports remained at similar robust levels during the 3rd quarter of this year”.

Meanwhile, “one of the reasons behind the sudden emergence of crude trade to Asia, is the Middle East crude production cutbacks, which translated into higher values for Middle Eastern barrels relative to Atlantic Basin benchmarks. Most of the US crude is shipped to Asia on VLCCs, although there is still plenty of Suezmax trade as well. Economies of scale dictate that VLCC shipments should be more practical; however, all VLCC loadings involve reverse lightering, which is expensive and can add up to 15-25% to the overall cost of freight to Asia. This situation is likely to change in the future, with at least two major ports in the US Gulf considering plans to accommodate VLCCs at their loading berths. In May 2017, an empty VLCC was successfully docked at the Corpus Christi export terminal. A few months later the port authority announced a dredging project for deepening the Corpus Christi ship channel to 54 feet, which in theory will allow the passage of a partloaded VLCC. Occidental Petroleum also plans to complete by late 2018 a project to install multiple loading arms at its Ingleside Energy Center facility at Corpus Christi to load VLCCs on a regular basis. The Louisiana Offshore Oil Port (LOOP) has a similar ambition, announcing in July 2017 that it is seeking shippers who would like to use its existing import terminal to export crude. The port’s authority states that the facility would require only minor modifications to ship oil bi-directionally and that the loading service could become available in early 2018”, said the shipbroker.

Gibson added that “although the eventual phase out of self-imposed production cuts in the Middle East is likely to affect the arbitrage negatively, the infrastructure improvements in the US to support direct VLCC loadings could help to offset that. Nonetheless, for US exports to continue to rise, the oil industry needs to see further robust gains in the US crude production. The country’s output is on track to increase by 0.4 million b/d this year but will production continue its rapid ascent in 2018 and beyond?”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “Chinese VLCC demand continued a-pace to close out October fixing upon an upbeat and upward footing, that is now spilling over into the fresh November programme too. Rates incrementally gained through the week to end in the low ws 70’s to the East and high ws 20’s to the West and if the momentum is maintained then further progress is possible. A slight counter to that is that older units remain in numbers and will continue to keep the bottom end of the range at a long arm’s length. Suezmaxes plodded onwards, but then saw a little more late week activity to steady rates at around ws 80 East and ws 37.5 to the West with reasonable premiums still payable for Iran loadings. Aframaxes remained broadly at last week’s improved 80,000mt by ws 120/125 levels to Singapore upon steady, sometimes stronger, demand and that should remain the case over the near term, at least”, the shipbroker concluded.

 

Tanker Market Improves in the month of September (14/10)

In September, tanker spot freight rates for dirty and clean vessels generally saw improved sentiment across all classes trading on various routes, said OPEC in its latest monthly report. The upward momentum varied, with VLCC rates remaining on average unchanged, while Suezmax and Aframax freight rates rose, supported by increased tonnage demand, tighter vessel availability and greater activity in the Mediterranean, as well as to some extent disruption in the vessel programme caused hurricanes in the US. In the dirty segment, VLCC rates were broadly unchanged, while Suezmax and Aframax spot freight rates increased by 6%, and 38%, respectively, over the previous month. Clean tanker freight rates showed positive developments in September, with those West of Suez increasing by 38%, while East of Suez rates rose by 16% from one month ago. Steady tonnage requirements, combined with occasional tightening vessel supply, supported product tanker freight rates on several trading routes

Spot fixtures
In September, OPEC spot fixtures rose by 0.8% from the previous month to average 11.94 mb/d, according to preliminary data. The increase came on the back of higher spot fixtures on the Middle East-to-East and Outside Middle East route which averaged 5.85 mb/d and 3.94 mb/d, respectively, in September. On the other hand, fixtures on the Middle East-to-West route were down by 0.27 mb/d in September to average 2.15 mb/d.

Sailings and arrivals
OPEC sailings inched down by 0.04 mb/d, or 0.2%, in September to stand at 23.96 mb/d. Middle East sailings increased marginally, rising by 0.04 mb/d over the previous month, to average 17.26 mb/d. Crude oil arrivals dropped in September at all ports. European, West Asian, North American and Far Eastern ports showed a drop of 0.4%, 0.8%, 0.9% and 2.5%, respectively, from the previous month.

VLCC
Among dirty tankers, the VLCC chartering market saw higher activity in September, mainly in the Middle East, where tonnage demand increased sharply at the beginning of the month from recent levels. Nevertheless, freight rate improvements were minor as tonnage availability remains, allowing charterers to maintain an upper hand in the market, despite owners’ constant resistance to low rates. These remained generally depressed in the absence of major delays or weather disruptions.

On average, VLCC spot freight rates rose only by WS1 point in September compared with a month before to stand at WS39 points. VLCC Middle East-to-East spot freight rates rose by 4% in September to stand at WS44 points. Similarly, spot freight rates registered for tankers trading on the West Africa-to-East route rose by 4% to average WS51 points, as the tanker market in West Africa followed the movement of the Middle East market. However, VLCC spot freight rates on the Middle East-to-West route showed a drop from one month before, primarily due to insufficient tonnage demand, falling by WS1 point to stand at WS23 points.

Suezmax
Suezmax spot freight rates showed slightly larger gains than in the VLCC sector, with a rise of 6% on average in September compared with the previous month, to stand at WS62 points. Suezmax freight rates increased on the back of sudden replacement, as the class was taken as an alternative to Aframax at the beginning of the month after Hurricane Harvey disrupted the vessel programme. Rates in the Atlantic increased further as Hurricane Irma approached, causing freight rates registered for tankers operating on the West Africa-to-US Gulf route to increase by 11% from the month before to WS68 points.

The Mediterranean market saw a relative increase in chartering activities, which limited growth in freight rates. Suezmax availability in several regions remained more than sufficient to keep rates depressed, consequentially spot freight rates on the Northwest Europe-to-US Gulf route ended the month almost flat to stand at WS56 points.

Aframax
Aframax spot freight rates showed the highest gains among vessel sizes in the dirty tanker sector, climbing on all reported routes and showing notable average gains from the previous month. Aframax spot rates in the Mediterranean rose as a result of higher activity. Spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes were the main contributors to average rate increases, as both routes reflected higher rates by 38% and 46%, respectively, from the previous month to stand at WS107 points and WS105 points. Aframax rates in the North Sea and the Baltic also increased, supported by delays caused by severe weather conditions.

In the Caribbean, rates rose as uncertainty concerning vessel schedules provided support to freight rates at certain points, however, rates later retreated while the market stabilised. On average, Caribbean-to-US East Coast (USEC) spot freight rates showed growth of 44%, standing at WS144 points compared with a month earlier. Aframax freight rates on the Indonesia-to-East route rose by 25% from the previous month, averaging WS105 points.

 

Tankers: Fast Reflexes Need to Survive in Today’s Market Conditions (13/10)

As has often been the case in the past, when the dry bulk market is experiencing good fortunes, tankers are suffering and vice versa. While this is mostly coincidental, it also serve as a testament that volatility in both sectors is more obvious in the past few years, than in the more distant past. In its latest weekly report, shipbroker Intermodal noted that “with the majority of second-hand tonnage transactions taking place in the dry bulk sector it’s easy to lose sight of what is happening over at the tanker side and for a good reason. Things have been mostly quiet for the last seven months with the exception of short periods of increased activity during the summer months”.

According to Intermodal’s SnP Broker, Mr. Timos Papadimitriou, “the tanker market has evolved into a market that requires fast reflexes. Cycles are becoming shorter, usually lasting 16 to 18 months, thus creating a sense of uncertainty as far as when to off load a respective asset or invest in tonnage. Taking into consideration that tankers assets are depreciated differently compared to bulkers and how oil majors can influence trends as far as buying, selling and contracting tonnage, it is very common to witness price irregularities on the transactions within the same time period”.

Papadimitriou said that “electric cars, MGO regulations, developing economies, clean and renewable energy policies and last but not least the “Paris climate Accord”, all play a part on the everlasting and ongoing discussion of what the influence on tanker demand and supply will be. If you add to the mix the BWTS regulations that will eventually start being implemented even after the latest extension, then making an educated guesstimate on how to position one’s self as an investor, demands nerves of steel and a strong stomach”.

He added that “despite all of the above there has been some appetite for tonnage. Buyers do emerge from time to time looking for tonnage built anytime; from late ‘90s crude units up to 4-3 year old MRs and LRs. Of course the demand for tankers is not anywhere close to that for dry bulk tonnage, but there is no shortage of investors willing to buy especially on the product side. The MR segment was rendered doomed a few years ago due to a rather large order book, but overall the segment has demonstrated impressive resilience despite the current dip on hire rates. Now the same concern is raised for crude ships and for the same reason. Again time will tell”.

Similarly, “regulations will have an effect on older tonnage where the cost of retrofitting the required equipment could defeat the purpose, eventually leading to the removal of ships from the water. Now considering that ordering has been in check for the last 2 years, the prospects of the next 2-4 years don’t look so bad especially for the younger tonnage. As far as the near future is concerned and as it has been more than a few months that the market has remained under pressure, the expectation that better days will soon come doesn’t appear very unrealistic. In fact the majority of market participants have been widely adopting the idea that signs of recovery will start being visible sooner rather than later”, Papadimitriou said.

He concluded his analysis by noting that “this provides sellers the appropriate confidence to resist lowering their ideas. Buyers on the other hand don’t feel that prices need to be a lot lower than where they are now. Overall at this stage buying tonnage does not seem as a bad move. After all investing in a slow market is never considered to be a hasty move”.

 

VLCC Tonnage Oversupply to Diminish in October says Shipbroker (10/10)

It seems that VLCC excess tonnage is gradually been absorbed, as the oil market is nearing the winter season in the northern hemisphere. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC demand was mixed this week with the Atlantic basin continuing to observe strong activity while the Middle East was slower on a slower progression into the final decade of the October loading program amid the China National Day Golden Week holiday. There were 24 fresh fixtures in the Middle East market, off 29% w/w, though net of COA‐covered cargoes the tally was off by a smaller 19%”.

“Meanwhile, combined West Africa and South Africa fixture tally was unchanged on the week with eight fixtures. The Atlantic Americas market yielded eight fixtures, or one more than last week. The sustained demand strength in the Atlantic basin augmented mounting positive rate pressure in the Middle East market by drawing away available units and allowing rates to react positively to the narrowing supply/demand situation. Indeed, as the market progresses towards the end of the October program, surplus Middle East supply has continued to decline. We project that October will conclude with 11 surplus units, or the fewest since the April program. This compares with 14 at the conclusion of October’s second decade and 29 units at September’s conclusion. On this basis, we believe that rates have further near‐term upside potential as our model suggests an AG‐FEAST TCE of around $28,750/day while the present TCE yield is ~$24,799/day. Stronger activity expected to materialize during the upcoming week in the Middle East will likely hasten gains”, said the shipbroker.

According to CR Weber, “further forward, we continue to upwardly revise our views for Q4 as prospects continue to appear. Among these, it was confirmed this week that Saudi Arabia would raise their OSPs for Asian buyers a third‐consecutive month during November, which should maintain positive demand momentum in the Atlantic basin by pushing some of Asia’s purchases to the region. Meanwhile, US crude exports continue to develop positively and are expected to combine with a further migrating of Venezuela’s exports towards Asia and away from points in North America”.

CR Weber went on to mention that “additionally, the market observed an extending of demand gains in the North Sea and Mediterranean markets. As these units generally comprise the list of natural positions for voyages from the Atlantic Americas, their onward trades from Europe suggest that Atlantic Americas loadings may need to source more units from the Middle East’s position lists in the coming weeks. These developments would dictate a further narrowing of the Middle East surplus. Meanwhile, any forward short supply of positions in the Americas would require the CBS‐SPORE route to strengthen as the economics of ballasting from Asia to the Americas will be insufficient to draw units against further AG‐FEAST TCE gains”.

Meanwhile, in the Middle East, “rates to the Far East gained 6.5 points to conclude at ws59 with corresponding TCEs rising 30% to ~$24,963/day. Rates to the USG via the Cape added three points to conclude at ws26. Triangulated Westbound trade earnings rose 3% to ~$26,683/day”. In the Atlantic Basin, “rates in the West Africa market were stronger, in‐line with the Middle East. The WAFR‐FEAST rose by 2 points to conclude at ws62 with corresponding TCEs adding 8% to a closing assessment of ~$26,148/day. Rates in the Caribbean market eased modestly as recent inbound tonnage from the Middle East saw the supply/demand positioning rebalance. The CBS‐SPORE rate initially declined from last week’s closing assessment of $4.0m lump sum to $3.8m before paring some of the losses to conclude at $3.85m. Sustained demand strength, however, is likely to lead to a fresh tightening of fundamentals in the coming weeks and fresh gains are expected to materialize on this basis as drawing tonnage from other regions will be more complicated amid rising VLCC rates in the Middle East”, CR Weber said.

Meanwhile, in the Suezmax tanker market, the shipbroker said that “the West Africa Suezmax market was softer this week on a scaling back of regional demand against fresh availability gains. An easing of delays in the Black Sea contributed further to sentiment, as did softening rates in the Caribbean market and slower demand in the Middle East – all reducing the specter of forward tonnage sourcing issues in the West Africa market. There were seven fresh fixtures this week, representing a 36% w/w decline. Rates on the WAFR‐UKC route shed 7.5 points to conclude at ws72.5. The Caribbean market was softer on an easing of Aframax rates which placed the Suezmax class at an even greater $/mt premium and brought Aframaxes into the fray as an alternative – even if only as an argument point for charterers. Demand levels were healthy irrespectively; eleven regional fixtures were reported, including six for USG crude exports and two for fuel oil exports. Rates on the CBS‐USG benchmark shed five points to conclude at 150 x ws72.5”, CR Weber concluded.

 

Tankers: Aframaxes could see demand boom in years to come (09/10)

Canada has long been heralded as one of the potentially major markets for oil trade, whether via pipelines or by sea. The Aframax market in particular could be set for a major boost in terms of employment in the coming years, should a major pipeline project come to fruition. In its latest weekly report, shipbroker Gibson said that “the Canadian government has long harboured the ambition to be able to export crude without the need to rely almost entirely on the US for distribution. Increasing US shale oil production lessens the need for Canadian barrels for US domestic consumption and therefore increases the need to diversify export solutions. Globally, Canada has the third highest proven oil reserves and is under greater pressure to sell more crude into the international market. However, the government in Ottawa continues to struggle against balancing environmental issues versus the need to stimulate economic growth, particularly in a low oil price environment”.

According to Gibson, “last November the Canadian government granted approval to the Kinder Morgan Trans Mountain Expansion Pipeline (TMP), a 1,150Km pipeline which will run parallel with the original built in 1953. The cost of the new pipeline is C$7.4 billion (US5.9 billion). The project will increase the capacity from 300,000 to 890,000 b/d by adding approx. 980km of new pipeline and reactivating of another 193Km of existing network. The pipeline will run from Edmonton (Alberta) to the Burnaby terminal (Vancouver) and will require the construction of 14 additional reception tanks. Pipeline approval follows a 29 month review by the National Energy Board, which placed 157 conditions on the project before it could proceed. According to Kinder Morgan, the project came about in response to requests from oil shippers to help them reach new markets by expanding the capacity of North America’s only pipeline with access to the West Coast”.

The London-based shipbroker added that “naturally any project of this nature will meet with objections. Earlier this month a judicial review was convened in Calgary to address any concerns from environmental groups and aboriginal people who have been granted two weeks to present their cases. There has been no indication as to when the judicial review will make their decision but the government has called the export of its natural resources a “fundamental” responsibility, and that it had considered many factors in approving the project, including environmental concerns. Given yesterday’s announcement that TransCanada Corp. has abandoned the Energy East pipeline amid mounting regulatory hurdles, the go ahead for the TMP project takes on even more significance for Canadian oil export ambitions. This latest setback comes less than a year after the government rejected the Enbridge Northern Gateway pipeline. Both viewed as major setbacks to the government’s aspirations”.

“However, in some ways the TMP pipeline stands a better chance on getting the go ahead because most of the construction will take place adjacent to the existing structure, with a clear plan to restore any disrupted areas back to their original state. According to the existing construction schedule, work on the pipeline was due to commence last month, with a completion date as early as December 2019. When fully operational, tanker traffic at the Burnaby’s Westridge terminal will increase nearly seven-fold to about 400 visits annually. Tankers must travel 80 nautical miles in the narrow waterway in order to reach the load terminal, which will restrict crude operations to Aframaxes. Should this project succeed, the Aframax market could be on the cusp of a major employment boost, albeit still a few years further down the pipeline”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “despite the Holidays, Chinese VLCC Charterers showed enough maintained interest to keep the market simmering with rates to the East topping ws 60 and levels to the West moving ahead of the mid ws 20’s barrier. That will give Owners hope that they may be able to squeeze a bit more in the usually busier end month fixing phase, but availability remains rather too easy to call for any noticeable spike and Charterers compliance is also not a given. Suezmaxes trudged sluggishly through the week and rates softened accordingly towards ws 75 East and ws 35 to the West with the trend looking likely to be maintained. Aframaxes turned a corner as the fixing pace picked up and rates headed towards 80,000mt by ws 120 to Singapore. There could yet be further gains before ballasters from the Far East potentially dilute”, the shipbroker concluded.

 

Tanker Market: Shifting Trade Patterns Here to Stay (07/10)

Tanker owners aren’t strangers to constantly shifting trade patterns. This seems to be the case this year as well, as industry insiders are noting. In its latest weekly report, shipbroker Allied Shipbroking said that “it seems as though the future of the oil trade was once again put into the spotlight, as the Asia Pacific Petroleum Conference took place last week in Singapore. Being arguably one of the industry’s largest gatherings of traders and oil executives, many were anticipating a highly optimistic environment to be seen in the different discussions, as crude oil prices reached their highest level in two years on the very opening day of the conference. Many would agree that crude oil demand is steaming ahead at a rate much higher then what we have seen during the past two years, while with all this fresh demand, the excess supply glut that has overshadowed the market seems to be gradually dealt with”.

According to Mr. George Lazaridis, Head of Market Research & Asset Valuations, with Allied Shipbroking, “there were however those that still voiced concern, as to the long-term prospects of the industry, given that OECD countries seem to have already gone through their peak demand levels, while focus is constantly put towards a move away from energy sourced by fossil fuels and higher efficiency in energy consumption”.

He added that “the main highlight however had more to do with the potential shifts in trade patterns, with the focus of the discussions being placed on the future of Chinese independent refineries. China has already taken center stage in the crude oil market, having overtaken the U.S. as the world’s top crude oil importer. Its importance has been continually highlighted by the support and boost its import volumes have given the freight market of crude oil tankers, while it still holds the largest potential source for growth in demand, still playing a catch-up game with the West in terms of oil consumption per capita. At the same time, private refineries in China, often referred to as “teapot refiners”, have performed well, with their production levels having gradually intensified and now account for around a quarter of China’s total refining capacity. This has been despite the intense competition from the state-owned behemoths and the great challenges they have faced in terms of infrastructure issues, intense oversight by the government and limitations in the granting of fuel export licenses. Most of these refineries operate in Shandong province and have relatively small refining capacity”, said Lazaridis.

According to Allied’s analyst, “this stellar performance has been the main driver in the renewed efforts being placed by private investors for a considerable expansion in the countries private refining capacity through the construction of a new generation of plants in Zhejiang and Liaoning provinces that will match in size some of the world’s largest refining facilities. One of these plants is being built on Zhoushan island in Zhejiang province and is expected to have a refining capacity of 20 million metric tons a year when it is completed next year, while the plan is to double this figure by 2020. This move would make it one of the biggest plants in the region matching facilities in Singapore, South Korea and India. Given that these new independent refineries would be well placed close to deep-water ports, they would attract considerable attention from a large number of oil producers and traders, likely boosting the VLCC Far Eastern trade. This gives, in theory, the crude oil carrier a new lease of life, promoting the trade of crude oil feedstock into China rather than refined oil products and petrochemicals. There is a catch however, as around the same time that these new independent oil refiners come online, other refineries from oil producing nations such as Saudi Arabia’s Jazan project, Malaysia’s Rapid and Brunei’s Hengyi are expected to start operating, adding to the intense competition these Chinese newcomers will have to face, along with the excess capacity the sector as a whole still has to deal with”, Lazaridis concluded.

