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.
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.
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 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.
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.
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.
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?
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.
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.
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.
Tanker Market Sentiment Weakens In May (13/05)
In April, tanker market sentiment weakened in both its dirty and clean sectors. According to the latest oil market report from OPEC, average spot freight rates dropped on most reported routes. Dirty tanker freight rates were down 4% from the month before. Despite a stronger market seen in the VLCC sector marking the only exception in the month as its freights edged up on all reported routes reversing two consecutive months of declines. VLCC spot freight rates showed improvements, rising by an average 20% on all reported routes, as a result of enhanced activity in the market and a tightening in tonnage supply. Nevertheless, average dirty spot freight rates decreased, influenced by the declines in Suezmax and Aframax freight rates. Suezmax and Aframax both ended the month down by 8% and 10%, respectively, as tonnage demand for both classes was limited, while tonnage oversupply was dominant. The clean tanker market showed an average decline in freight rates by 6% from the previous month on the back of weak sentiment, which prevailed for all East and West of Suez fixtures.
According to preliminary data, global fixtures declined by 0.2% in April compared to the previous month. OPEC spot fixtures were down by 0.08 mb/d, 0.7%, or, to average 11.63 mb/d. Fixtures on the Middle East-to-East route averaged 5.31 mb/d in April, down by 0.05 mb/d from one month ago, while those on the Middle East-to-West route averaged 2.73 mb/d. Outside the Middle East, fixtures averaged 3.59 mb/d, showing a decline of 0.11 mb/d. Compared with the same period a year earlier, global fixtures indicated a drop of 0.8% in April.
Sailings and arrivals
According to preliminary data, OPEC sailings declined by 0.4% in April to average 23.87 mb/d, lower by 1.3% from the same month a year earlier. Middle East sailings also dropped, down by 0.10 mb/d from a month before. Arrivals were mixed, registering increases in North America and the Far East by 0.2%, each from a month earlier, while arrivals to Europe and West Asia dropped from the previous month to average 12.55 mb/d and 4.56 mb/d, respectively.
April brought an increase in VLCC activities, which halted the declining trend of the previous month. The firming rates trend was detected in several markets but mainly in the Middle East and West Africa. The tonnage carry over from the previous month was at its lowest level since some time. That, combined with enhanced tonnage demand, has reduced vessel supply and underpinned rate sentiment. Ship owners took advantage of the tightening vessel supply and pushed for increasingly higher rates. Therefore, VLCC spot freight rates in April went up for all major trading routes, particularly for first-decade loadings in April, where Middle East-to-East freight rates rose by 22% and the Middle East-to-West route averaged WS34 points, up by 24% m-o-m. The VLCC market in the West was active despite the Easter holidays, showing an annual increase of 21%. West Africa-to-East freight rates followed the same pattern, increasing by 14% to stand at WS68 points, supported partially by loading requirements from Indian charterers. Towards the end of the month, VLCC freight rates had a softer feel, as they were mostly corrected down as the activity level thinned and tonnage availability started to build.
Unlike what was seen in VLCC sector, Suezmax average spot freight rates declined by 8% in April, reversing all the gains achieved one month earlier, despite an active market at the beginning of the month. In the Black Sea, freight rates dropped as tonnage availability grew. Average freight rates declined despite of occasional spike in rates seen as the pre-holiday rush materialised. At that point, higher rates were achieved in several loading areas mainly covering the first decade requirements of May. The market maintained its activity following the holidays when spot freight rates moderately strengthened in West Africa, the North Sea and Baltics, while the Suezmax market in the Caribbean and US Gulf (USG) lacked sufficient activity. Consequentially, freight rates for tankers on the West Africa-to-US Gulf Coast (USGC) route declined by 12% to average WS77 points, and on the NWE-to-USGC route, freight rates averaged WS66 points, down by 5% from a month earlier. Freight rates on both routes remained lower by 3% and 4%, respectively, than during the same months in 2016.
Aframax freight rates exhibited declines on all its reported routes in April. Aframax freight rates in the Mediterranean showed softer sentiment as tonnage supply appeared to be too large even during delays at European ports. The lack of activity led to a drop in freight rates by 8% from the previous month, on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes, which averaged WS104 points and WS98 points, respectively. Despite the general drop in the Mediterranean rates in April, they remain higher than in the previous year by 20% and 23%, respectively. In the Caribbean, rates saw another drop, mainly due to a lack of firm inquiries and the tonnage position list being over populated, while the loading requirements remained limited, thus giving the charters the option to push for lower rates. Thus, freight rates for Aframax tankers operating on the Caribbean-to-US East Coast (USEC) declined by 7% from the previous month to average WS103 points. Aframax freight rates in the East were of no exception, showing a decline from the previous month as spot freight rates registered on Indonesia-to-East routes declined similar to other routes, dropping by 17% m-o-m, to average WS101 points.
Tanker Market: Demand for Larger Tonnage On the Up (09/05)
It seems that the recent surge of interest from ship owners regarding the acquisition of more modern tonnage was based on some interesting developments from the demand side of the market. In its latest weekly report, shipbroker Charles R. Weber said that “demand for VLCC and Suezmax time charters of at least six months heated up to unseasonable heights during March and April, after a very slow start to the year. The trend came as time charter rates corrected from temporary support received amid the strong final months of 2016, creating fresh opportunities for charterers to get into the market at low rates to minimize exposure to forward volatility”.
According to CR Weber, “for its part, the supply/demand positioning proved surprisingly supportive as well. Supply growth progressed largely as expected through the start of 2017, characterized by a high rate of deliveries but at levels below those implied by orderbook figures due to ongoing slippage efforts. However, on the demand side, the headline pessimism accompanying OPEC supply curbs eased as ton‐miles instead received a boost from Asian crude importers sourcing crude from supply regions further afield than the Middle East and US crude exports were augmented by price support from OPEC curbs”.