 

Asia Dirty Tanker Market Outlook Q4 2017: A Fragile Recovery (06/10)

Asian crude tanker freight rates recently saw a rebound from the multi-year lows seen in Q3 2017. Both demand and supply side fundamentals point to an ongoing seasonal recovery in rates over Q4, which has some upside but remains capped by the overarching issues of excess tonnage and OPEC production cuts this year.

On the supply side, fleet growth has been concentrated in the larger tanker segments. Fleet growth for VLCCs and Suezmaxes reached around 5% and 7% respectively this year so far. While another 15 newbuild VLCCs and 19 newbuild Suezmaxes are scheduled for delivery in Q4, actual deliveries are likely to be lower due to slippage. As such, the pace of newbuild deliveries is expected to ease over Q4. Another silver lining lies in the accelerated pace of tanker demolitions since August due to weak earnings and high scrap values.

Continued elevated demolition activity will help to offset some of the upcoming newbuild deliveries, setting the stage for a market recovery. While the ongoing OPEC production cuts until March 2018 continue to loom in the background, a seasonal spike in winter demand as well as weather delays are expected to lend some support to crude tanker rates. Lower crude allocations cuts by Saudi Arabia in October (-350 kb/d) compared to September (-520 kb/d) as reported by Reuters will also boost cargo demand ex-AG. November-loading Middle East and regional crude premiums have been lifted by robust refinery margins in Asia, a backwardated market which raises demand for shorterhaul cargoes as well as the wide Brent-Dubai spread. Average complex refinery margins in Asia for September were 34% higher than that of January to August this year. Firm demand for regional grades is expected to benefit the Aframax segment in particular, which saw a recent bounce in rates in September.

The wide Brent-Dubai spread has rendered WAF and North Sea crudes less attractive to Asian end-users, with WAF cargoes from the October loading program left untraded as reported by Reuters. Reduced November loading programs from both Nigeria and Angola are expected to further lower WAF exports to Asia in Q4, weighing on VLCC ton-mile demand. However, this may be offset by continued interest to move crude from the USGC/Caribs to the East as long as the WTI-Brent spread remains above US$5/bbl. As recently seen, firm demand for VLCCs loading in the Caribs drew ballasters from the AG region, tightening the position list (especially for modern units) and underpinning the current rally in rates.

 

Tanker Market: A new factor for oil exports due to Kurdistan’s Independence Vote (02/10)

Politics could soon take the reign in the Gulf’s crude tanker market, as a result of the Kurdish vote for independence. In its latest report, shipbroker Gibson said that “this week’s non-binding independence vote in Iraqi Kurdistan may do little to change the semiautonomous region’s crude output in the short term. However, the Kurdistan Regional Government’s (KRG) ambition to use the vote as a negotiating tool may have wider ramifications going forwards. Oil is a critical source of funding for the KRG, yet the KRG relies on exports via pipeline to Ceyhan in Turkey to get their oil to market. Likewise, these export flows are an important source of demand for the crude tanker market, most notably impacting the Suezmax and Aframax segments. Kurdish exports via Ceyhan averaged near 500,000 b/d in Q3 2017, underlining the significance for tanker demand. However, politics now threaten that source of income for the KRG, and with that, the prospects for the Mediterranean tanker market”, the shipbroker said.

According to Gibson, “despite the vote being non-binding, and the KRG suggesting it will not declare independence until negotiations have taken place with Iraq’s central government, this development has clearly concerned neighbouring governments, which have their own Kurdish populations, primarily Turkey and Iran. Iran may well have less leverage over the KRG but Turkey has threatened to cut off its access to the international oil markets, the primary source of funding for the KRG. Oil prices have reacted to this threat, with Brent trading near 26 month highs, as any disruption to Kurdish exports, would coincide with an already tightening oil market. The KRG has few alternative routes to the sea. No route via Iran or Syria exists or would be viable. Furthermore, any exports via the South would effectively relinquish control of exports to the central government in Baghdad”.

“However, Baghdad may have little direct power itself. The KRG has been key to the fight against ISIS and remains a critical ally, whilst Kurdish forces control the necessary oil installations. The central government could however increase its efforts to seek the arrest of vessels carrying Kurdish crude in an effort to make Kurdish exports more problematic. Yet, fundamentally it is the Turkish Government who holds the physical power to halt oil shipments and disrupt the tanker market”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Charterers kept the fixing pace up, spurred in the main by the upcoming long holidays in the Far East and that allowed Owners to continue to build upon the platform created last week to push rates up by as much as another 10 Worldscale points to the East. Availability remains relatively easy, however, and further gains look unlikely over the coming week. Ws 55 to the East now, with rates West remaining in the low ws 20’s. Suezmaxes started to bubble and did push the rate lid a little higher to ws 80 to the East and into the low ws 40’s West before slowing by the week’s end and then settling a fraction. Aframaxes in the Far East that had recently spiked, fell back as Appec events disrupted and holidays approached. This also dampened sentiment in a rather slow AGulf and rates dipped towards ws 110 to Singapore accordingly”.

The shipbroker added that in the Mediterranean, “down, down, and then up a bit for Aframaxes. As rates hit relative bargain territory, Charterers began to shop more meaningfully and levels are upon a gentle rise once again. Currently 80,000mt by ws 100 X-Med, but with better numbers anticipated soon. Suezmaxes trod water through the week, but eventually early lists were reasonably trimmed and the mood enhanced by West African improvements also. Rates tick a little higher to 140,000mt by ws 82.5 from the Black Sea to European destinations with around $2.9 million available for runs to China”, the shipbroker concluded.

 

Offshore Market Could Benefit from Improved Oil Market Sentiment (30/09)

Owners of vessels or offshore platforms servicing the oil and gas offshore industry have had to endure a rough ride, as a result of the plunge of oil prices. In its latest weekly report, shipbroker Intermodal said that “as we had mentioned in previous insights, everyone expected 2017 to be a way more positive year for the offshore industry compared the last three years and in particular the challenging period that kicked off sometime during the summer of 2014 and resulted in a full-on crisis for the global offshore oil and gas exploration industry as well as for the entire production chain from the oil rigs to the offshore units”.

According to Intermodal’s, Mr. Panos Makrinos, Offshore Director, “there were indeed some very positive reports in the beginning of the year that were mainly based in the positive movement of oil prices in the period December 2016 – February 2017 together with the OPEC deal to cap production from 33.8 million barrels per day to 32.5 million. Instead we saw crude prices remaining under pressure from February until June and even going as below as US$ 46.17 per barrel. There were three basic reasons behind this negative pressure during the first half of the year. First and maybe most important was the continuous increase of US shale production, which has moved up impressively since 2015 and is expected to go up by 9.2 million barrels/day in 2017 and possibly approach 10.0 million barrels/day next year according to current estimates. In addition to that, a strong US dollar during 2016 and the first months of 2017 also kept crude prices at levels lower than expected and even when the market seemed more positive, the range prices kept moving in remained fairly tight.

Makrinos added that “the third reason that didn’t allow for higher oil prices during the first half of the year was the fact that even though the production cap was set by big producers, the stock that was already produced was still supporting high exports, leaving the market oversupplied anyway, as the cap was not set on exports but only on production. This meant that although OPEC’s policy was promising given that its members would comply, it would still take a while before the actual effects were visible on oil prices”.

Intermodal’s Offshore Director continued his analysis by saying that “focusing on today, we are finally seeing a more balanced market and improved oil prices, with Brent surpassing $59/barrel yesterday. This has substantially affected market sentiment in a very positive way, with investors once again showing appetite and even though the early summer pressure in prices did postpone some of the projects announced earlier in the year, we believe that the admittedly improved market today will allow for the fruition of these plus new projects sooner rather than later. After all, despite any oil price volatility, 2017 is way better than 2016 and proof of that is the number of cold stacked vessels, which is much lower today compared to what it was during the past years. Indeed a lot of OSV units resumed operations for long term projects during the past months, while some owners have also managed to find other – non-typical – employment for these vessels”.

“Finally, as far as fleet development for OSV vessels is concerned, sizeable slippage has resulted in a number of 2017 scheduled deliveries not taking place after all, fact that definitely helps with the tonnage supply issue, even though as far as scrapping is concerned, we haven’t seen so far the volumes of activity we initially expected to see”, Makrinos concluded.

 

Tanker Rates: WS100 will rise substantially in 2018 As High Sulphur Bunker Prices Increase (25/09)

The World Scale system, which serves as a benchmark for the tanker freight market is bound for another annual shake up. In its latest weekly report, shipbroker Gibson said that “over the past couple of years the tanker industry has witnessed major fluctuations in Worldscale flat rates. On long haul voyages, flat rates declined by around 20% at the start of 2017, following an even bigger drop in 2016. As bunkers form a significant component of all voyage costs, the changes in flat rates are underpinned by the volatility in oil and bunker prices”.

According to the London-based shipbroker, “the initial surge in US shale production, coupled with the decision taken by OPEC to defend its market share by abandoning production quotas, saw high sulphur bunker prices collapse by over $250/tonne in the 2nd half of 2014. A relative period of stability was seen in the 1st half of 2015; with bunker values fluctuating around $350/tonne. However, another drop was witnessed thereafter, with international prices falling as low as $170/tonne in January 2016. Such a dramatic collapse triggered a decline in US crude production and translated into a large scale reduction in the capital expenditure of international oil companies for the development of new fields. Over the course of 2016, oil and bunker prices moved gradually to higher levels. Furthermore, in late 2016 the agreement announced between OPEC and a number of non-OPEC producers to cut output by around 1.8 million b/d offered additional support to prices, which firmed to around $345/tonne in January this year, the highest level in two years. Yet, some of these gains were lost as the year progressed amid persistently high stocks, the rebound in the US shale sector and recovering Nigerian and Libyan production. Since March 2017, bunker prices have been generally fluctuating within a narrow range of around $315/tonne”.

Gibson added that “now the question is how these latest developments will affect WS flat rates in 2018? To understand the impact, it is important to bear in mind that the bunker element that goes into the flat rate formula is based on average prices between October and September the following year; therefore, we already have almost all the data that will go into the 2018 calculations. Since October 2016 international high sulphur bunker prices have averaged over 40% higher than average prices between October 2015 and September 2016. This suggests that WS100 will rise substantially in 2018 to compensate for these higher costs. On long haul routes, where bunkers are by far the most significant component of all voyage expenses, flat rates are anticipated to increase between 19% to 21%, depending on the distance”.

The shipbroker noted that “the picture is somewhat different for short haul voyages. The shorter the distance, the less important the volatility in oil and bunker prices is; equally, this also means increased significance of changes in exchange rates and port costs. In general, nominal rates on short haul routes are expected to increase by around 10% – 15%, with changes in Worldscale flat rates on very short trades being even smaller”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “baby steps perhaps, but reasonable VLCC volumes were sustained through the week and that encouraged Owners to try a little harder to raise the market off its recent death-bed. Eventually they enjoyed some success and rates to the East inflated slightly to ws 45, but with rare runs to the West still holding in the low ws 20’s. Their hope will be for continued steady attention and further opportunity to then develop. Suezmaxes held their ground, but it’s still a low level scene with rates to East at no more than ws 70 with movements to the West again in the high ws 20’s and little material change forecast over the near term. Aframaxes ratcheted up the expected improvement towards 80,000mt by ws 115 to Singapore upon steady local enquiry, but more effectively by a relatively rampant short haul market in the inter Far East….to be continued”, the shipbroker concluded.

 

VLCC Tanker Freight Rates Revised Upwards By Shipbroker Charles R. Weber (19/09)

Tanker market specialist, shipbroker Charles R. Weber expectes tanker rates to gradually improve in the medium term and up until the end of the year. In its latest weekly report, the shipbroker said that “rates in the Caribbean VLCC market have experienced strong gains since early August on the back of a decline in USG arrivals and a strengthening outbound cargo demand, including a 42% rise in average weekly ex‐USG cargoes since Q1. The benchmark CBS‐SPORE route has risen by 48% to $4.00m lump sum, even as rates on all other routes have been under strong negative pressure”.

According to CR Weber, “though the Caribbean market’s rate gains have failed to stop a decline in average earnings – which at just ~$10,994/day stand below OPEX levels – the situation presents an interesting development for the VLCC market and represents a positive indicator for performance during Q4. Amid the shortfall in regional positions, nine spot‐oriented VLCCs have opted to ballast towards the region from Asia; two of these were fixed for Caribbean market cargoes while they remained available for Middle East cargoes while the remainder were subsequently undertaken speculatively based on potentially better TCE earnings”.

Indeed, “even when adding the 24 more ballast days Asian ballasters require to reach the Caribbean relative to the Middle East market, such trades can offer a TCE as high as ~$25,888/day, assuming a subsequent ballast back to the Middle East (at a time when seasonal factors typically dictate a better trading environment)”, CR Weber noted.

It added that “east market by an equal number. We currently estimate that there are 29 surplus positions for Middle East cargoes loading up to the end of September – the highest since June 2014. A surplus of 38 units would have represented the loftiest surplus since August 2012, when AG‐FEAST TCEs averaged just ~$5,069/day, or 38% below present levels. Thus, the immediate impact of these ballasters in terms of cushioning market lows is evident”.

CR Weber then said that “more importantly, however, is the forward impact on supply/demand dynamics during Q4. With fleet efficiency declining on the back of this trend and the units engaged in ex‐CBS trades removed from position lists for longer periods, availability replenishment in the Middle East should decline during the coming weeks – just as the market progresses into a traditionally stronger quarter. The extent to which the present trend will prevail is uncertain, but it appears likely to remain for at least the near‐term. Aiding this, five VLCC cargoes were fixed in the North Sea this week, representing a high number of draws on North Sea arrivals which typically are otherwise drawn to the Caribbean for subsequent trades. Tempering the positive impact from the Asia‐Caribbean ballast trend, we note that the net number of units engaged in floating storage has declined by 14 units since mid‐August (many already being reflected in availability levels), likely due to a recent uptick in crude prices. We had previously envisioned such a return to take place during early/mid‐Q4, rather than during Q3”.

“In forecasting average VLCC earnings during Q4, we balance the earlier return of floating storage units, which has prompted us to downwardly revise our earnings expectations for the start of the quarter, against the Asia‐Caribbean ballast trend, which has prompted us to upwardly revise our expectations from mid/late October onwards. Accordingly, we presently envision average earnings during Q4 of $25,750/day, as compared with a month‐ago projection of $24,750/day”, CR Weber concluded.

Meanwhile, in the VLCC tanker market this week, CR Weber noted that “any positive pressure on rates that had accompanied last week’s strong surge in Middle East demand evaporated this week as the September program in that region appears to be near an abrupt end and overall demand was light as charterers were yet to commence coverage of the October program in earnest. This week’s tally of Middle East fixtures was slashed down 64% w/w to just 15 fixtures. Some cushioning on the negative impact on rates came, however, from sustained elevated demand in the Atlantic basin. The West Africa market observed seven fixtures, off by one from last week while demand in the North Sea market was at elevated levels with five fixtures reported there. The North Sea fixtures drew from positions, which would otherwise have ballasted to the Caribbean basin, helping to extend the directional tightening of fundamentals in that region which has already been drawing strongly”, the shipbroker concluded.

 

Aframax Tankers and VLCCs Benefiting from North Sea Oil Projects (18/09)

Owners of VLCCs and Aframaxes are benefiting from the revitalising of North Sea oil projects. In its latest weekly report, shipbroker Gibson said that “OPEC led production cuts have, at times, increased the appeal of North Sea grades to Asian consumers. Simultaneously, signs are beginning to emerge that the sector has put the worst of 2014’s oil price crash behind it and is proving more resilient in a new lower price environment. Due to the regions ageing infrastructure, high costs and declining production, some analysts have cast doubts over the long-term future of the North Sea”.

However, as Gibson noted, “the embattled region has adapted to lower oil prices and over the next few years, looks set to post increasing production numbers. New projects expected to come online within the next two years have the potential to add 1.2 million barrels/day of production, helping to offset declining output throughout the region. One of the largest projects undertaken, by Statoil, will begin producing 440,000 b/d in 2019 rising to 660,000 b/d by 2022. And in an example of reinvigorating older fields, BP has announced its Quad 204 project which aims to add 130,000 b/d of production alongside an expansion to their Clair Ridge field. These two projects are geared towards helping the company achieve its goal of doubling their UK production to above 200,000 b/d by 2020. Executives from both BP and Shell have recently expressed confidence in the future of the North Sea as both companies have worked hard to reduce costs, and in some instances sold off assets in the region. Shell has identified areas such as the Penguin cluster north of the Shetlands which could be given the green light for expansion along with several other areas over the next 18 months. One of the main reasons for a revitalisation in production has been the regions ability to cut costs in the face of declining oil prices. BP’s regional president for the North Sea recently stated their cost of production had fallen to $16-$17 per barrel from $30 in 2014. This is in line with estimates provided by MOL Group, an integrated oil and gas company, stating that on average the regions cost of production is $15 per barrel”.

The shipbroker added that “mergers and acquisitions have been on the increase in the region with Wood Mackenzie indicating that up to $15billion has been invested by international equity funds. In the first half of 2017, $6 billion worth of deals have been concluded, including Shell’s decision to sell around half of its UK production to a US based equity fund. And in a sign of further confidence in the region, Total’s recent deal to buy Maersk Oil, including North Sea assets, highlights that it is not only private equity funds with a taste for the North Sea, but oil majors too. Despite oil majors and private equity funds showing commitment and investing heavily in the region, doubts still remain over the long-term sustainability of production in the region. Research by Oil & Gas UK has highlighted that without sustained investment, as many as 80 fields could be shut by 2022. So far in 2017 only one new project has been sanctioned in addition to only one project in 2016. However, enough investment seems to have been placed to sustain and increase output over the next few years, providing an important source of Aframax demand in the region, and for long haul VLCC shipments to Asia”, Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “the dearth of VLCC enquiry over the week would normally impact on sentiment here, but as it stands Owners have had very little encouragement for some time and levels are already at rock bottom. Even with increases in bunker costs further hitting Owners returns there continues to be no escape route for Owners to go down and find some optimistic ray of light to hold on to. The over-abundance of tonnage will ensure levels for the foreseeable future will remain flat. Currently levels to the East are around 270,000mt x ws 40 for modern and voyages West hold at 280,000mt in the high teens. A fairly uneventful week for the Suezmax market. Even with the release of a busy first decade October Basrah programme rates have still remained static at 140,000mt by ws 27.5 for European destinations. Owners have had more success in improving rates for long voyages Eastbound with 130,000mt by ws 78.5 to Australia being achieved. AG/East Aframax rates have firmed throughout the week off the back of vastly improved Mediterranean and Far Eastern markets. AG/East has been fixed at ws 92.50, but with outstanding enquiry going into Monday, expect Owners to push for more next week”, the shipbroker concluded.

 

Tanker Market Weakened in August (15/09)

Dirty tanker market sentiment weakened in August, as average spot freight rates declined on most reported routes. On average, dirty tanker freight rates were down by 4% from the month before. Earnings for dirty tankers reached the lowest level seen since the beginning of the year. Among other factors, the drop in dirty spot freight rates was influenced by high vessel availability, as new deliveries were reportedly added to the fleet, putting pressure on the already oversupplied tonnage market. Average clean tanker spot freight rates also developed negatively in August despite enhanced rates registered in East of Suez. In the West of Suez, Medium-range (MR) tanker freight rates almost doubled in the US following Hurricane Harvey. However, the gains were shortly lived as the market found its balance. Average MR tanker freight rates declined on all reported routes in the West with no exception. Generally, the clean tanker market was quiet in August, showing no significant demand.

Spot fixtures
Global fixtures rose by 1.1% in August, compared with the previous month. OPEC spot fixtures declined by 0.37 mb/d, or 3%, averaging 11.86 mb/d, according to preliminary data. The drop in fixtures was registered mainly in the East. Fixtures on Middle East-to-East destinations were lower, as were fixtures outside of the Middle East, which averaged 3.87 mb/d in August, down by 0.19 mb/d from one month earlier. Compared with the same period a year earlier, all fixtures were higher in August.

Sailings and arrivals
Preliminary data showed that OPEC sailings declined by 0.5% in August, averaging 24 mb/d, though remaining 0.32 mb/d, or 1.4%, higher than the same month a year before.
Arrivals in Europe were up from the previous month, while in the Far East, West Asia and North America, arrivals declined by 0.01 mb/d, 0.04 mb/d and 0.43 mb/d, respectively, to average 8.82 mb/d, 4.64 mb/d and 9.77 mb/d.

VLCC
Following the typical trend in the summer months, VLCCs lacked tonnage demand in general, which prolonged the tonnage list and thus kept spot freight rates under constant pressure as they had been in previous months. VLCC spot fright rates were softer in August on several routes as competition between ship owners put further pressure on rates and prevented them from achieving any gains, even during days of relatively enhanced activity. In August, VLCC daily earnings dropped to the lowest level this year so far and low freight rates discouraged ship owners from getting involved in longer-haul voyages. Thus, VLCC freight rates on key trading routes Middle East-to-East and Middle East-to-West fell, with spot freight rates decreasing by 18% and 6%, respectively, from the previous month to stand at WS42 and WS24 points. Similarly, spot freight rates on the West Africa-to-East route declined by 10% to average WS49 points.

Suezmax
Suezmax was the only class in the dirty tanker segment which showed a rate increase from the previous month as a result of higher volumes of fixtures to eastern destinations, which led to tighter ship availability. Suezmax freight rates saw minor gains on average in August, despite new deliveries adding to the already oversupplied tonnage market. Freight rates for tankers operating on the West Africa-to-USGC route remained unchanged from the previous month to average WS61 points. Similarly in the West, freight rates on the Northwest Europe (NWE)-to-USGC route stood at WS55 points.

Aframax
Aframax spot freight rates declined across all reported routes in August, suffering from the same general negative trend dominating the tanker market during the summer months when markets in several regions remained depressed despite weather delays and some replacements and the market remained under the influence of slow activity and a prolonged tonnage list. As a result, freight rates for tankers trading on both the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes declined by 7% each to stand at WS78 and WS72 points in August, respectively, compared with the previous month.

The Aframax market in the Caribbean was generally quiet and lacking cargoes, as was seen with other routes. Average Aframax freight rates dropped in August, despite an increase in rates which were driven by operation disruption following the Harvey Hurricane in the US. Average monthly freight rates for tankers operating on the Caribbean-to-US East Coast (USEC) route rose by 10% over the previous month to average WS100 points. In contrast, average freight rates for tankers trading on the Indonesia-to-East route dropped by 3% to average WS84 points.

 

VLCC market to stay low for the time being says shipbroker (12/09)

This past week’s surge in VLCC demand is thought to be a short-term fix for tanker owners, as rates are predicted to face renewed pressure in the weeks to come and at least until the start of the fourth quarter of the year, when shipbrokers expect to get a sense of the next directional shift of the market.

In its latest weekly report, shipbroker Charles R. Weber said that “the VLCC market observed a strong surge in demand this week, led by China‐bound voyages being fixed from all loading areas at a two‐year high which saw total demand in the Middle East market rise to its most active pace in six‐months. The influx of demand led to stronger sentiment that saw modest rate gains materialize— initially. As the week progressed, COAs had accounted for a large percentage of covered cargoes and those which weren’t were met with a long list of offers, prompting some rate giveback towards the close of the week. Overall, the Middle East market observed 39 cargoes, a 63% w/w gain, of which COAs accounted for 13, or a third of the total. In the West Africa market, there were six fresh fixtures, or one fewer than last week’s tally. China‐bound voyages stood at 24, which compares with a YTD average of 13.5 per week, though directional implications are tempered by the fact that the four‐week moving average is on par with the YTD average at 14. Vessel supply remains the main challenge for the market, with the end‐September Middle East surplus estimated at 24 units, which is unchanged from a month ago. Lagging sentiment, however, has seen TCEs remain in a directional decline despite the unchanged surplus with the present AG‐FEAST TCE average of ~$9,174/day comparing with an August average of ~$11,506/day”, the shipbroker said.

According to CR Weber, “we expect that Middle East demand will inch up during October as reports indicate that Saudi Arabia will cut allocations by 350,000 b/d, a lower cut than the approximately 250,000 b/d estimated during September (cuts under the OPEC agreement were for 486,000 b/d relative to an October ’16 baseline). This should help to support a progression into seasonal strength by increasing cargo availability, assuming that other regional producers make similar moves. Meanwhile, Saudi and other key regional OSPs for Asian buyers have been raised while being cut for US Crude Stocks (EIA) European buyers. This should incentivize a migrating of some Asian interest to the West Africa market, which will increase competition for the same pool of eastern ballast units which make up the Middle East position list – just as the Caribbean market has recently accounted for a number of eastern ballast units. Further forward, any associated increase in West Africa VLCC coverage bodes well for VLCC supply/demand fundamentals by consuming vessels for longer periods and thus reducing availability later during Q4. Thus, while we expect that VLCC rates will remain under modest negative pressure in the near‐term as charterers work through the remainder of the September Middle East program, directional strength will likely become apparent by the start of Q4 and remain through the remainder of the year”, the shipbroker noted.

In the Middle East, rates to the Far East gained three points to conclude at ws40 with corresponding TCEs rising by 13% to ~$9,174/day. Rates to the USG via the cape shed 0.5 point to conclude at ws21. Triangulated Westbound trade earnings eased 6% to ~$20,301/day. In the Atlantic Basin, CR Weber said that “rates in the West Africa market were stronger on the sustained tight Atlantic basin supply and as participants were resistant to long‐haul trades with earnings only just above OPEX and ahead of the traditionally stronger Q4 market. The WAFR‐FEAST route gained 4.5 points accordingly to conclude at ws50. Corresponding TCEs rose by 16% to conclude at ~$16,752/day. Finally, in the Caribbean market, having eased last week on rising inbound ballasters from Asia, rates were stronger this week after that flow abated and a replacement cargo was fixed at a premium. The CBS‐SPORE route concluded with a $50k gain to $3.5m lump sum, having declined to the $3.35m level earlier during the week”, the shipbroker concluded.

 

Tankers: Harvey Impact a Mixed Bag (09/09)

The tanker market is faced with the impact in trade flows of the latest Hurricane season’s effect. In its latest weekly report, shipbroker Intermodal said that “the impact of Hurricane Harvey, which made landfall on 25th of August in South East coastline of Texas area has been the major concern of the shipping world –and not only- during the last weeks. The phenomenon has certainly been the barometer of the MR product tanker market within the Atlantic basin and likely to affect movements in further parts of the world”.

According to Intermodal’s Stelios Kollintzas, Specialized Products, “although freight rates significantly increased on the back of the tropical storm, by Friday 1st Sept, when ports started to partly operate again, rates had leveled off but were still very satisfying. As is so often the case with market dynamics owners dedicated in the edible oil markets wait to get advantage of the developing situation”.

The shipbroker said that “it looks like the end of the summer months and the hurricane have brought a much needed awakening in the S. American veg oil business. The last weeks we have seen the September enquiries being covered and cargoes already out for October dates. As long as the Atlantic CPP market remains firm, Owners will try to push freight rates for veg oil exports from S. America upwards. There are already more and more ships ballasting north–and as a result shortening the supply of available vegetable oil candidates. The going market rate to India for 40,000MT shipments basis 1 load / 2 discharge ports is USD low 40 pmt basis 35,000mtons”.

Kollintzas added that “it looks like the long-haul MR Palm oil market is reviving and Owners have adopted a bullish position. Following a very lively August, September is following the same pace and charterers are now trying to cover their forward enquiries early. This is to say that the FOSFA MR available tonnage for September is scarce, while charterers are already looking ahead to book for October. The T/C Trip benchmark with delivery at charterers’ preferred load port and redelivery in the Med-Cont-USA is $15,000/day. However, we dare to say that this number is likely to increase a lot further if current activity is sustained, as there are already rumors for significantly higher numbers being negotiated at the time of this writing”, he noted.

Meanwhile, “the regional palm oil market has certainly sustained healthy activity with India leading the way in imported volume and China gradually increasing its demand ahead of the golden week holidays, although freight rates have so far failed to move accordingly. Surprisingly, this is against the fact that India has increased the taxes on import of crude palm oil (15% up) and refined palm oil ( 25% up) from Indonesia and Malaysia. If a call has to be made on the last quarter of the year, it would be fair to say that if current positivity on the edible oil market and the rush in the Atlantic does not cool-off, owners will be on track for a better end to the year”, Kollintzas concluded.

On a similar note on the tanker market, Intermodal said that the crude carriers market continues to display a mixed picture, with gains in some routes lifting spirits a bit though last week. In the newbuilding market, “the last week of the summer season witnessed healthy contracting, with numerous orders in both the dry bulk and tanker sector, and while the 11 firm Kamsarmaxes ordered recently are in line with the strong momentum the dry bulk market has been enjoying, Hyundai Merchant Marine’s VLCC order is more notable given that it has been more than a month and a half that we hadn’t seen an order in this size. The much weaker earnings big tankers have been witnessing in the past months have certainly affected ordering appetite among tanker owners, while the fact that second-hand prices in the sector have not corrected accordingly, shows that there is a lot of resistance and – most probably – expectations of a far better “school year” ahead, which seems to be what keeps ordering interest alive together of course with the –still relatively – low newbuilding prices. In terms of recently reported deals, S. Korean owner, Hyundai Merchant Marine, placed an order for five firm and five optional VLCCs (318,000 dwt) at DSME, in S. Korea for a price in the region of $83.5m each and delivery set in 2019”, the shipbroker concluded.

 

A new market for VLCC Tankers Springs to Life (05/09)

Although positive news in the tanker market are hard to come by, in the face of acute oversupply, things can always improve. In its latest weekly report, shipbroker Gibson noted that “at the start of August, Kuwait dispatched the first shipment of crude to the recently completed 200,000 b/d refinery at Nghi Song, Vietnam. Located 200 kilometres south of Hanoi, the new refinery and petrochemical plant received its first 270,000 tonne cargo discharged through an SBM pipeline from the VLCC Millennium which arrived on 22nd August. Construction of this new plant commenced in July 2013 at a cost of $9.2 billion with the intention of importing 10 million tonnes of Kuwaiti crude annually”.

According to the shipbroker, “the plant, a joint venture between Kuwait Petroleum International (KPI), Idemitsu Kosan and PetroVietnam will produce LPG, gasoline, diesel, benzene, kerosene and jet fuel mainly for domestic consumption and will account for approximately 40 percent of Vietnam’s demand starting distribution in 2018. Currently Vietnam’s first refinery, Dung Quat which commenced operation in February 2009, meets only 30 percent of the country’s product demand”.

“Vietnam is considered to be a key area for crude oil demand growth as domestic production from offshore fields is stalling. Thompson Reuters reported that Vietnam’s production peaked in the early 2000s at around 400,000 b/d but has since suffered for several reasons including disputed ownership of several offshore blocks in the South China Sea. Many of these offshore fields are small deepwater blocks which in the current oil price environment are too costly to justify production. However, Vietnam’s domestic demand continues to grow as the population increases, over 90 million people and 6 percent annual economic growth will stimulate demand both for crude and products. As a consequence, Vietnam will have need to import increasing quantities of crude to sustain the population’s demand and maintain economic growth. A second cargo loaded in Kuwait on the VL Prosperity left on 12th August destined for Nghi Song and is presently off the Vietnamese coast. Thompson Reuters reported that a third VLCC was scheduled for an August loading and that a similar programme for September was envisaged”, Gibson said.

The London-based shipbroker added that “in the great scheme of things, Vietnamese imports are insignificant compared with Asia’s top importers China and India. While these cargoes will send Vietnam’s crude imports soaring to record highs, it has to be remembered that they are starting from a low base to begin with. These additional barrels will soak up more VLCC tonnage on an additional route for a sector presently under pressure to absorb fleet supply. However, it remains to be seen what impact the new refinery will have on product imports into the region”.

Meanwhile, in the crude market this past week, in the Middle East, Gibson said that “we could have just cut and pasted last week’s VLCC report. We are likely to be saying the same next week as well, as rates range bound at ws 36 to the East. Suezmax tonnage has also seen moderate activity, but supply continues to outstrip demand and rates have softened to ws 67.5 East and remain sub ws 30 West. We do expect to see further tonnage ballasting to the West. Aframax Owners were not able to improve on last week’s levels and with tonnage building rates have slightly slipped to 80,000mt by ws 90 to Singapore”, the shipbroker concluded.

 

Tanker Market: Excess tonnage supply hurting tanker owners (01/09)

Tanker owners left and right have been conceding this week, that it’s not demand, but an oversupply of ships, which have been hurting their earnings. According to Frontline, “the growth in crude tanker tonne-mile demand suggests that the current tanker market is not suffering from weak demand growth, but rather from excess supply growth which has occurred over the last 18 months. Despite current market weakness which is forecast to continue in the near-term, the Company continues to believe that the market will begin to improve in 2018 as the pace of deliveries of newbuilding vessels slows and vessels are retired from the global fleet. There are nearly 110 VLCCs built in 2000 or earlier that continue to operate. This is roughly equal to the current VLCC order book. At some point in time these older vessels will permanently exit the fleet. We believe that increased scrapping is inevitable in the near term, driven by the weak spot market and the increased scrap value of tankers, which is up by approximately 50 percent year on year”, Frontline noted.

In its market outlook, Cosco Shipping said that “in terms of oil shipping demand, the overall demand for global crude oil shipping maintains a stable uptrend during the first half of 2017. Asian Pacific countries such as China and India demonstrated a stable growth in crude oil imports. Factors such as reduced production by members of the Organization of Petroleum Exporting Countries (“OPEC”) and increased crude oil exports in USA have both contributed to the increment in global crude oil shipping distance. During the same period, global shipping demand of finished oil also increased with sustained growth, mainly due to the strong import demand in Latin America and Asia, yet the increment is slightly slower than the corresponding period of last year”, Cosco Shipping said.

The Chinese conglomerate added that “in terms of the supply of shipping capacity, according to the latest information released by a research institute, shipping capacities of various types of tankers followed last year ’s trend and continued to expand during the first half of 2017, except for the Panamax, reflecting the pace of new vessels commencing operation is still ahead of vessel scrapping. In terms of shipping price, the fast growth of foreign oil trade shipping capacities in the first half of 2017 led to a general decrease in shipping prices of various types of vessels as compared to the corresponding period of last year.
According to the market benchmark, World Scale (“WS”) average index of very large crude carrier (“VLCC”) for the Middle East/ Japan shipping route is 63, representing a decrease of approximately 25% as compared to the corresponding period of last year (after including a basic fee discount, same for the statistics below). Shipping prices of other small to medium crude oil vessels also decreased (at different rates) as compared to the corresponding period of last year. The finished oil market also demonstrated weak performance, WS points of finished oil LR2 and LR1 vessels dropped approximately 20% as compared to the corresponding period of last year”, the ship owner concluded.

 

Higher Refinery Outages Plague Product Tanker Market (28/08)

In what has been a turbulent year for the product tanker market, it seems that 2017 has seen a notable increase in unplanned refinery outages, which has naturally had an impact on the product tanker market. In its latest weekly report, shipbroker Gibson said that “whilst consistent data is hard to come by, it certainly seems like unplanned outages are higher than in previous years. We presume this is due to a number of factors. Firstly, margins have been generally strong since the oil price crash in 2014, even in regions such as Europe with it’s ageing infrastructure. These strong margins prompted many refiners to delay or minimise maintenance, whilst also increasing run rates. We suspect that a reduced maintenance programme is one of the reasons why we are seeing an increase in unplanned outages, particularly in Europe and the US”.

Gibson said that “whether or not this has been positive for product tankers depends on the position of the vessel and the timing. If we take the outage at Shell’s 404,000 b/d Pernis plant as an example, this was of little benefit to clean tankers already on the Continent. However, it was of almost immediate benefit to larger product tankers in the Middle East Gulf which were already firming in line with seasonal trends. Pernis was not the catalyst behind a firmer Middle East products market, but it did add fuel to the fire when it was unexpectedly shut down. The outages in Europe also helped product tankers in the US Gulf. Whilst there was no mad rush following outages at Pernis, the US Gulf market had already been boosted from an outage at Pemex’s 330,000 b/d Salina Cruz refinery on the West Coast, increasing import demand. Furthermore, low run rates have boosted Venezuela’s import demand, whilst issues paying for the cargoes has led to discharging delays, all providing support to the US Gulf products tanker market. US Gulf refineries have not been immune from their own problems. Although the short-term impact on the market appears limited, if such outages persist, diesel flows out of the US Gulf could come under pressure, although right now demand, rather than supply seems to be the issue”.

The London-based shipbroker added that “just as the diesel market in North West Europe was tightening, problems in the Mediterranean emerged. The Mediterranean diesel market had already tightened before Hellenic’s 100,000 b/d Elefsina refinery went offline unexpectedly, soon followed by further issues at Paz’s 100,000 b/d Ashdod plant. Now, with two key diesel markets suffering from outages, further support was offered to tankers in the US Gulf and Middle East. Finally, this week Exxon had an issue at their 193,000 b/d Rotterdam plant. For product tankers positioned on the Continent, the positives have been limited. With perhaps the only real opportunity being flows from North West Europe into the tighter Mediterranean market. However, this opportunity has now faded, following higher flows from the US Gulf, Middle and Far and East, and healthy stockpiles. Traders had appeared more comfortable with forward diesel supply, although hurricane season could complicate the picture in the short term”.

According to Gibson, “fundamentally, September will mark the start of autumn maintenance programmes in Europe, which could see a tighter market for a few more months, supporting further flows into the region. Whilst this may be positive for tankers bringing product into Europe, it does point to higher regional tonnage supply, and reduced export flows out of the region. However, in the short-term hurricane season could counter the more challenging underlying fundamentals and see freight rates spike, as precautionary refinery shut downs in the US Gulf tighten the American products market, creating import demand. Equally this may impact distillate exports to Europe. Larger product carriers may also see improved opportunities to the East, as traders plan light distillate supplies ahead winter when LPG prices are likely to firm somewhat, increasing the competitiveness of naphtha in the petrochemical supply chain. Still, higher inbound tonnage flow into the European region is likely to prevent any major hike in LR1 and LR2 freight rates to the East, even if a general theme of improvement is expected”, the shipbroker concluded.

Meanwhile, in the crude tanker market, in the Middle East, Gibson noted that “VLCCs have seen more activity this week, but are still suffering from the ongoing problem of supply outstripping demand and rates have further slipped. It seems likely that rates have now bottomed at ws 36 to the East and ws 22 West. Suezmaxes have also seen an uptick in activity with rates to the East operating in the low ws 70’s and West at ws 70. The trend continues with many Owners deciding to ballast their tonnage to West Africa. Off the back of a tightening Aframax market rates, by mid-week, pushed up to 80,000mt by ws 92.5 to Singapore. Rates have remained steady for the balance of the week and are likely to be maintained into early next week”.

 

Tanker Market: China and US making waves in the oil market (26/08)

The crude oil market has been going several fundamental shifts these past couple of W-O-W change years. With shale oil creating havoc in terms of key production and consumption regions and the “opening of the taps” agreement made by OPEC back in 2014 radically changing the supply/demand balance. During these past three years however another import trend has been establishing itself, as Asia and the Far East have been slowly dethroning the U.S. and Europe as the main importing region of crude oil.

According to Mr. George Lazaridis, Head of Market Research & Asset Valuations with Allied Shipbroking said that “more specifically, China has been seeing a significant increase in its import volumes and gradually taking up the role as the world’s largest crude oil importer. This has been a gradual shift in the making, with slowly showing equal and in some few cases higher monthly import volumes during 2015-2016, while during 2017 it has surpassed imports by all other main imports for almost all of the past 7 months. This gradual shift has been in play through the development of several factors, including the gradual dominance of shale oil in the U.S., continual increase of importance of Chinese oil refineries in Asia, decreasing domestic crude oil output China, increasing strategic reserves volumes by the Chinese government and a gradual increase in domestic Chinese consumption”.

Allied’s analyst said that “when it comes to U.S. shale oil production this has more so played a role in the decrease of importance of U.S. imports, rather than any positive affect on China’s import volumes. As for the increase in strategic reserves, this has been an overwhelming theme being seeing across the globe, with most of the main consumer countries looking to take up the opportunity to stock up on reserves while the price of crude oil holds at lower price regions compared to its more recent historical trends. This however, can only go so far, with an essential limit being placed as to each countries capacity to store excess amounts before undertaking any major expansion in storage facilities. As such this leaves us with three remaining points which happen to be the most crucial for the tanker market”.

The shipbroker added that “the increasing importance of Chinese oil refineries has helped boost overall demand in the region while, given the extra surplus capacity they still hold we could still see this grow further before any further infrastructure investment is needed. As for the gradual decrease in domestic crude oil output, this plays a dual role, increasing the need and reliance on imports while also simultaneously increasing the need for higher strategic reserves. This dual boost has proved to be one of the most important in increasing the total volume of Chinese imports”.

“Having said that however, the most vital fundamental which points to the long-term growth prospects of the market is the remaining point which is Chinese domestic consumption growth. This has been the figure that most have been observing closely over the past couple of years and most have been hopeful will drive the next boom in crude oil trade, under the assumption that Chinese consumption figures per capita will slowly be playing a catch-up game to the figures we see in the U.S. and Europe. For the moment, however it seems as though less than half the increase in import volumes that has been noted in the first seven months of the year compared to the same period last year, has been going towards increased domestic consumption. This could prove to be the weak point in this positive momentum that has been building up, as with no firm consumption growth it will be hard to sustain the overall growth rate in imports being seen right now”, Allied’s analyst concluded.

 

Tanker demolition could pick up on market-based conditions, rather than legislation (18/08)

The tanker market isn’t in its best during this year, with rates subdued and oversupply concerns being the main hindering factor to a rebound. As such, many market analysts expected that a higher demolition rate could be the solution and this development could be triggered by new legislation measures, most notably the Ballast Water Management Convention. In its latest weekly report, shipbroker Gibson said that “last September one of our reports focused on the prospects for higher demolition activity for tankers on the back of impending environmental regulation which at that time provided the market with some optimism. The main case for our optimism was the introduction of the Ballast Water Management Convention due to enter into force this September. However, owners were successful in lobbying Flag States to provide a loophole mitigating their exposure to an unpopular act. Analysts were forced to revise the impact of this piece of legislation”.

The shipbroker added that “last month, under pressure, the IMO announced a further two year delay to implementation, which provided some owners with an additional reprieve. The second item of legislation was the introduction of the Global Sulphur limits to be implemented from 1st January 2020. This legislation now appears to be ‘set in stone’ despite the ongoing arguments on the availability of compliant fuels, and at what cost and the use of abatement technology etc. Last September most analysts believed that owners faced with all the associated costs of complying with legislation would opt to scrap older tonnage”.

Gibson added that “as August commenced, it was clear that most sectors of the tanker market were entering the usual summer doldrums and that pressure on rates would provide owners with a severe headache as they left on their summer vacations. The influx of newbuilds over the first half of the year adds more pressure and the wave of low priced orders only raise concerns further down the line. But, perhaps the tanker sector may be on the cusp of a wave of demolition forced by market conditions rather than the impact of legislation? Over the last 30 months, poor trading conditions and a heavy influx of newbuilds in other shipping sectors saw over 850 bulk carriers consigned to the acetylene torches and over 270 container ships doomed to a similar fate. Over the same period, less than 100 tankers (25.000 dwt+) have been sold for recycling. Could the tanker market be entering a similar period where firm rates will be a challenge and the slump prolonged?”

According to the London-based shipbroker, “as well as the present malaise covering much of the tanker market, several indicators are flagging up the potential for an upturn in tanker scrapping. First of all, we have already exceeded last year’s total by more than 1 million tonnes deadweight. Perhaps not too hard to beat given last year’s all time low total, but significantly 1.8 million deadweight has been committed since June, perhaps another indicator that tanker scrapping may be taking off? Sales to Indian and Bangladeshi breakers have accelerated despite the monsoon season which usually means much slower activity. Also scrap prices on the sub-continent are around $100/tonne higher than this time last year which might add incentive and we are beginning to see 15 year old second-hand prices converge with rising lightweight prices. Another pressure is that storage employment opportunities for VLCCs are also diminishing”, it concluded.

Additionally, “it is also apparent that more tankers are being circulated amongst brokers as potential demolition sales. Several owners with fleet renewal programmes may be anxious to scrap rather than place tonnage for sale to competitors. Cash generated by sales could also be welcome by owners to see them through the current lull in the market. Owners presently on holiday may be spending more time looking at spreadsheets rather than relaxing pool side”, Gibson concluded.

 

Increasing long-haul crude trade insufficient to support tanker shipping rates (16/08)

Rising long haul exports of crude oil from the US and Nigeria will not be sufficient to push tanker shipping freight rates higher given lower anticipated Middle East output and surging tonnage supply, according to the latest edition of the Tanker Forecaster, published by global shipping consultancy Drewry.

Although a slight slowdown in global oil demand growth and inventory drawdown because of the ongoing production cut by OPEC is capping global the oil trade, the impact of lower OPEC output is partly counterbalanced by rising long-haul trade. With the lower supply in the Middle East, Asian refiners have increased their imports from the US, Brazil and Nigeria, where production is rising.

Rising US production this year is leading to a surge in the country’s crude exports against the earlier trend of a decline in imports with the rise in production. US oil exports have surged higher to 0.9 mbpd this year, compared to 0.5 mbpd last year, whereas imports have remained stable. As US production is expected to climb higher in the coming years and majority of it is likely to move to Asia, a long-haul trade, this will positively affect the tonne-mile demand for tankers. Similarly, the expected increase in long-haul exports from Nigeria and Brazil to Asia will also be supportive for tonne-mile demand. Nigeria’s crude production is expected to increase to at least 1.8mbpd from the current 1.6 mbpd. However, the expected increase in long-haul trade will not prove enough to push rates higher as the global oil trade will be capped by the inventory drawdown and a slowdown in oil demand growth. Moreover, the recent two-year postponement of Ballast Water Management regulations will dampen scrapping, keeping fleet growth strong until 2020.

“While global oil trade is expected to increase by around 6% during 2017-19, tonne-mile demand is expected to increase relatively faster by 7% due to an increase in long-haul trade. As the supply is seen surging by more than 13% during this period, freight rates will decline further,” commented Rajesh Verma, Drewry’s lead analyst for tanker shipping.

 

Tanker Market: With Supply Looming Large, All Eyes Are Now in Demand (15/08)

With tonnage oversupply in the tanker market already on the cards, ship owners are increasing looking towards demand in order to find some silver linings. In its latest weekly report, shipbroker Charles R. Weber said that “key forecasting agencies, the US Department of Energy’s EIA and the Paris‐based IEA, are both forecasting a new milestone for crude oil demand during the latter half of 2018: demand exceeding 100 Mnb/d. Despite the milestone’s positive connotations, 2018’s projected global oil demand growth rate of 1.5%, as derived from the average of the two agencies’ projections, is hardly much cause for optimism among crude tanker owners. Indeed, it follows a moderately higher rate of growth presently projected for 2017 of 1.6% and comes against our projected crude tanker capacity growth rates of 6.8% and 3.8% during 2017 and 2018, respectively”.

According to CR Weber, “annual demand growth swung violently before and after the global financial crisis with high oil prices and the market crash causing demand destruction during 2008 and 2009 before the recovery and resurgent oil‐intensive development in emerging markets propelled 2010 to the highest demand growth rate of the decade so far. Since 2011, demand growth has oscillated between 0.8% (2011) and 2.1% (2015) with the average between 2011 and 2016 pegged at 1.5%”.

The shipbroker added that “these agencies have a bit of a history of revisions as the forecasted period draws nearer – and quite often well after the fact. This is due to the inherent limitations of forward forecasting – and a lack of transparency in historical trade and consumption data (particularly in outside of the OECD). We note that for the developed world, projections made at the end of 3Q16 underestimated the extent of demand growth during 2016 amid lower fuel costs, declining unemployment and rising consumer sentiment. Simultaneously, demand growth in the non‐OECD world was downwardly revised. Total world oil demand was upwardly revised by nearly 900,000 b/d. It would seem that the regular negative revisions of the years following the global financial crisis have given way to positive revisions. Tanker owners will certainly be hoping that the latter remains the norm”.

CR Weber added that “of course, trade patterns can skew the implications of demand growth for tanker fundamentals strongly. Despite 2016’s positive y/y growth, a migrating of crude trades towards shorter distances meant that VLCC ton‐miles declined by 4%, y/y. Applying adjustment factors to ton‐miles to account for diversification and efficiency of trades, demand contracted by 4%. Simultaneously, during 2015, when world oil demand grew by 2.1%, VLCC ton‐miles grew by a much larger 7% and adjusted demand grew by a massive 21%., the shipbroker concluded.

Meanwhile, in the VLCC market this week, CR Weber said that “rates in the VLCC market were softer this week on a pullback in demand in the Middle East market, sending average earnings to fresh multiple‐year lows. In the Middle East, there were 15 fresh fixtures reported, representing a 35% w/w decline. One‐third of this week’s regional fixture tally were concluded under COAs, making demand there seem lower than it was. In the West Africa market, there were nine fixture reported, representing a tripling of last week’s tally”.

The shipbroker added that “with 100 Middle East August cargoes covered thus far, there are an estimated 22 outstanding. Against this, there are 53 units available; once accounting for likely West Africa draws, the implied end‐August Middle East surplus stands at 24 units, or the highest surplus since the conclusion of the May program. A week ago, the surplus looked set to stand at 19, illustrating a fresh disjointing of supply/demand. As such, rates remain in negative territory and will struggle to find much positive impetus once participants progress into what is widely expected to be a busier September program. In isolation, rates in the Caribbean basin were stronger this week on declining in‐ bound USG tonnage, and a fresh round of activity following a prolonged lull”, the shipbroker concluded.

 

Ballast Water Management Rules to Impact the Tanker Market (14/08)

Tanker owners are faced with some very important decisions moving forward, as they will be faced with the dilemma of whether it makes financial sense to retrofit their older vessels or just sell them for demolition. This in turn will likely alter the balance between demand and supply, creating a new dynamic in terms of freight rates. In a recent report, shipbroker Gibson said that “the impact of the Ballast Water Management (BWM) Convention on future levels of demolition has been a hot topic for quite some time. The convention, ratified in September 2016, required all existing tonnage to install an approved BWT system at the 1st renewal of the International Oil Pollution Prevention (IOPP) certificate from 8.09.2017, which has traditionally been done alongside special survey every 5 years. As retrofitting a tanker with an approved system is expensive (around $2 mln for a VLCC), many analysts believed at the time that once in force the BWM requirement would accelerate demolition activity. However, in our view, the impact was always likely to be delayed, as some owners took advantage of a loophole to decouple the renewal of the IOPP certificate from the special survey; in other words, renewing the IOPP certificate prior to 8.09.2017 in order to trade up to 7.08.2022 without a BWM system”.

“However, following the pressure from shipowners, last week the Marine Environment Protection Committee (MEPC) made amendments to the BWM Convention, in general requiring existing tonnage (to which convention applies) to install an approved BWM system at the 1st renewal of the IOPP certificate following 8.09.2019, two years later than first intended. In greater detail, below is text of what the MEPC has agreed to”, said the shipbroker.

According to Gibson, “by the first renewal survey: this applies when that the first renewal survey of the ship takes place on or after 8 September 2019 or a renewal survey has been completed on or after 8 September 2014 but prior to 8 September 2017. • By the second renewal survey: this applies if the first renewal survey after 8 September 2017 takes place before 8 September 2019. In this case, compliance must be by the second renewal survey (provided that the previous renewal survey has not been completed in the period between 8 September 2014 and 8 September 2017)”.

The London-based shipbroker added that “undoubtedly, the above wording is complex and far from easy to digest, perhaps due to the intention of the MEPC to prevent further decoupling. In very simple terms (from the perspective of the global tanker fleet above 25,000 dwt), it means that only vessels that have not renewed their IOPP certificate between 8.09.2014 and 7.09.2017 (either alongside the special survey or separately by decoupling) will be allowed to renew the IOPP certificate between 8.09.2017 and 7.09.2019, without the need to install an approved BWM system. For these units, the BWM will have to be installed at the 2 nd renewal of IOPP certificate, at latest up to 7.09.2024. In contrast, tankers that have renewed their IOPP certificate between 8.09.2014 and 7.09.2017 will be required to install an approved BWM system at their 1 st renewal, at latest up to 7.09.22 (the original deadline)”.

Gibson added that “due to the above distinction, largely only tankers built between Sep 2002 to Sep 2004 (and where the IOPP certificate has not been renewed between 8.09.2014 and 7.09.2017) will be in position to buy extra time before heading for scrap. For tonnage built within three years up to Sep 2002 and within three years after Sep 2004, the deadline for the BWM installation remains unchanged, up to 7.09.2022. Also, tankers built in 2000 or earlier are likely to face demolition over the next five years anyway due to their age and bunker pressures. Finally, tankers built in 2007 and later are too young to be considered for demolition, be it 2022 or 2024. On this basis, the latest MEPC ruling does reduce the potential for tanker demolition; however, it appears that only a portion of the fleet will be in position to postpone the decision whether to scrap or not beyond Sep 2022”, the shipbroker concluded.

 

Tanker Market: VLCC Middle East Fixtures Drop By 35 Percent (09/08)

The Middle East VLCC market was in for a negative pattern over the course of the past week, not being able to follow suit, after the strong pace of fixtures of the week before. In its latest weekly report, shipbroker Charles R. Weber said that “after last week’s strong pace, fixture activity across all VLCC markets moderated while availability levels inched up, leading to a weakening of sentiment and rates. There were 23 fixtures reported in the Middle East market, marking a 35% w/w decline. In the West Africa market, the tally of reported fixtures fell to a three‐month low of just three fixtures, or eight fewer than last week. The souring sentiment deflated rates to levels just north of YTD lows observed briefly in late‐March, before a surge in demand in the West Africa market boosted ton‐miles and tightened the supply/demand balance as the market progressed into Q2. Given that West Africa cargoes sourced onto ballasters from Asia can occupy units for up to three months, the impact of units returning from those trades – and, similarly, due to a lull in West Africa demand during early August has been apparent”.

According to CR Weber, “simultaneously, although the tally of vessels engaged in storage has increased by one unit as compared with a month ago, the total number of units withdrawn from trading has declined by 10 units to 39. This is due to a large decline in units US Crude Stocks (EIA) undertaking DD or repairs as well as lesser decline in the number of units engaged in STS activities”.

In its analysis, CR Weber said that “notionally, surplus supply levels should be higher, but total July exports from the Middle East were stronger than had been anticipated and availability has been moderated to no small extent by last week’s surge in Middle East and West Africa demand. We note that the view of supply/demand shows 19 surplus units through the end of August, once remaining Middle East cargoes and likely West Africa draws are accounted for. This compares with 17 surplus units available at the end of the second decade of the Middle East August program. Historically, the current surplus figure has guided AG‐FEAST TCEs to levels higher than the current assessment of ~$14,904/day. Sentiment around summer seasonality and the ongoing presence of disadvantaged units appears to keeping the market’s direction in charterers’ favor irrespectively, however. Accordingly, we expect that the pace of fixture activity will modestly influence rates during the coming weeks, failing a significant buildup of available tonnage will likely see rates decline further”.

In the Middle East markets, CR Weber said that “rates to the Far East shed 1.5 points to conclude at ws46, with corresponding TCEs dropping 4% to a closing assessment of ~$16,218/day. Rates to the USG via the Cape lost one point to conclude at ws24. Triangulated Westbound trade earnings declined 17% to conclude at ~$16,044/day”. In the Atlantic Basin, “rates in the West Africa market trailed those in the Middle East with the WAFR‐ FEAST route shedding one point to conclude at ws50. Corresponding TCEs were off by 4% to ~$17,783/day. Demand in the Caribbean extended its lull. The CBS‐SPORE route held shed $300k to conclude at $2.7m lump sum, accordingly”, the shipbroker concluded.

Meanwhile, in the Suezmax market, “rates in the West Africa Suezmax market were softer this week as the charterers progressed further into the August decade wherein there were fewer available cargoes amid strong VLCC coverage of the month’s final decade and ongoing forces majeure. Notably, after a July surge in regional exports, which propelled the Suezmax spot balance to a 16‐month high and the total Suezmax share to a 10‐ month high, August appears to be far more moderate. Accordingly, the very modest improvement in rates observed during July are now eroding. Rates on the WAFR‐UKC route shed 2.5 points to conclude at ws65. As demand is likely to be slower next week as charterers work a limited number of final‐decade cargoes, we expect that rates will remain on their gradual descent”, CR Weber concluded.

 

High Tanker Fleet Growth Hinders Market’s Recovery Says Tanker Owner (08/08)

The tanker market has kept on showing little signs of a recovery over the past couple of months. According to ship owner Teekay Tankers, things will keep on being tough in the following weeks. In its latest outlook of the future prospects of the tanker market, Teekay said that “crude tanker spot rates softened during the second quarter of 2017 due to the combined impact of lower OPEC oil production, high tanker fleet growth and normal seasonal weakness. Rates have continued to decline at the start of the third quarter of 2017, in what is normally the weakest part of the year for tanker rates”.

Teekay Tankers noted that “OPEC supply cuts continue to have a negative impact on crude tanker demand, with OPEC crude oil production averaging 32.1 million barrels per day (mb/d) through the first half of 2017 compared with production of 33.2 mb/d at the end of 2016. The majority of these supply cuts have come from the Middle East nations, led by Saudi Arabia. Some of the spot rate weakness has been offset by an increase in exports from key mid-size tanker load regions. US crude oil exports have averaged 750 thousand barrels per day (kb/d) through the first half of 2017 compared with average exports of 485 kb/d in 2016, with oil increasingly moving long-haul to destinations such as India and China. Production has also been recovering in recent weeks in Nigeria and Libya, both of which are exempt from OPEC supply cuts. Libyan production reportedly reached 1 mb/d as of July 2017, which if confirmed would be the highest production level since mid-2013. Nigerian crude production reached 1.6 mb/d in June 2017, the highest since April 2016. Taken together, these developments should be positive for mid-size tanker demand in the Atlantic basin”.

According to Teekay, “in addition to these positive trade fundamentals, global oil demand growth remains robust with forecast growth of approximately 1.4 mb/d in 2017 and a further 1.4 mb/d in 2018, according to the International Energy Agency (IEA). This is an upward revision since last quarter due to higher than expected demand growth in the non-OECD areas”.

The shipowner claimed that “despite these positive demand factors, high tanker fleet growth continues to significantly challenge the tanker market and has led to a decrease in tanker fleet utilization and tanker rates through the first half of the year. The global tanker fleet grew by 19.4 million deadweight tons (mdwt), or 3.5 percent in the first half of 2017, due to a heavy delivery schedule for large crude tankers and a continued lack of scrapping. For 2017 as a whole, the Company forecasts tanker fleet growth of approximately 5.5 per cent, similar to 2016 levels. However, the Company anticipates much lower fleet growth in 2018 as the orderbook rolls off, while an increase in tanker scrapping is expected as a number of vessels reach their fourth special survey date. New regulations may also increase scrapping in the medium-term, although the IMO’s implementation date for installation of ballast water treatment systems has been deferred from September 2017 to September 2019”.

Concluding its analysis, Teekay Tankers said that “overall, the Company expects weak tanker rates to persist during the remainder of the third quarter before a normal seasonal uptick in the fourth quarter. Looking ahead to 2018, the Company expects that a significant slowdown in tanker fleet growth coupled with better oil market fundamentals will lead to a recovery in freight rates, particularly from the second half of 2018”.

 

Ship owner says that MR future product tanker supply the lowest on record (01/08)

In its analysis of the product tanker market, the shipowner said that during the second quarter of the year, “product tanker spot rates remained on average close to historically low levels during the second quarter of 2017. On the supply side, increased tonnage availability continued to apply downward pressure on rates, with year on year product tanker fleet growth estimated at 5.2% as of the end of the second quarter. The pressure on rates was further exacerbated by limited arbitrage opportunities, as OECD oil product inventories remained close to historically high levels. In the West, the market was supported by solid exports from the U.S., which reached seasonally new record levels, on the back of increased U.S. refinery throughput and increased demand from Latin America. Nevertheless, this was insufficient to reduce the supply-demand imbalance in the market. In the East, refinery maintenance in the first part of the quarter and decreased Chinese products exports had a negative impact on chartering activity. The market modestly recovered in June on the back of a rebound in Chinese exports and as refineries returned from maintenance, but rates remained overall at subdued levels on most trading routes. In the period market, rates for Medium Range (“MR”) product tankers have seen a modest improvement compared to the previous quarter with the bulk of fixtures currently being short-term, as owners remain reluctant to fix longer period”, Capital Product Partners said.

Meanwhile, on the supply side, despite somewhat increased activity in terms of new orders for product tankers, the MR product tanker orderbook currently stands at 7.1%, the lowest level on record. In addition, product tanker deliveries continued to experience significant slippage during the first half of 2017, as approximately 32% of the expected MR and handy size tanker newbuildings were not delivered on schedule. Analysts estimate that net fleet growth for MR product tankers will amount to 3.0% in 2017, below the 2016 growth rate of 4.9%. On the demand side, analysts expect overall product tanker demand growth of 2.4% in 2017, largely supported by growth in imports into Latin America and Asia and continued growth in U.S. exports”.

In the Suezmax market, Capital Product Partners noted that “Suezmax spot earnings softened in the second quarter of 2017 compared to the preceding quarter. The existing agreement between a joint committee of OPEC and Non-OPEC oil producers to cut oil production continued to limit demand for Suezmaxes, while activity further waned in June as we entered the traditionally weak summer season. In addition, increased Suezmax newbuilding deliveries combined with weak rates across other crude tanker segments added pressure on the market. On the positive side, Chinese crude imports remained at firm levels. The soft spot market had a negative impact on period activity as well as period charter rates, which declined when compared to the previous quarter”.

Similarly, the shipowner said that “on the supply side, the Suezmax orderbook represented, at the end of the second quarter of 2017, approximately 13.1% of the current fleet. Contracting activity continues to be limited, as 14 Suezmax tankers have been ordered since the start of the year. Analysts estimate that slippage for the first half of 2017 amounted to 31% of the expected deliveries. In terms of demand, Suezmax tonne/miles are expected to be supported by rising long-haul exports from the U.S. and growing crude import demand in India. Overall demand for the sector is projected to expand by 5.3% in 2017”, the ship owner concluded.

 

Product Tankers: LR2 Fleet’s Growth Compounds Freight Rates’ Plunge (31/07)

Fortunes in the LR2 product tanker market could be better. In its latest weekly report, shipbroker Gibson said that “it’s safe to say that LR2s have had a pretty torrid year to date, with earnings on the benchmark Middle East – Japan route averaging around $8,000/day in the second quarter, barely enough to cover fixed operating expenses. Many point to fleet growth as the primary issue, yet the trading LR2 fleet has remained fairly static, indicating that new deliveries are not the overriding problem. Whilst the overall LR2/Aframax fleet has seen substantial growth, with 53 vessels delivered in 2016 and 40 already for the year to date, the actively clean trading LR2 fleet size has remained stable at just under 200 vessels. Last year we counted at least 25 LR2s migrating into dirty trade, whilst many vessels went dirty on, or straight after their maiden voyage. The situation is of course dynamic, with owners having the option to clean up their tonnage if the LR2 market begins to show signs of sustainable returns. However, right now there appears little impetus to favour one market over the next”.

The shipbroker added that “on the demand side, getting a complete and truly accurate picture in the short term is challenging, with data sets subject to constant revision and often time lagged. However, export volumes out of the Middle East have been clearly pressured this year. Limited capacity additions have come online, whilst the Ruwais plant has seen at least 127,000 b/d taken offline following a fire, not to mention the Emirate stockpiling product to offer security against a potential interruption to gas supplies from Qatar. Lower export volumes from Saudi Arabia were also observed over the first half of the year. Combined with the UAE, it is possible that regional exports have slipped nearly 300,000 b/d”.

Gibson went on to note that “in recent years, another major demand outlet for LR2s has been the West/East naphtha arbitrage. However, the arbitrage from West to East remains a shadow of its former self. In 2016, volumes on the West/East naphtha run fell 31% compared with 2015 and have shown no signs of recovery this year. This trade was an important driver behind a strong Middle East market throughout 2015 and H1 2016, with vessels trading on the West East arbitrage being kept off the Middle East tonnage list for prolonged periods, particularly if a backhaul distillate cargo from North Asia to the West was obtained. With no growth in western arbitrage flows and newbuild crude tankers pricing cheaply on the backhauls, tonnage lists have generally lengthened, even though the outright LR2 fleet has hardly changed”.

According to the shipbroker, “the fundamentals may well follow a similar path in the short term, with little major impetus on the horizon. Repairs at Ruwais may run into early 2019, whilst a well-supplied naphtha market will keep the arbitrage pressured. All the while newbuild deliveries continue apace. However, for the past three years (following the start-up of a number of key refineries) August has seen LR2 earnings spike. With the LR2 market having firmed already in July, seasonal trends appear to be playing out as expected, the question is whether the August spike has come early or is just getting started. Beyond this, the next major boost on the horizon for owners may be 2019, with Ruwais expected to be back to capacity and new plants such as Jizan and Al Zour making an impact. However, the biggest fundamental shift may be 2020 when a tighter middle distillates market induces price volatility and increased trading activity”, Gibson concluded.

Meanwhile, in the crude tanker market this week, “activity wasn’t the problem for VLCCs this week – but heavy ongoing availability certainly was. Owners tried their best to rally but to no avail and rates remained stubbornly rangebound over the period. Lows of ws 44 to the East and ws 23 to the West via Suez now, and over the near term too. Suezmaxes slowed somewhat and rates eased off a touch towards ws 65 to the East and ws 25 to the West accordingly with no clear catalyst in sight for early change. Aframaxes bottomed out but little better than that – ticking over at around ws 90 to Singapore and similarly over the next fixing phase too”, Gibson concluded.

 

Crude Tanker Market to Face Further Headwinds After OPEC Meeting (27/07)

The crude tanker market is currently facing a perfect storm of tonnage overcapacity, low demolitions, OPEC oil output cuts as well as seasonal summer lull in demand. Recent developments such as the delay in the IMO Ballast Water Management Convention as well as OPEC meeting on Monday are expected to add downwards pressure to the ailing sector. During the OPEC meeting at St Petersburg in Monday, Saudi Arabia declared that they would cap crude oil exports at 6.6 mm/d in August, marking a six-year low according to JODI data.

This is around 1 mmb/d lower than year-ago levels as well as 566 kb/d lower than the first five months of this year. The UAE has also pledged to reduce September exports of Murban, Upper Zakum and Das Blend by 10%. As such, the overall cut in AG crude exports may potentially lead to a m-o-m fall of 6 to 7% in ex-AG VLCC fixtures. The effect of the drop in exports is already being felt in the VLCC market as charterers start covering the August program, with meagre fixing activity seen so far. Charterers seem to be withholding cargoes in an attempt to further pressure rates downwards, which have been languishing around w50 for an AG/ Japan voyage.

While Nigeria was previously exempt from the production cuts, they voluntarily agreed to limit or even cut their output from 1.8 mmb/d. As reported by Reuters, Nigeria’s crude production has been averaging 1.7 mmb/d recently. While the bulk of Nigerian crude exports are loaded on Suezmaxes and VLCCs, the production cap may not have much impact on the tanker market as volumes often fluctuate due to unplanned outages. Shell lifted force majeure on its Bonny Light crude exports on June 28 only to declare force majeure again two weeks later due to pipeline attacks. Nigerian loading programs for September currently add up to 1.7 mmb/d, which is flat m-o-m.

Assuming the Saudis continue their strategy of cutting medium/heavy crude production, refiners in Asia are expected to continue importing crudes of similar grades from the US and Latin America to meet demand. China has been importing US medium/heavy crudes such as Mars and Southern Green Canyon while Indian refiners IOC and BPCL bought their first cargoes of Mars in early July. Steady growth in long-haul trades from the Americas is expected to lend support to ton-mile demand, helping to offset some of the negative impact from the OPEC production cuts.

 

VLCC Market Under Pressure (25/07)

Shipbrokers left and right are highlighting the VLCC tanker markets’ intense negative pressures. In its latest weekly report, shipbroker Charles R. Weber said that “rates in the VLCC market were under renewed negative pressure this week, paring last week’s modest gains and extending to a near two‐month low. Though demand in the Middle East was stronger, rising 85% w/w from last week’s YTD low to 24 fixtures – boosted by a surge in demand for AG‐China voyages to an eight‐month high – the pace of demand seemed slower as half of this week’s tally was covered under COAs”.

According to CR Weber, “moreover, a third of this week’s fixtures with reported rates were on disadvantaged units. Ironically, though, the lack of sufficient testing of rates on normalized terms likely limited the extent of rate erosion that should have accompanied a fresh weakening of fundamentals. We note that the tally of surplus July Middle East VLCCs jumped after the month’s program concluded on the lower end of the anticipated range; from an earlier estimate of 15 surplus units we now count 21, marking a two‐month high and eight more than the average during 1H17. The present view of surplus tonnage through the first decade of August shows potentially as few as 16 units, though we take an unconstructive view that this will have any meaningful impact on VLCC rates as hidden tonnage is likely to see this number rise, and Middle East cargo availability appears increasingly tenuous. Reports indicate that Saudi Arabia is set to cut supply to a YTD low during August, in line with a usual domestic summertime demand surge while August Basrah stems have been elusive. For its part, there appears to be an increasing disconnect between Basrah stems and AIS data for loaded cargo from the terminal, casting further uncertainty around the extent of regional exports”.

Meanwhile, in the Middle East, VLCC rates to the Far East shed 2.5 points to conclude at ws50 – with corresponding TCEs off 10% to ~$19,748/day. Rates to the USG via the Cape were unchanged at ws24.5. Triangulated Westbound trade earnings eased 2% to conclude at ~$21,656/day, due to higher bunker prices. In the Atlantic Basin, rates in the West Africa market followed those in the Middle East. The WAFR‐FEAST route shed one point to conclude at ws54; corresponding TCEs were down 5% w/w to ~$21,521/day. Demand in the Caribbean market remained slow for a fourth consecutive week. The CBS‐SPORE route held steady $3.2m lump sum, accordingly.

In other tanker classes, CR Weber noted that “the West Africa Suezmax market observed a fresh decline in demand following three consecutive weeks of significantly above‐average fixture activity. There were just six fixtures reported this week, representing a 65% w/w decline to a seven‐week low. Rates commenced the week with fresh losses, before rebounding to conclude the week largely unchanged. Contributing to rebound, supply levels were modestly lower following the earlier strong demand while demand in the Middle East market was at marked strength this week, influencing sentiment as fewer ballasters were expected. The WAFR‐USG route concluded unchanged at ws60, having earlier dipped to ws55. The WAFR‐UKC route gained 2.5 points to conclude at ws65. Total confirmed this week that exports from the Djeno terminal in Congo Republic were continuing unaffected from last week’s strike action and SBM incident, despite earlier reports indicating a force majeure. Meanwhile, the status of Bonny light force majeure remains unclear. Further forward, reports indicate strong overall West Africa demand for the September program on anticipated refining margins strength”.

 

VLCC tanker market facing the doldrums (24/07)

The VLCC tanker market is facing intense headwinds so far in the year. In its latest weekly report, shipbroker Gibson noted that “undoubtedly, the OPEC led production cuts are having negative implications for crude tankers, particularly VLCCs. Although no major changes have been seen in the absolute volume of spot VLCC fixtures out of the Middle East, this coupled with the ongoing rapid expansion of the trading fleet, forced spot earnings down to around $17,500/day in recent months, from over $40,000/day at the start of the year. In contrast to the developments in the crude tanker segment, so far to date the impact of production cuts on oil markets has been rather muted. Although global OECD oil stocks have moved to lower levels relative to the five-year averages, they still remain at highly elevated levels. The biggest challenge to OPEC’s strategy is recovering US crude oil production. According to the EIA, US crude production averaged at 9.2 million b/d in June, up by over 0.65 million b/d from the lows seen in September 2016. Crude output is anticipated to rise by a further 0.55 million b/d by December 2017”.

According to Gibson, “recovering Libyan and Nigerian production are also diluting OPEC’s effort to rebalance the market. Last month Libyan output was assessed by the IEA at 0.82 million b/d, up by nearly 0.55 million b/d from the lows seen in August 2016. The latest indications for the country’s production are around 1 million b/d, while the Libyan National Oil Corporation targets a further 0.25 million b/d gain to 1.25 million b/d by the end of the year. The gains in Nigerian crude output are also impressive. In June production climbed close to 1.6 million b/d, up by around 0.45 million b/d from August 2016 levels. If the relative stability seen in recent months remains in place, further gains could be achieved in the 2nd half of this year. The ongoing rebound in Libyan and Nigerian production has prompted a discussion as to whether supply caps should be introduced for these countries or alternatively whether a flexible approach should be employed by other producers participating in output cuts to accommodate rising production from the exempt countries. However, both Libya and Nigeria indicated their unwillingness to cap, while further cuts would require a great deal of cooperation. Yet, if additional cuts are agreed and implemented, this will serve another blow to crude tanker demand this year”.

The London-based shipbroker added that “an equally important question is what will happen in 2018 when the current deal expires? Will we see a rebound in the Middle East crude exports, so much needed by the weak tanker market? The IEA expects to see a healthy growth in world oil demand at 1.4 million b/d; however, further gains are projected in non-OPEC supply. By far the biggest increase is anticipated in US oil production, which is forecast to rise year-on-year by 1.05 million b/d. Smaller gains are also expected elsewhere, most notably in Brazil, Canada and the UK, together accounting for a further 0.6 million b/d increase. Although output in a number of other countries is expected to see a minor decline, the overall picture is that all of the forecasted increase in demand is likely be met by increases in Non-OPEC supply (crude, NGLs, biofuels, processing gains). If the forecast is correct, this leaves almost no scope for increases in OPEC crude output in 2018 from current levels. If OPEC decides to abandon its restraint, there is likely to be another build in global inventories and further downward pressure on oil prices. The dilemma faced by OPEC does not inspire much optimism for the crude tanker market, hoping to see increases in Middle East crude exports. If production cuts are extended through 2018, the only hope for owners will be continued strong gains in long haul trade, persistent floating storage and slowing fleet growth”.

Meanwhile, in the crude tanker market this week, Gibson said that “very easy looking VLCC lists lended Charterers the necessary comfort to keep the market pace at ‘dead slow’ despite having full August programmes in hand. Owners held the line as best they could, but the bottom of last week’s rate range became the top of this week’s with now lows of ws 45 and highs of ws 50 to the East the new norm and mid ws 20’s available to the West. Perhaps a bit busier next week, but no sea-change likely. Suezmaxes picked up their pace a little, but to no more than a slow trot and rates struggled to break through ws 70 to the Far East with around ws 30 the ceiling to the West, though Kharg liftings still command reasonable premiums. Aframaxes quietened as the week wore on and rates slipped to 80,000mt by ws 87.5 to Singapore with ‘bottom’ still to be found”.

 

Tankers’ demolition sales pick up pace (22/07)

Tankers sold for demolition in SouthEast Asian scrapyards has accelerated over the course of the past few days, despite the fact that the monsoon season, means that scrapping activity is usually slower. In its latest weekly report, GMS, the world’s leading cash buyer of vessels, said that “the supply of tankers into the Indian sub-continent recycling markets continued at pace for another week as several more high profile sales materialized (including two VLCCs). This follows on from the recent aframax and suezmax sales at ever-improving numbers as the sub-continent markets look to get back on their feet following an awkward phase where prices deteriorated by about USD 50/LT LDT due to a combination of negative budgets and declining local steel plate prices”.

According to GMS, “now that the Bangladeshi budget has finally been withdrawn and clarity has emerged on the Pakistani budget as well, the ongoing reticence from ship recyclers has turned into a renewed aggression to acquire fresh units and some of the empty plots are swiftly being booked with choice tonnage. Pakistan remains closed for tankers after the tragic accidents on an uncleaned FSU and LPG earlier this year, which subsequently resulted in numerous (avoidable) fatalities. Yet, rumors persist of an imminent reopening to tankers, albeit with far greater restrictions / guidelines on tanker cleanliness (to hot works standards like India and Bangladesh) prior entry into Gadani. This would be an ideal opportunity to remind tanker owners that gas free for hot works standards means that all cargo / cargo residues, slops and sludges would have to be completely cleaned from all cargo and slop tanks, right down to the ladders, handrails and cargo pipelines. Indeed, the rules for cutting a wet ship in India and Bangladesh are far more stringent than many of the international gas free standards and it is worth those owners seeking to deliver their vessels ‘gas free for hot works’ clean, consult with a reliable cash buyer to ensure that the appropriate safety standards are met and deliveries remain timely and smooth”, GMS said.

In a separate report, shipbroker Clarkson Platou Hellas said that “it certainly is a difficult market to see through at the moment in terms of pricing and local sentiment but the one clear factor is that more tanker units are coming into the market. Clients of NITC have sold two VLCC’s this week and in addition, placed another two in to the market place. Another suezmax has been committed this week, as reported below, and again an intriguing price was achieved. Whether these sales achieve a profit for the cash buyers in question remains to be seen but at the time of writing, it is believed these units sold this week are still waiting to be resold to the actual ship recyclers (breakers). The lack of tonnage is certainly continuing and it remains unclear as to when future tonnage availability will come to fruition from Owners in view of the summer holidays that are now in play. The supply of tonnage is significantly reduced from this time last year and current statistics show that for all dry units, we are down by almost 50% and even more alarmingly is the supply of Capesize units where 67 were sold at this point last year compared to a mere 19 so far this year. The supply on the ‘wet’ side tells a different story, being around 10% only down from this time last year. However with rates under pressure, and evidenced by recent sales and market proposals, we can foresee tanker sales increasing in the months ahead”, Clarkson Platou Hellas concluded.

Similarly, Allied Shipbroking noted that “there was a fair amount of speculative buying taking place this past week, with price levels seeing a strong boost across the Indian SubContinent. Part of this has been fueled by the renewed interest and appetite being noted from Bangladeshi breakers, while most of the boost noted seems to have gone towards higher spec units with larger LDT especially for tankers and containers. This seems to be a momentary rally and we are likely to see the upward momentum fall back once again, since we are still within the monsoon season and breaking activity is still holding at a significantly slower pace. At the same time the fact that we are still seeing a minimal amount of demo candidates coming to market means that the supply side has played its part in boosting competition and helping push for the renewed improvement in offered prices”, the shipbroker concluded.

 

Crude oil tanker owners take advantage of low newbuilding prices (17/07)

A prolonged period of weak contracting activity has forced shipyards to drop their newbuilding prices to levels not seen in decades. Crude oil tanker owners have decided to take advantage of the situation, despite the weakening earnings sentiment in their segment.

The collapse of oil prices back in 2014 was undoubtedly great news for oil tankers. After years of stagnation, seaborne crude oil trade started to grow by over four per cent per annum. An increased demand for transport considerably improved ship earnings, which resulted in a wave of newbuilding contracts, as is normal in the shipping world. Almost three years later those ships are now being delivered in rather alarming quantities.

Despite moderately optimistic oil consumption forecasts in terms of tonnes, seaborne trade is not expected to increase substantially in 2017 so a gradual softening of freight rates seems inevitable. High tonnage supply coinciding with weakening demand is a typical shift of the cycle which normally results in reduced contracting of the new tonnage. This time around however, we seem to be observing an entirely different behaviour.

Tempting prices

One may say that after almost no ordering in 2016, any new contract placed in the shipyard may look like an improvement, but the current pace of ordering is more than unusual. According to IHS Markit data as many as 20 ships were ordered in the VLCC segment alone during the first four months of the year. Compared to only three such contracts placed during the whole of 2016, an increase of activity is more than visible. At the same time, there were 47 VLCCs and 26 Suezmaxes delivered last year and another 52 and 65 are expected to hit the water in 2017, allowing the fleet to grow by six per cent and eight per cent respectively.

Even with continued strong imports to China and India and increased tonnage demand for US exports, such pace of expansion offers no slack for the earnings, which will continue to soften. Since this is a well-known conclusion, why are so many new contracts being announced nowadays? The answer is simple – they are cheap! With 80 million US dollars for a VLCC and 53 million US-dollars for a Suezmax, you need to travel some 25 years back in time to see similar prices (including inflation in the equation). One simply does not say no to such bargains; a theory well supported by the current level of contracting.

Shipyards are in a tough negotiation spot and their exhausted order books leave them no choice but to accept what owners are prepared to offer. The newbuild price for a VLCC currently represents what owners had to pay for a five-year-old ship just 16 months ago! It means that the ships contracted now will have a considerable competitive advantage in terms of their break-even rates, compared to their peers contracted earlier.

In addition, the upcoming environmental regulations introduce additional costs for shipowners. Be it ballast water treatment systems or, for example, scrubbers the cost is substantial and hard to justify, particularly when the differential between second-hand and scrap prices is narrow. In consequence, we may see some ships sold for scrapping earlier than previously assumed. By the year 2020, some 100 VLCCs and 80 Suezmax tankers will be over 20 years old, which means that now would be the time to think about replacing them.

The cycle continues

Low oil prices also have consequences for trade patterns, particularly in and outside the US. Due to increased shale oil production, we observe lower imports across the Atlantic, particularly from West Africa. Those barrels, however are being rerouted to the Far East, which offers higher fleet utilization due to increased distances.

In addition, ever since the US lifted the crude oil export ban, we have seen increased exports of American crude, often bound for Far East importers. In such trades it is possible to use Aframaxes and partially laden Suezmaxes going via the Panama Canal, however the best economies of scale can be achieved by using VLCCs going around the Cape of Good Hope. The problem is that it is impossible to load American crude on a VLCC due to lack of infrastructure. For the time being it is done via ship-to-ship operations, however it is reasonable to assume that in future there will be terminals big enough to accept VLCCs.

There are quite a few legitimate reasons for the current levels of contracting. However, the super-low newbuilding prices should be treated as an enabler for all other assumptions. There is of course a growing concern that the opportunistic contracting will result in a prolonged period of depressed earnings. It is indeed a concern, especially in light of possible further oil production cuts from the OPEC countries, which may reduce the amount of seaborne crude in the future. But then again, would anyone argue that this is the first time the market has dealt with oversupply?

 

Tanker Market Sentiment Weakens in June (15/07)

Dirty tanker market sentiment was generally weaker in June, as average spot freight rates dropped on all reported routes. On average, dirty tanker freight rates declined by 17% from the previous month and spot rates for all classes went down. These negative developments came as the market suffered from limited activity prior to the summer months, while the increase in vessel supply remained a main influence on freight rate movements. Clean spot freight rates had a mixed performance, with some routes showing higher freight rates; however, these were relatively minor. On average, clean tanker spot freight rates were almost flat compared with those of the previous month.

Spot fixtures

Preliminary data for June shows that OPEC spot fixtures went up by 5.6%, compared with the previous month, to average 13.18 mb/d. Global spot fixtures rose as well by 1.9%, to average 18.03 mb/d. Fixtures on the Middle East-to-East route were up by 12% and on the Middle East-to-West routes by 7%. In general, global chartering activities were higher than the same month a year ago on all reported destinations.

Sailings and arrivals

OPEC sailings rose by 0.2 mb/d, or 0.8%, in June from the previous month, reflecting a gain of 1.7% from the year before. Middle East sailings rose from the previous month by 0.31 mb/d and from the previous year by 0.42 mb/d. According to preliminary data, arrivals at the main importing regions in North American and Far Eastern ports showed an increase from a month earlier, rising by 8.5%, and 2.1%, respectively.

VLCC

VLCC freight rates weakened in June despite an active start to the month, with enhanced freight rates in both Middle East and West Africa chartering markets, although the gains remained limited. VLCC markets weakened thereafter despite some steady mid-month activity. Market activity was insufficient to support any rate increase as the tonnage supply remained abundant even allowing the main monthly chartering requirements. As a result, spot freight rates declined in several regions, showing monthly and annual drops. VLCC spot freight rates for tankers trading on the Middle East-to-East routes dropped by 7%, to stand at WS51 points. Middle East-to-West freight rates followed the same pattern, though reflecting a higher drop of 10%, to stand at WS26 points. Freight rates for tankers operating on the West Africa-to-East route were also lower, showing a decline of 3% from the previous month.

Suezmax

As was the case with the bigger vessels, Suezmax spot freight rates also experienced negative developments in June. Spot freight rates edged down as the Suezmax market suffered from high vessels supply versus limited requirements. Suezmax rates hit year lows, as prompt vessel availability reached its highest level as a result of new deliveries and low operational delays. Low returns were exhibited on many voyages which took profitability to a very low end. In West Africa, spot freight rates for tankers operating on the West Africa-to-US Gulf Coast (USGC) route dropped by 21% to stand at WS60 points. Spot freight rates for tankers operating on the Northwest Europe (NWE)-to-USGC route dropped by 18% to average WS57 points. Suezmax rates on both routes showed a greater decline compared with freight rates registered on the same routes the previous year by 17% and 7%, respectively.

Aframax

As was the case with other vessel sizes in the dirty tanker segment, Aframax freight rates dropped in June from the previous month, showing an average 19% decline m-o-m. The Aframax freight rates decline came as a result of drops experienced on all reported routes. The downward pressure affected voyage profitability. Freight rates for tankers operating on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes went down by 21% and 24% to average WS91 and WS85 points, respectively, as a result of increased availability, even for spot requirements. Aframax rates in the Mediterranean turned flat in many cases as they suffered from limited enquiries. Spot freight rates went down on the Caribbean-to-US East Coast (USEC) route by 25% from the previous month as no rush of activity was detected prior to the holidays. Additionally, the market in the Caribbean did not benefit from storm and weather disruptions. Aframax freight rates to eastern destinations were not an exception, dropping by 4% for tankers trading on the Indonesia-to-East route to average WS93 points.

 

Asia Clean Tanker Market Outlook Q3 2017: MRs Are The Only Bright Spot (13/07)

While the situation may not be as dire as the crude tanker sector, newbuilding deliveries are expected to continue to keep a lid on product tanker rates in Asia over Q3. The pace of deliveries is expected to pick up in 2H, bringing the net fleet growth for 2017 to 3-4%. Around 30% of expected LR2 newbuild deliveries and 25% of expected LR1 newbuild deliveries this year have taken place so far.

On the demand side, higher June and July naphtha inflows from the West on the back of a wide East/West spread have led to a build-up in buyers’ inventories. As such, this is likely to displace some flows into Asia, resulting in less movements along the benchmark AG-Japan route and further pressuring LR tanker rates in Q3. According to Platts, around 1.2 to 1.3 mmt of European naphtha is expected to arrive in Asia in July (flat m-o-m), almost 20% higher than the year-to-date monthly average of 1.02 mmt.

Moreover, while North Asian naphtha import volumes are relatively steady, naphtha imports into China have been dropping steadily due to increased domestic output. Chinese naphtha imports from January to May were down by 22.2% y-o-y to 154 kb/d, and are expected to continue easing over Q3. The strength in the Asian gasoil market has led to a persistently strong EFS which has kept the East-West arb closed this year, resulting in less LR tankers moving along the key AG/Europe routes. This is expected to continue to weigh on the Asian LR market in Q3.

Things look a little brighter for the Asian Medium Range (MR) segment which has recently rebounded from multi-year lows. Chinese product exports in Q3 are likely to be supported by the recent release of the third batch of fuel export quotas, the conclusion of refinery maintenance season as well as lower domestic demand for gasoil due to a nationwide fishing ban. The third batch of fuel export quotas (under both processing trade and general trade terms) stand at 15.4 mmt, which is 231% higher than the previous batch and 152% higher y-o-y. This leaves much room for exports to grow in Q3, which could help to keep a floor under MR rates.

 

VLCC Newbuilding Orders During 2017 Already Triple Those of the Whole of 2016 (10/07)

In what can only be seen as a worrying sign of things to come, shipbroker Gibson reports that VLCC orders this year have more than tripled, compared to those of the whole of 2016. The London-based shipbroker said in its latest weekly report that “back at the beginning of May, our weekly report focused on the accelerating pace of orders, in particular demand for VLCC tonnage. Two months later we are reporting 20 more fresh VLCC orders, in addition to those placed between January and April. The total count of VLCC orders placed in the first six months of this year reached 38 compared to just 13 in the whole of 2016. We are also aware of several owners circling around the issue, either to order speculative tonnage or direct replacements for their elder units which will certainly add to the recent melee. The pace of VLCC ordering prompted Bimco last week to warn of a potential “fundamental imbalance that would take years to overcome”. Furthermore, we have seen 16 Suezmaxes ordered this year compared to 18 in the whole of last year”.

According to Gibson, “orders for Aframaxes which are at 35 so far this year (6 in 2016) and LR2s at 12 (2 in 2016) indicate that ordering activity has heated up quickly. Similarly, orders for MRs have already overhauled last year’s total of 30. Almost half of all orders this year have been placed in June alone. Delivery dates for these orders indicate that only a few slots are available for late 2018 delivery, suggesting that shipbuilders are rapidly filling their forward orderbook. Price is still a driver, but the influx of new orders appears to have applied the brakes to the downward spiral of newbuild prices of recent times. Owners may also be betting on the potential recovery of the tanker market by placing orders for 2019/20 delivery in anticipation of a rising freight market. The latest deliberations at the IMO on ballast water is unlikely to have any real impact on newbuilding orders unless you require tonnage for US trade. With the US regulators operating a different regime outside of the IMO coupled with the Tier III requirements, some owners will be paying a higher newbuild price to comply. It appears that the US authorities are beginning to toughen up ballast water waivers since they started approving systems. The IMO has agreed to extend the deadline, this potentially could lead to slower pace of tanker scrapping in years ahead”.

Gibson added that “however, perhaps the most interesting development in June was the announcement by Trafigura to order up to 32 crude and product tankers, with a potential value in excess of $1.35 billion. Contracts were reported to have been placed by China’s Bank of Communications Financial Leasing against bareboat charters to Trafigura who are believed to have purchase options. Official confirmation of the initial 22 (Suezmaxes, Aframaxes & MRs) split between Hyundai and New Times remains sketchy and some of the finer details relating to this order remain unreported. Cido Shipping also seem to favour the products market, having recently announced changing an order for two car carriers in to MR tankers. The two vessels involved were originally ordered in September 2015 and as such are not recorded as fresh orders, adding to a swelling tanker orderbook”.

The shipbroker concluded that “most recent orders placed are for ‘blue chip companies’ who appear to have access to huge lines of credit or have been very creative with their funding. Lack of ‘easy money’ is something which has kept a lid on ordering in the recent past. Referring back to our May report “only those with strong financial muscle are likely to be in a position to capitalise”. There appear to be quite a few out there”.

Meanwhile, in the crude tanker market this week, Gibson said that there was “steady VLCC fixing through the week, but no pinch points in availability to allow Owners to lever the market higher than their previous low ws 50 East, mid ws 20’s West marks. The final phase of the July programme is now being played out and the end month does sometimes provide opportunity, but the odds of anything noticeable developing look poor as things currently stand. Suezmaxes moved through a reasonably active phase and premiums for Kharg loading did stretch to over 10 ws points, though the bulk of enquiry was quite easily satisfied by supply and rates bumped against at ceiling of ws 70 to the East and mid ws 20’s to the West. Aframaxes couldn’t find any relief from downward pressure, but did continue to make a stand at around 80,000mt by ws 90 to Singapore nonetheless. more resistance will be required next week too”, it concluded.

 

Product tankers could benefit from Nigeria’s higher oil production (03/07)

The normalization of the situation in Nigeria has led to an improvement of the African country’s oil industry prospects, which in turn could spell good news for the tanker market. In its latest weekly report, shipbroker Gibson said that “Nigeria has long been an important source of both crude and product tanker demand. However, in recent times, the West African state has been inconsistent in both its export and import activity, impacting upon the tanker market. The nation, like most other major producers, has suffered immensely from lower oil prices, which continue to strain government finances. However, finally there is some hope on the horizon. Insurgent activity has declined, force majeure has been lifted on the 250,000 b/d Forcados stream and, just hours before this report was published, Shell lifted force majeure on the Bonny Light”.

According to the London-based shipbroker, “in the short term, higher production is of course beneficial for crude tankers, which are being pressured globally by OPEC cuts and rising tanker supply. However, as Nigerian production increases, pressure will increase to join the groups collective action. Nigeria has in the past indicated an intent to contribute to OPEC’s collective efforts once its production returns to ‘normal levels’ which could fast be approaching. However, whilst production is moving in the right direction, instability is still an issue and the risk of further insurgent activity remains. However, at the time of writing, production appears to have more up, than downside”, Gibson noted.

It added that “higher crude production may also have a positive impact on product imports, benefitting clean tankers. Higher export volumes offer support for crude for product swaps – where international refiners/traders exchange clean products in return for crude cargoes. Whilst higher production also provides further income to pay for fuel imports outside the swap agreements. However, as with all developing nations, the status quo never stands still for long. Whilst most forecasting agencies see little growth in Nigerian crude production, the picture is different for the nations refining sector. In a report 12 months ago, we highlighted a new greenfield refinery under construction in Nigeria, citing the obvious challenges and track record of refining in the country. Despite these hurdles, work is progressing at the 650,000 b/d Lekki refinery in Lagos. Recently news emerged that DuPont had been retained to provide a 27,000 b/d alkylation unit to aid the production of high quality clean fuels. The press release reiterated a Q4 2019 start-up date”.

Meanwhile, “such a date may prove to be optimistic, however right now it does appear that a refinery will be delivered, even if 2019 is unrealistic. Indeed, in the IEA’s 2017 medium term report, the refinery is listed with a startup of 2022. However, the challenge will be beyond simply building the refinery. The next hurdle will be running the plant near capacity, something existing refineries in the country have failed to come close to. Such a development is clearly bearish for crude exports from Nigeria in the longer term, given limited prospects for production growth. Simultaneously it would indicate a reduced product import requirement once the plant is completed. However, when taking account of regional demand forecasts, refinery capacity additions fall short of anticipated demand growth, ensuring West Africa remains a demand outlet for refined products from Europe and beyond, even if the growth could remain limited. The refinery also intends to export products, creating more trading opportunities across the region”, the shipbroker concluded.

Meanwhile, in the crude tanker market this past week, Gibson said that “holidays in the East initially slowed the VLCC fixing pace and thereafter it never recovered with next week’s upcoming U.S. Holiday providing further excuse for elongation. Rates merely stagnated over the period at no higher than low ws 50’s East and mid ws 20’s West with the near term outlook similar. Suezmaxes kept steady, but never active enough for Owners to lever the average rate higher. There was, however, more seen for Kharg loading and handsome premiums were paid there over the ‘standard’ ws 25 West, ws 65 East numbers. After a hopeful start, Aframaxes quietened and rates retreated back no little better than 80,000mt by ws 90 to Singapore and little early change likely”, the shipbroker concluded.

 

Tanker Market: New Pipeline Could Spell New Trouble for Tanker Owners (19/06)

The new Dakota Access Pipeline could spell a shift in demand for tankers and ship owners could face new trouble in the North American market, said Gibson in its latest report. In its latest weekly report, Gibson said that “earlier this month the long-awaited and at times controversial, Dakota Access Pipeline (DAPL) came into commercial service. At 1,172 miles in length, crossing four states and with a throughput of 520,000 bpd, the pipeline could have significant implications for crude trade in North America. Primarily transporting crude oil from the Bakken and Three Forks fields in North Dakota, the pipeline provides a crucial link to domestic refiners and also potential export opportunities”.

According to the shipbroker, “once crude arrives in Illinois via the DAPL several options become available. Firstly, barrels can be piped from storage facilities further south into Texas on existing pipelines to the US Gulf for export. Crude exports from the United States have been growing steadily in recent years and the opening of the DAPL will no doubt further boost export opportunities. North Dakota crude is light sweet which has proved popular in the export market, with small batches already being sent to Asia and Europe, according to data from Platts. South Korean and Chinese refiners have imported US grades recently for testing. Several Asian refineries have reported that Bakken origin crude is distillate rich and low sulphur, which could feed comfortably into Asian refineries”.

Gibson added that “the second option available is to feed into the domestic refinery system in the Midwest. With increasing volumes of crude arriving in Illinois, Midwest refineries are pushing for a change in directional flow to the existing Laurel pipeline which could impact on crude and product trade in the Atlantic. The 350-mile Laurel pipeline currently flows from East to West, connecting East Coast refineries and product from New York Harbour to Pittsburgh. Midwest refiners want to change the direction on a section of Laurel Pipeline enabling them with regular access to the Pennsylvanian market to supply with products. East Coast refiners fear that the approval of this could lead to the reversal of the entire pipeline, leaving Midwest refiners to serve the East Coast and even send product into New York harbour, a major product trading hub. This would potentially displace seaborne imports of gasoline into the USAC as Midwest refiners would have access to a cheap domestic crude source and are confident of lowering gasoline prices throughout the region”, Gibson said.

The shipbroker went on to note that “East coast refiners currently provide around one-fifth of gasoline demand on the East, with the rest met by a mixture of pipeline imports from the US Gulf (Colonial pipeline) and imports from Europe and Canada. If Midwest refiners were granted access to the Laurel pipeline and this did presage a full change in directional flow, it could prove disastrous to East Coast refiners. Some state lawmakers and some refiners in Philadelphia have provided vocal opposition to any change in directional flow”.

Gibson concluded that “in terms of impact on the tanker market, a potential reversal on the Laurel pipeline could prove particularly painful. As East Coast refiners import most of their crude from West Africa and South America, these imports could be reduced if Midwest refiners increase throughput and are able to displace product from East Coast refiners into Pennsylvania. Furthermore, if Midwest refiners are able to place product into the US East Coast and New York harbour, this could prove detrimental to TC2 flows from Europe. However, as with any major infrastructure deal, opposition is highly likely. As an example of how difficult it can be, the bumpy road of the DAPL offers ample warning to all concerned”.

Meanwhile, in the tanker market this week, “modest VLCC enquiry as Charterers concentrated upon mopping up their remaining June needs and awaited confirmation of July programmes. Rates drifted sideways with ws 50 to the East effectively the ceiling by the week’s end with mid ws 20’s still the zone for the West. Things should become busier next week, but availability looks easy enough to limit any positive reaction. Suezmaxes also only enjoyed demand merely sufficient to anchor rates at down to ws 67.5 to the East and ws 25 to the West with little sign of any early change. Aframaxes completed the downbeat picture with thin volume allowing for rates to be chipped lower to 80,000 by ws 95 to Singapore and again, no realistic turnaround in near sight”, the shipbroker concluded.

 

Tanker Fleet Growth at 2.41% over the First Five Months of 2017 (15/06)

Tanker owners are seeking for rays of hope in a gloomy environment of late, with demand slowing down and fleet growth rising. In its latest weekly report, shipbroker Allied Shipbroking said that “news of U.S. inventory decline has hit the market by surprise with prices of the commodity showing some quick revival as OPEC continues to push with its production cuts limiting trading volumes and increasing bullish sentiment amongst investors. The prevailing sentiment has been holding for some months now that the supply glut has managed to still hold despite efforts that had been made since the final quarter of 2016. We are likely seeing a reversal to the prevailing trends and as such an increase demand which could help bolster the price of crude oil further. This however could have negative repercussions on the tanker trade, as the continual limit of production volumes could end up leaving for a sluggish trade and limited activity in the freight market”.

According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, “on the plus side, however we may well see an increased demand for imports from the U.S. in the case that an effort is made to bolster inventories once more. The positive sign from all of this is that we are starting to see a slight revival in demand, especially from Western economies, while the Far East should continue to keep its insatiable demand going. It is too early to tell if this recent trend will last or if it’s just a small temporary movement rather than a prevailing long-term trend”.

At the same time, as Lazaridis points out, “the tanker fleet has continued to grow over the first five months of the year, having now reached a growth rate of 2.41% for the year so far. At the same time the orderbook is still in double digits, with the overall ratio of vessels on order against the in-service fleet now holding at 11.95%. The size segments facing the greatest threat from their orderbook are the crude oil tankers, with Suezmaxes holding at a ratio of 15.54%, while closely following this are the Aframaxes and finally the VLCCs with 14.87% and 14.15% respectively. Given that the percentage of vessels in the active fleet which are above 20 years of age is relatively limited in comparison, we are likely looking at a fair amount of growth in the fleet over the coming years, something that could potentially leave us with an increased imbalance of demand and supply in the freight market and a further deterioration of the prevailing rates”.

He added that “the hope is that consumption will step up and help bolster trade from non-OPEC members, while any increases in the price of crude oil this could trigger could possibly also allow for OPEC to ease its production cuts rather than further intensify them during the course of the year. What’s certain at this point is that the tanker freight market is still under pressure and given the recent softening trends being seen across all the crude oil tanker segments over the past couple of weeks, it looks as though the summer period has gotten off to a relatively slow start. The average time charter equivalent rates for these sizes has continually held below the freight levels noted during the same period last year, though it is important to note that they are still at a relatively better shape then what was being seen between 2010-2014. As such it seems wise to tread carefully right now, despite the fact that we have started to see some positive signs in the underlining demand fundamentals of the market”, Allied’s analyst concluded.

 

VLCC Tanker Market Rebounds Despite Middle East Tension (13/06)

Qatar’s tension hasn’t dented the tanker market in the Middle East. In its latest weekly report, shipbroker Charles R. Weber noted that “rates in the VLCC market improved modestly this week as the participants reacted to a progressively narrowing supply/demand balance during the June Middle East program. Fundamentals dictate that rates would likely have pushed higher, but were capped by a slower pace of demand in the Middle East this week and the fact that 38% of cargoes there were covered under COA (the highest COA coverage rate in three months)”.

According to CR Weber, “29 fixtures were reported in the Middle East region, representing a 17% w/w decline. Elsewhere, fixture activity in the West Africa market remained lofty with seven reported. Unlike last week when a small number of West Africa fixtures sourced tonnage from the Caribbean basin, all of this weeks were on ballasters from Asia, implying a 1:1 reduction of Middle East availability. The four‐week moving average of West Africa fixtures continued to extend gains, reaching a seven‐week high and thus lending rising support to overall VLCC fundamentals”.

The shipbroker added that “the emerging diplomatic crisis between Qatar and the UAE, Saudi Arabia, Bahrain and Egypt saw port authorities in the UAE and Saudi Arabia issue guidance disallowing vessels transiting immediately to or from Qatar (as well as Qatari flagged vessels) to trade into their ports. AIS data suggests that Qatar’s YTD VLCC, Suezmax and Aframax supply rate is just ~400,000 b/d while OPEC data shows that Qatar accounts for around just 3% of total Arabian Gulf crude supply. On this basis, any long‐term implications for Qatar’s isolation is limited. In the initial aftermath, however, four VLCCs fixed to part‐load cargoes in Qatar and elsewhere failed with the cargoes instead broken down to Suezmaxes, which added those units to the projected end‐June regional spot tonnage surplus. Going forward, as charterers rearrange their cargo programs and scheduling, we do not expect this to remain a feature of the market – and already, the emirate of Abu Dhabi has eased its restrictions on tankers transiting to and from Qatar implying that any associated implications for tankers could be short lived”.

CR Weber concluded that “near‐term fundamentals continue to look positive for rate development and we expect that notable gains could accompany the commencement of the July program. There are presently 30 units available through end‐June, against which there are a likely 17 remaining Middle East cargoes and at least six likely draws to service West Africa cargoes, implying an end‐June surplus of just seven units. This represents the smallest surplus since January and compares with 25 units at the conclusion of the May program”.

In the Middle East, rates on the AG‐JPN route concluded the week with a gain of 1 point to ws51 with corresponding TCEs gaining 2% to conclude at ~$20,492/day. Rates to the USG via the Cape were unchanged at ws26. Triangulated Westbound trade earnings fell by 2% to conclude at $21,775/day.

In the Atlantic Basin, “rates in the West Africa market followed those in the Middle East. The WAFR‐FEAST route gained two points to conclude at ws55 with corresponding TCEs rising by 10% to conclude at ~$23,199/day. The Caribbean market observed limited demand this week, allowing regional rates to continue to test fresh YTD lows. The CBS‐SPORE route shed $100k to conclude at a fresh YTD low of $3.0m lump sum”, said CR Weber.

Meanwhile, in the Suezmax market, “fixture activity in the West Africa market remained slow this week; with eight fixtures reported, the tally was two greater than last week but two below the YTD average. Meanwhile, a rising number of available units regionally and weakening Aframax rates in regions where Suezmaxes compete, impinged rate sentiment. Rates on the WAFR‐UKC route shed 15 points to conclude at a fresh YTD low of ws65. With only a small number of June cargoes remaining outstanding, as charterers work these and progress into the July program, the large number of surplus tonnage will likely extend the negative trend to an effective floor guided by OPEX in the immediate near‐term. In the Caribbean market, Suezmax rates were under negative pressure on the sour West Africa market and a collapsing regional Aframax rates. The CBS‐USG route shed five points to conclude at ws65 – a YTD last tested in late May. TCE differentials placing the Caribbean at a premium to alternative markets imply that rates could weaken further during the coming week”, the shipbroker concluded.

 

Tanker Market: “Libyan” Factor a Boon for Suezmax and Aframaxes’ Fortunes (06/06)

The resurgence of Libyan oil production will offer support to Suezmax and Aframax tankers, in terms of demand, but in the short-term, prospects aren’t that rosy. In its latest weekly report, shipbroker Charles R. Weber noted that “Libyan crude production posted strong gains during May, rising from 700,000 b/d at the end of April to a three‐year high of 800,000 b/d early during May and subsequently concluding the month at 827,000 b/d, according to the country’s National Oil Company. The gains follow a restart of production at the Sahara oil field late during April after a weeks‐long closure and a restart of the El Feel (Elephant) field during May after having been offline for two years. A technical issue led to a short blip in production at the Sahara field – the country’s largest – during mid‐month likely implies that the average production rate for the month will be lower than the headline figures suggest, but directional improvements and multiple‐year highs imply a positive demand‐side development for Aframax and Suezmax tankers servicing regional cargo flows”, said the shipbroker.

Indeed, CR Weber notes that “a fresh influx of cargoes during late May proved quite supportive of Aframax rates – if only briefly. Aframax TCEs on the MED‐MED route jumped from just $10,700/day at the start of the month to over $25,500/day by May 24th. Contributing to the gains were modest supply gains from Ceyhan, as well as coverage of prompt cargo purchases of North Sea crude grades (during a brief Brent contango futures structure ahead of the OPEC production cut extension) which simultaneously propelled NSEA‐UKC Aframax TCEs to over $30,000/day. Suezmax rates in the same markets rallied in tandem as they have been trading at an effective floor dictated by Afrramaxes, with $/mt rates matching those of the smaller class. Any cheer among owners was short‐lived, however, as Aframax TCEs have largely corrected: presently, the MED‐MED route yields ~$9,776/day and the NSEA‐UKC route yields ~$11,977/day”, it said.

According to CR Weber, “the outlook for the remainder of Q2 and the start of Q3 doesn’t appear particularly rosy, despite potential for Libya to yield a steadier and elevated export flow during the coming months. Natural Aframax demand in the North Sea market is set to decline m/m during June, and the July program shows the fewest loadings of 2017. Meanwhile, Ceyhan loadings are unlikely to observe much further upside following May’s gains. Adding to prospective negative pressure, Suezmaxes appear poised for a wider supply/demand imbalance in the West Africa region, which could elevate vies by Suezmax units for Aframax cargoes. Nigeria’s Forcados crude stream is poised to return following repairs to the pipeline linking fields to the Forcados terminal. Though notionally positive for Suezmaxes (the traditional workhorse of West African exports) the return of Forcados could weaken regional crude differentials to Brent. This would make West African crude more attractive to Asian buyers seeking to offset a lack of supply growth in the Middle East due to extended OPEC production cuts with purchases elsewhere, thereby supporting VLCCs at the expense of Suezmaxes”.

The shipbroker added that “on a YTD y/y basis, VLCC demand in West Africa has grown by 28% while Suezmax demand has shrunk by 25%. Meanwhile, both the Aframax/LR2 and Suezmax fleets are grappling with extraordinarily high net fleet growth rates as a massive newbuilding delivery program is ongoing amid limited phase‐outs of older units. The Aframax/LR2 fleet is has expanded by 2.7% YTD and is projected to conclude the year with a net annual growth rate of 6.9% for 2017 while the Suezmax fleet has expanded by 5.4% YTD and is projected observe a net annual growth rate of 10.0%. Moreover, the majority of this year’s newbuildings have yet to enter the Atlantic basin. Our analysis of AIS and fixture data shows that the average Suezmax newbuilding does not appear in the West Africa market for 95 days after delivery – and of the 26 Suezmax units delivered since 1 Jan, just five have traded cargoes from West Africa so far. To put the volume of recently delivered units that have yet to enter the region into perspective, there are around 10 spot market‐serviced Suezmax loadings and 17 total Suezmax loadings in West Africa, per week”, the shipbroker concluded.

 

MRs reap rewards from ramped-up refining (06/06)

The past week has been a good one for owners of MR tankers trading in the spot market. The market driver? American refining.

Spot

Since last Thursday, spot rates have advanced on both the all-important UK Continent to US East Coast (TC2_37) and the US Gulf to Continent (TC14) benchmark routes for MRs carrying clean petroleum products (CPP).

The TC2 route’s timecharter equivalent (TCE) rate has rallied by around 29% from $7,729/day on May 25 to $10,003/day on May 31, according to Baltic Exchange assessments. Growth in rates on the route levelled off as the week progressed, but it was a different story for MRs hauling CPP back to Europe.

The TCE spot rate on the TC14 route has grown by 662% over the past week, according to Baltic assessments. On Thursday, the rate was assessed at $4,509/day, compared to $592/day a week earlier.

A short-term pop in the market

This sudden rise in rates, however, isn’t destined to last much longer but the long-term outlook for CPP cargo availability from the US Gulf continues to grow brighter.

CPP exports from refineries on the US Gulf Coast have risen and are expected to rise further due to higher refinery run rates, rising US inventories and weaker import demand from Latin America. Refinery utilisation in the US has hit its highest seasonal level since May 2005 at 95%, according to data from consultancy PJK International.

Since May 25, Gasoil stocks in the Amsterdam-Rotterdam-Antwerp (ARA) port range declined by 2.6%, PJK data says, which has also helped boost imports from the US Gulf (TC14). Key refineries in northwest Europe and the Mediterranean have been undergoing maintenance, which accounts for the stock draw. Diesel demand in northern Europe, however, remains flat.

Meanwhile, US distillate stockpiles, which include diesel and heating oil, rose last week by 394,000 bbl, almost half the expected 755,000-barrel drop, according to latest US EIA data.

Trump and the Saudis: longer term outlook for products

We might have seen a pop in the market, but CPP exports from the US Gulf Coast will increase dramatically over the next 10 years.

Last year, Saudi Aramco moved to purchase the remaining 50% it did not already own in US-based refiner Motiva from its joint-venture partner Shell. The deal was completed in March and included distribution operations across seven US states, among other things.

Motiva’s major facility is the 600,000-bpd Port Arthur refinery on the US Gulf Coast, which is America’s largest in terms of capacity.

Saudi Aramco announced it will invest a further $12bn in the Motiva refinery at Port Arthur during US President Donald Trump’s made his first official overseas visit to Riyadh on May 20.

In addition, Aramco said it will spend $18bn over the next five years on expanding its activities within the Americas, which will include increasing refining capacity, branching into chemicals and expanding its commercial operations. The company said the investments may be made in new sites, not just its current operations, but gave no further details about expansion plans. What is known is that Aramco has looked at buying at least one additional Gulf Coast refinery and certain chemical plants.

This is in line with plans by other US refiners, who are reportedly looking to increase exports of diesel and jet fuel and expand production of petrochemicals. Domestic gasoline demand is expected peak within 20 to 30 years.

Saudi remains one of the US’s largest suppliers of crude oil, with supply estimated at around 1.0m bpd. With Saudi Aramco’s huge investments in US refineries, it wouldn’t be surprising if crude supply were to be increased further – which is good news for VLCCs, as well as MRs.

 

VLCCs Demand Bound for Slowdown Just As Newbuilding Deliveries are Rising (05/06)

Owners of VLCCs, the largest kind of tankers available, aren’t feeling all that happy lately. The announcement made last week by OPEC and a number of non-OPEC producers to extend production cuts to March 2018 has important implications for the crude tanker market, in particular VLCCs. In its latest weekly note, shipbroker Gibson said that “cutbacks largely originate out of the Middle East, where most VLCC trade comes from. During the 1st five months of this year, VLCC spot earnings on the benchmark trade from the Middle East to Japan averaged $27,000/day, less than half the level of TCE returns witnessed over the same period last year. Although $27,000/day is still not bad by conservative estimates, extending cuts for another nine months will coincide with continued rapid growth in the tanker fleet. Between now and the end of March 2018, 34 VLCCs are scheduled for delivery, while 25 tankers have already been delivered since the beginning of the year. Although slippage in terms of delivery dates is likely to continue; nonetheless, we will still see a robust growth in the VLCC fleet size”, Gibson noted.

Furthermore, as the shipbroker says, “if OPEC succeeds in its intention to rebalance oil markets, this will translate into a further decline in VLCC floating storage, a big support factor to the market since early 2015. The total number of VLCCs involved in various non-trading activities (primarily storage) is already down. The latest count is at 23 units, down from 38 tankers at the end of last year, with the decline driven by Iranian and nonIranian crude storage. The extension of production cuts during the 3 rd and 4 th quarters of this year, the time when demand usually registers strong gains, suggests that there could be a further draw in a number of VLCCs involved in floating storage”.

According to Gibson, “on this basis, the downturn in the VLCC market is likely to accelerate in the short term. Yet, there may be a silver lining, which could offset at least partially the looming crisis for VLCC owners. Large scale cutbacks in the Middle East crude availability are stimulating long haul trade of Atlantic Basin crude to the East, in part being driven by the increase in value of regional barrels relative to the Atlantic Basin benchmarks. Analysis of AIS trade data shows that in terms of absolute volume of crude and fuel oil shipped on VLCCs, long haul trade from West Africa to the East increased by 13.5% between January and May 2017, compared to the corresponding period last year. The picture is similar for trade from Latin/South America: here the volumes shipped increased by 13%. An even bigger increase in VLCC shipments was observed from North West Europe/Mediterranean and the US Gulf. The volume of dirty shipments on VLCCs from North West Europe and Mediterranean to the East jumped by over 30% this year, while trade from the US witnessed a spectacular six fold increase. If Middle East crude exports remain restricted, while demand in Asia continues to rise, this will only stimulate further growth in long haul trade to the Pacific Basin”.

Similarly, as Gibson said, “question mark remains over the potential recovery in Nigerian and Libyan crude production. Any further increases in output in these two countries will not only offset some of the efforts made by other producers but will also provide further support to long haul trade. Finally, as long as the restraint is exercised by OPEC countries, this will stimulate further growth in US crude output and exports. If a major recovery is witnessed in the US shale output during the period, the same could deter the release of tonnage from floating storage duties. All in all, the next nine months may prove to be not as bad for VLCC owners as some feared. However, as always is the case, the future fortunes do not only depend on the market fundamentals, but also owners’ confidence or the lack of it…”, the shipbroker concluded.

Meanwhile, in the tanker market this week, Gibson said that “VLCC rates initially dropped to as low as ws 39 to the Far East and the lowest of the year so far. Once they had, however, the bargains proved too hard for Charterers to resist and they responded by swamping the market with fresh enquiry. Rates did then recover a little to ws 50 East and mid ws 20’s to the West upon the sheer momentum but consistently good availability prevented any noticeable spike. There remains a possibility of further improvement into next week, but an easier pace would compromise. Suezmaxes found no such attention and merely drifted lower as tonnage lists grew. Rates ease to under ws 70 to the East and into the high ws 20’s to the West. Aframaxes posted no change over the week – slow and well tonnaged…rates stuck at around 80,000 by ws 100 to Singapore now, and over the near term at least”, the shipbroker concluded.

 

Tanker Market To Improve in 2018 As Overtonnage Risks Remain Evident (03/06)

A new wave of newbuilding tankers hitting the market over the course of the next few months is bound to exert pressure on tanker freight rates, unless demand improves significantly and scrappings rise as well. In its latest market outlook, tanker owner Frontline said that the market will only begin to show improvement in 2018 the earliest, when the pace of newbuilding deliveries slow and vessels are retired from the global fleet.

Frontline notes that “we expect vessel scrapping to begin to pick up as we progress through 2017, particularly in light of the implementation of the ballast water treatment convention later this year and given the amount of older vintage tonnage. Some vessels may also be dry docked ahead of the implementation date of the convention in order to defer the cost of compliance. This may have the effect of temporarily removing supply from the market. Following the implementation of OPEC and non-OPEC production caps, which have largely been complied with, we have seen trade routes evolve. In particular, there have been increased long-haul voyages from the Atlantic Basin to Asia driven in part by increasing U.S. production and a shift in U.S. exports towards long-haul voyages. Crude oil demand, particularly from China and India, continues to grow, and crude oil is being imported from nontraditional sources due to OPEC production cuts and the desire to diversify supply”, said the shipowner.

It added that “the effect on ton-mile demand is positive, and we expect this trend to continue. All factors considered, the Company maintains a cautious near-term view on the tanker market and believes the market will begin to balance as vessels are absorbed into the global fleet and older vessels retire from trading. In the meantime, the Company expects that periods of market weakness will inevitably create attractive opportunities to acquire assets at historically low prices. The Company believes it is in a unique position to further grow and modernize its operating fleet and continue to generate substantial returns to its shareholders in a strong tanker market and healthy returns in a more muted market. Frontline has a long track record of doing so, and it seeks to carry on that tradition as it increases its leadership role in the market”, the ship owner concluded.

Meanwhile, in a separate report, Clarkson Platou Securities reiterated its Buy Rating on Frontline’s stock, after the company reported its first quarter results earlier this week, despite the fact that they were weaker than expected. “Averages spot earnings for Frontline’s VLCCs were $34,700 per day in Q1 while Clarksons Platou’s estimate was $40,000, analyst Herman Hildan told Reuters. Hildan says Frontline’s VLCC earnings are also lower than competitors DHT and Euronav while dividend of 15 cent is higher than consensus of 13 cent per share. Hildan says has a buy recommendation on Frontline and is in general positive to the tanker market even if it looks somewhat weaker for the time being. Hildan says the VLCC fleet growth set to peak in Q2, and that seasonally Q3 is a difficult quarter in the tanker market”, it concluded.

Tankers: Is bigger better? (29/05)

The past month or so in the tanker market has been all about consolidation – either realised or attempted. This week, Scorpio Tankers revealed it is to acquire Navig8 Product Tankers through a merger. The merged entity’s fleet will consist of 105 product tankers, including 38 LR2s, 12 LR1s, 41 MRs and 14 handymax vessels, plus 19 ships on time or bareboat charters. Scorpio Tankers also has six MR tankers on order at Hyundai Mipo that are all scheduled for delivery this year.

In the VLCC segment, Frontline has hotly pursued a takeover of DHT Holdings, which was finally rejected by the company. A merger of the two companies would have created the world’s biggest listed tanker company. The combined fleet would have comprised 72 tankers, including 40 VLCCs. Frontline also has another 10 vessels on order, including four VLCCs.

But is it better to be bigger?

2016
The rationale behind consolidation and creating an entity with many vessels is to create economies of scale in order to better compete on a cost-plus basis. However, rates continue to be depressed with little prospect of improvement.

Last year was a tough one for tankers – even for the larger companies. In the crude sector, Frontline and DHT saw their respective daily timecharter equivalent (TCE) rates decline by 46% and 50% over the course of the year, according to public filings. The products trade had it only slightly better: Scorpio Tankers saw its daily TCE rates fall 38.4% over the year.

The depression in rates was largely due to rising oil prices, limited additions in refinery capacity, high oil inventories and slow economic growth.

Asset play
Of course, if things were to really go belly-up in the charter market, then players with large fleets can always count on their residual asset values to shore them up, particularly if they’ve invested in modern quality tonnage. ¬¬That’s the theory anyway.

The dry bulk market has offered a cautionary tale. Star Bulk bought 34 bulk carriers from Excel Maritime that were valued at around $623m when the time the deal was agreed in August 2014. However , when the ships were delivered in April 2015, their collective market value had fallen to an estimated $351m, according to reports. Bulker asset values have appreciated since then, but still aren’t quite back to 2014 levels.

The respective values of a five-year-old VLCC (305,000 dwt) and MR product tanker (51,000 dwt) dropped by around 25% over the course of 2016, according to Baltic Exchange assessments. Tanker asset values are expected to remain depressed due to vessel supply growth and low newbuilding prices.

Buying a large number of ships can to some extent protect a company’s position but it’s still a gamble on future asset values, which remain subject to wider market forces.

Macro factors
Being a commoditised market, tanker companies are playing a waiting game for growth in seaborne volumes, which makes them vulnerable to macroeconomic factors. Aging consumers, technological innovation and protectionist trade politics are all big issues that have the potential to slow growth in international trade.

There are modest expectations for future demand growth for crude tankers, but these are likely to be offset by strong growth in vessel supply. What is more, the global fleets of crude tankers has an average age of just 8 years, and the clean tanker fleet (LR1s, LR2s and MRs) has an average age of around 8.5 years, according to our estimates. The relative youth of the fleets will prevent vessel supply and demand being rebalanced quickly.

Big players have the ability to throw their weight around and take a big market share, just like the little guy, they remain subject to vessel oversupply and sluggish demand growth.

 

Shipbroker Expects Clean Tanker Market to Weaken Moving Forward (27/05)

Shipbroker Intermodal is expecting weakness in the product tanker market moving forward. In its latest weekly report, Intermodal said that “as we are approaching the summer season, the Clean Product market appears poised to become more challenging, either on East or West of Suez”.

The shipbroker’s Tanker Chartering Broker, Mr. George Vastardis noted that “looking towards the East of Suez and in particular the Middle Eastern Clean MRs over the previous week, we notice that quite healthy activity has pushed rates slightly up. This led to short hauls cross MEG at mid-high $100k levels, which translates to a $20k increase from the previous week. Distillates to E. Africa moved up at around WS137 (basis 35,000mt), whereas Naphtha lifts ex-WC India to Japan firmed and settled around WS122 levels. However, deliveries to UK Continent remained at mid $800k levels, which is quite stable”, he said.

Meanwhile, “quite healthy activity was also noticed in the North Far East clean MR market. Routes from S. Korea to Singapore improved to high $200k levels along with similar trades in Northern Far East short haul voyages. Moreover, the S. Korea to E.C Australia route also firmed at around WS180 (basis 35,000mt) , while if healthy demand resumes this week we might witness even better rates in the Northern Asian trade. On the contrary, South Asia activity softened. More specifically, cross-Singapore traded at around $90k to $95k levels and Singapore to S. China routes are still trading at low-mid $200k levels with tonnage availability not assisting recovery in the sector”, Vastardis said.

He added that “moving on to the LR market it seems that earnings are still under pressure with charterers gaining additional market control in the past days. TC1 (MEG/Japan) traded at around WS90 levels (basis 75,000mt) and TC5 (MEG/Japan) at around WS97 levels (basis 55,000mt), which translates to a decrease of around WS15 points for both segments in a week’s time. Deliveries to UK Continent for LR2s traded at around $1.3m levels and for LR1s at around $1.05m levels. It is therefore evident that the LR market seems unable to find a stable footing at least until the end of May also taking into consideration the beginning of the Ramadan by the end of this week”.

“On the other hand the Western clean MR market seems to be more promising over the past week, especially for the lifts ex ARA to Transatlantic voyages, as healthy business volumes together with a few replacements shrunk the tonnage list. Similar to the MRs, Handies also witnessed an upward movement that lead to cross Continent rates at around WS125 levels (basis 35,000mt) and Baltic lifts (basis 30,000mt) being fixed at around WS13- to WS132.5. Continuing with the Mediterranean market, despite the fact that some action was witnessed over the past week, rates ended the week below WS135 levels, which translates to a decrease of WS5 points compared to previous weeks, with lifts ex Black Sea getting the usual w10 point premium”, said Vastardis.

He went on to note that “moving on to the Western LR1 marker, things have not been very exciting either, as lack of demand left freights sliding accordingly, with voyages from ARA to West Africa hovering at around WS100 points. Deliveries to the Middle East were at around $1.0m and to Singapore discharge at around $1.3m. The LR2 market also experienced even slower demand compared to previous weeks that led to freights ex ARA to MEG at $1.15m and $1.37m to Singapore discharge, enabling us to assess for a typical naphtha employment from MED to Japan at around $1.6m levels. To conclude, even though refineries maintenance in the Far East has been completed and reasonably everyone is expecting more action ahead, our expectations remain fairly low especially for the Eastern Market, unless we witness significant signs of recovery on the bigger sizes”, Intermodal’s analyst concluded.

 

VLCCs: Secondhand values set to hot up (23/05)

In February this year, the VLCC orderbook reportedly fell to its lowest level since 12 months earlier, with around 89 VLCCs on order. This is equivalent to around 11% of the VLCC fleet currently on the water (around 725 vessels).

Firm orders for 22 VLCCs have been reported so far this year, plus a further seven optional vessels. As has been reported in the maritime press, nearly two-thirds of all the firm VLCC contracts came from Greek companies and almost all the newbuildings are to be built at Korean yards.

In addition, in early May Hyundai Merchant Marine reportedly signed a letter of intent with Daewoo for up to 10 VLCCs, but as yet it’s unclear when this order will be formalised.

Analysis by BIMCO this month noted that net fleet growth for large crude oil tankers has already increased by 2.4% in the year-to-date. According to Alibra’s own estimates, some 29 new VLCCs have hit the water so far this year, with two reported sold for demolition. A further 23 newbuildings are scheduled for delivery before the end of the year. In 2018, another 41 VLCCs will be delivered.

In the secondhand market, we have tracked 25 VLCCs changing hands so far this year, of which 11 were acquired en bloc by DHT Holdings from BW Maritime Almost one-third of vessels were resales or recent deliveries, but interestingly another one-third were aged 15 years or older. Buyers have tended to opt for tonnage built at quality yards.

We wrote a blog earlier this year, discussing how depressed newbuilding prices for VLCCs have been keeping a lid on secondhand values. Despite all the ordering and increased activity in the S&P market (which is by no means a feeding frenzy), newbuilding contract prices for 300,000-dwt vessels have fluctuated between $80m and almost $85m – nothing too exciting.

This has caused secondhand values to remain pretty flat. The Baltic Exchange has valued a five-year-old, 305,000-dwt VLCC at around $60m, give or take, since September 2016. Despite the increased interest in VLCCs seen in recent months, the valuation of the Baltic’s benchmark vessel only received a boost this week, when it was assessed at $60.984m. This estimate is an increase of just over $1.0m from a week earlier, which is huge compared to how flat the assessments have been since the autumn.

It wouldn’t surprise us if secondhand VLCC values continue to firm over the coming weeks. We would hope that interest remains in the S&P market and that not too many further newbuildings are ordered – net fleet growth remains at a relatively high level and market fundamentals don’t suggest there will be any sudden spikes in demand. We don’t expect to see many VLCCs sold for demolition either, which will compound the threat of vessel oversupply.

 

Product Tankers Could See Demand Rising from Latin America (22/05)

Potential has certainly been there, but for a number of reasons, Latin American oil-rich countries haven’t been able to capitalize on it. In its latest weekly report, shipbroker Gibson said that “despite plentiful supply of crude oil, the region has historically had to rely on imports to supplement its domestic refining output, and despite the promise, has struggled to make progress on the refining front over the past few years. Indeed, much hope rested on Brazil, with several major projects under construction, many of which should have been operational today. Yet the remaining projects have suffered continual setbacks, with all remaining projects on hold as Petrobras tries to reign in its Capex, following an economic and political crisis in the country. Yet it is not just Brazil that has struggled. Elsewhere in the region, refining in Venezuela has been particularly hard hit by a lack of investment and maintenance following the collapse in oil prices. Whilst the country boasts refining capacity of 1.3 million b/d, which should make the country a net exporter, utilization has been very low in recent months. Mexico has also had its fair share of issues, whilst elsewhere in the region, little progress has been made on the refining front”, said Gibson.

According to the shipbroker, “until recently, the regions inability to bring on any major increases in refining capacity had coincided with a period of falling demand, in line with economic contraction in many of the regional powerhouse economies. However, despite the economic instability, product imports have seen growth over the past few years”.

Gibson added that “in 2016, the US alone exported 2.3 million b/d of refined products to the region, of which over 0.8 million b/d comprised of middle distillate. Whilst this represented growth of just 200,000 b/d over 2015, one must consider that overall oil demand growth was declining over the period. Now with the some of the major regional economies recovering, demand growth in the region is set to return. Over the next five years the IEA projects regional demand to grow nearly 0.6 million b/d. Whilst limited expansions in refining capacity are expected to come online over this period, higher utilisation (which is questionable) could contribute in part towards servicing higher demand. However, regardless of these developments, the region will be forced to import higher volumes of product. Furthermore, BP has opened its first gas station in Mexico, with plans to open 1,500 over the next five years; Exxon has plans to invest $300 million into the country’s retail fuel sector, whilst Glencore has announced its own partnership with a domestic player. However, neither Exxon, Glencore or BP have signalled any intent to invest in refining capacity in Mexico, pointing to higher trading activity in the region. From a supply perspective, the US does of course maintain the geographic advantage; however, other regions such as Europe, may play an increasing role. Nevertheless, higher product imports are positive for the clean tanker market, whilst a slower expansion in regional refining capacity also supports crude exports”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, “charterers swiftly pressed on with their early VLCC June positions without too much concern. Rates over the week gradually fell as Owners pushed for cover realising the next deal was likely to be lower than the last. Current levels to the East are around 270,000mt x ws 52.5-55 for modern with some discounting for lesser approved units available. A sharp level was concluded to the West at 280,000mt x ws 22.5 for US Gulf via Suez which surprised a few, whether these levels can be repeated remains to be seen. As expected, Suezmax Owners faced an uphill battle this week, with many of them deciding to fix from other load areas. Tonnage availability heavily outstripped demand and in turn rates softened to 130,000mt x ws 75 for East discharge. Those Owners who can trade in Iran have fared better than at 140,000mt x ws 50 to Europe. Non-Iran suitable tonnage has seen rates further eroded to 140,000mt x ws 29.75 for a Basrah/Europe run. With Owners currently fixing below opex costs it seems unlikely that rates will go lower. East Aframaxes in contrast to Med & Black Sea remain very weak. Tonnage stills outweighs the light cargo enquiry. Med rates are, but a distant dream and Owners will struggle to use Med rates as an argument to up the rates in the East where current levels stagnate around 80,000mt x ws 100-105”, Gibson concluded.

 

Tanker Market Long-Hauls Supported By Venezuelan Oil, says Shipbroker (16/05)

Venezuelan crude is supporting the tanker market, contrary to what one would believe. In its latest weekly report, shipbroker Gibson said that “back in 2012 the then president of Venezuela, Hugo Chavez stated that his government planned to more than double the country’s oil production to 6 million b/d by 2019. The plan included further diversification of its crude oil exports, with the aim to export 2.2 million b/d to Asia, 1.25 million b/d to Latin America and the Caribbean and a further 1.7 million b/d to North America and Europe. OPEC’s listing of oil reserves places Venezuela in pole position, with 300 billion barrels of proven reserves, almost a quarter of the OPEC total. So, at that time perhaps this was a realistic aim. But of course, it is not only the political picture has changed significantly over the past 5 years. The oil price shock of the past two years has significantly changed the fortunes of the South American state”.

According to the London-based shipbroker, “the bulk of Venezuela’s crude is in the Orinoco Belt in the northern part of the country. It is significantly more expensive to extract in part due to its heavy nature of the oil, the depth and the remoteness of the region. Chavez, when elected in 2006, nationalised many of the country’s industries, including oil. The formation of the state-owned oil company, PDVSA resulted in the foreign oil majors withdrawing from the country, leaving the government to run the whole operation. However, lack of sufficient funding has continued to undermine the operation of PDVSA since its formation. A situation further intensified by the low oil price regime of the past two years, pressuring the nation’s vital export revenues. Oil revenue accounts for 95% of Venezuela’s export earnings and the recent oil market downturn has inflicted even greater cash flow problems”.

Gibson went on to mention that “today, Venezuela’s total oil production is reported to be running at around 2 million b/d (a 23 year low) and there is speculation about a possible outright collapse in production. Renewed downward pressure on the oil price can only heap more gloom on the economy, which is already suffering from shortages of many basic essentials and resulting in even larger protests against the government. According to BP, Venezuela’s domestic oil demand has slumped by about 17% since its peak in 2013. Another recent report states that three of Venezuela’s four main refineries are working at record lows due to equipment failures, lack of spares as well as sufficient feedstock to refine. As less crude is refined domestically, this leaves more to be sold on the international market. This is despite Reuters’ report earlier this year suggesting that PDVSA was struggling to meet some of its contracted obligations and fulfil some of their oil-for-loans deals with China and Russia. Analysis of exports demonstrates consistent monthly flows to Europe, India and China, providing long-haul support to the tanker market, while short-haul volumes to the US continue to slip. In addition, the country recently launched tenders for the importation of 1.88 million barrels refined products, which is in part due to troubles faced by domestic refineries. As such, despite all doom and gloom, Venezuela remains a key contributor to both crude and product tanker demand particularly those barrels that head long-haul to the East”, the shipbroker concluded.

Meanwhile, in the crude tanker market, in the Middle East, Gibson said that “the week ended on a high for Charterers after the latest bout of fixing provided them with some significant discounts. Owners will be bracing themselves come next week when the start of the June programme begins with Charterers hoping to carry on the negative momentum. Latest reported fixture to the East was 274,000mt x ws 54.5 for a voyage to South Korea and below ws 30 on 280,000mt achievable to the US Gulf. Weakening sentiment throughout the week for Suezmaxes was compounded by a very light June basrah programme, prompting 140,000mt x ws 32.5 to be paid for West discharge and 130,000mt x ws 80 achievable to the East. Tonnage availability is high and cargo demand low, so the outlook is for further rate erosion. A rather greyish feel to the Aframax market as a steady supply of enquiry only kept levels rangebound all week with levels of 80,000mt x ws 110 easily repeatable”, the shipbroker said.

 

Pressure is on for VLCC tankers (15/05)

Large tankers have been under pressure over the past few weeks and this proved to be the case during the past days as well. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates remained under negative pressure this week as demand in both the Middle East and West Africa markets posted w/w declines while the extent of the May Middle East program appeared likely to conclude below earlier expectations as Suezmax demand surged, leading to weaker VLCC fundamentals. There were 17 fixtures reported in the Middle East market, representing a 32% w/w loss, while the West Africa market observed five fixtures, off 29% w/w”.

According to CR Weber, “with 116 May Middle East cargoes now covered, there are a likely further 8 cargoes remaining uncovered. Against this, there are 29 units available (including 12 disadvantaged units) from which draws to service West Africa demand should account for six units, implying a surplus of 15 units. This compares with 12 surplus units at the conclusion of May’s second decade and a previously‐projected end‐ month surplus of 5‐8 units, and as such is likely to prompt further modest rate erosion through the start of the upcoming week. Thereafter, a rush to start the June program should allow rates to level off and, depending on the extent of early‐June demand could potentially offer fresh upside prospects by driving sentiment”.

In the Middle East, CR Weber said that “rates to the Far East concluded the week with a loss of 6 points to ws56 and corresponding TCEs declined 19% to conclude at ~$24,358/day. Rates to the USG via the Cape shed 6 points to conclude at ws29. Triangulated Westbound trade earnings lost 16% with a closing assessment of ~$33,435/day”. In the Atlantic Basin, “rates in the West Africa market followed those in the Middle East. The WAFR‐FEAST route shed 5.5 points to conclude at ws58 with corresponding TCEs off by 17% to
~$25,110/day. The Caribbean market was inactive this week with no fixtures reported. This, together with souring sentiment across alternative VLCC markets saw regional rates remain under negative pressure. The CBS‐SPORE route shed $150k to conclude at $4.10m lump sum”.

Meanwhile, in other tanker segments, “the West Africa Suezmax market remained under negative pressure this week, albeit with a moderated pace of rate erosion in‐line with a rebound in regional chartering demand as charterers shored up remaining May stems and progressed into June dates. The week’s fixture tally doubled w/w to 14 fixtures. Rates on the WAFR‐UKC route shed 2.5 points to conclude at ws72.5. Light VLCC coverage of the first decade of the June export program relative to the same period during May could help to contribute to sustained Suezmax demand strength as charterers progress further into the June program. A prospective return of the ~200,000 b/d Forcados stream would further bolster demand, though this has yet to be confirmed and no corresponding loading program has been released. Meanwhile, tonnage availability remains high, which will likely complicate rate progression even if demand remains elevated”, CR Weber said.

Finally, “the Caribbean Aframax market commenced the week with strong sentiment following last week’s strong rate environment. However, with available positions having expanded handsomely over the weekend and demand proving light throughout the week, rates corrected sharply. Just eleven fixtures were reported, representing a 35% w/w decline and a three‐month low. Rates on the CBS‐USG route shed 30 points to conclude at ws100. With further units expected to populate an already‐oversupply list of tonnage, we expect that sentiment will remain negative through the start of the upcoming week. The extent of any prospective losses, however, will likely be tied to the pace of inquiry and note that regional TCEs are now below OPEX levels, which should place a floor on further losses”, the shipbroker concluded.

 

 

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