The shipbroker added that “with these developments easing concerns about the depths of potential earnings lows for 2017, charterers could also look more meaningfully towards the stronger prospects facing the market from 2018. This includes a large backlog of older units likely to find their exit from trades hastened by enforcement of Ballast Water Management compliance from the first five‐year IOPP survey after September 2017 and the subsequent 2020 0.5% global sulfur cap. Based on our base case timeline of deliveries of the current orderbook and phase‐outs, we project that VLCC net fleet growth will drop from 6.0% during 2017 to 4.7% during 2018 and ‐3.2% during 2019 while Suezmax net fleet growth will drop from 10.0% during 2017 to 0.6% during 2018 and ‐1.6% during 2019”, CR Weber concluded.
Meanwhile, in the VLCC tanker market this past week, CR Weber said that “a rebound in fixture activity in both the Middle East and West Africa markets saw rates stabilize earlier during the week following earlier losses and conclude thereafter with fresh gains. The Middle East market observed an 18% weekly gain to 26 fixtures, of which COAs accounted for just 8%, or the lowest proportion of total activity since the conclusion of 2016. Meanwhile, the West Africa market saw fixture activity rebound to a four‐week high of seven fixtures from last week’s YTD low of just two”.
It added that “with 93 May Middle East cargoes covered to‐date, we anticipate that a further 34 will materialize through the end of the month’s program. Against this, position lists show 44 units available through end‐May dates. Once likely draws thereof to service West Africa demand are accounted for, surplus tonnage is projected to narrow to between 5 and 8 units. This compares with 12 projected surplus units at the end of the second decade – and represents a four‐month low. This places prevailing AG‐ FEAST TCEs well below levels dictated by fundamentals and raises prospects for an imminent rally, subject to psychological drivers of sentiment that are highly correlated to the timing of inquiry, irrespective of supply/demand fundamentals. In our base assumption, demand will post further gains during the upcoming week as charterers seek to cover remaining May requirements, driving more substantial gains than those observed this week. Thereafter, the positive trajectory should subside on a pause between May and June dates, before the low May tonnage surplus carrying over into June dates enables a return to positive rate progression”, the shipbroker concluded.
30 VLCCs Ordered So Far in 2017 as Tanker Newbuildings Are Too Attractive To Be Ignored For Shipowners (08/05)
More and more ship owners are actively looking to secure more tanker newbuildings, especially VLCC tonnage. In its latest weekly report, shipbroker Gibson noted that “the lull in new tanker orders last year coupled with accelerating pace of deliveries reduced the size of the orderbook, raising hopes that the rapid growth in fleet size witnessed currently will come to an end in 2018/19. However, the dynamics of the newbuilding market are starting to change again this year, with a notable increase in shipowners’ appetite for new VLCC tonnage. So far this year circa 30 VLCC orders have been confirmed (including the latest four firm orders from Capital Maritime) versus just 13 orders for the whole of 2016. Ordering activity in other tanker categories remains restricted, although some modest gains have been observed in the Aframax and LR2 sectors. Nevertheless, we understand that a number of owners (not just VLCC owners) are considering investment in new tonnage and are actively talking to shipyards”.
According to the shipbroker, “the latest developments have been to a large extent driven by low asset values. Newbuild prices across all sectors declined last year on the back of the turmoil in the shipbuilding industry, which has been hit by a prolonged period of low ordering activity in a number of shipping sectors, including tankers. STX shipbuilding filed for a court led restructuring, whilst many leading shipyards are going through cost cutting, consolidation and restructuring. Depleted orderbooks combined with challenging financial conditions have forced shipbuilders to compete even harder, pushing prices lower and lower. As a result, this year tanker newbuild values reached their lowest levels since late 2003/early 2004”.
Gibson said that “the latest wave of new tanker orders has occurred against deteriorating trading conditions. Spot earnings in the product tanker market have been very weak for quite some time, frequently falling to or even below the level of fixed operating expenses. The crude tanker market has fared better, VLCCs in particular; yet, even here earnings so far this year have been notably lower relative to 2016. While returns in the market are being pressured, the orderbook is still far from being modest”.
Paddy Rogers, the CEO of Euronav, spoke against the latest flurry of VLCC orders, suggesting that these orders are not needed by the market in current challenging conditions. “However, newbuild prices appear to be too attractive to resist. Apart from low price levels, ordering a new tanker now offers an additional benefit – delayed delivery due to a lengthy construction period, which will enable the owner to take control of the asset once the current phase of rapid fleet growth is over and/or is approaching its end. Furthermore, owners making a decision to order will have the flexibility to have their tonnage prepared in a most efficient and practical way for the approaching key legislation: the Ballast Water Treatment Management convention, which will come into force in September this year and the 0.5% global sulphur cap for marine fuels, effective January 2020”, said the London-based shipbroker.
According to Gibson, “there is clearly some sound logic behind ordering a tanker now, which suggests that firmer interest in newbuild tonnage is unlikely to disappear anytime soon. However, access to new finance remains at highly restricted levels, while it is more challenging to advocate the case for new investment while returns in the industry are weak and/or are deteriorating. As such, only those with strong financial muscle are likely be in a position to capitalise on the current set of circumstances”.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC initially continued to compress lower, but then enjoyed increased bargain hunting attention that recreated enough momentum to make good the lost ground and in the end, move rates into slightly higher territory over last week’s close – bottom markers of ws 60 to the East now, with modern units looking for mid ws 60’s and low/mid ws 30’s the marks to the West. Owners will be hoping for the traditionally active end month phase to allow for further improvement next week. Suezmaxes posted no positive change over the week as a weaker West African scene persuaded Owners to remain in situ and compete for more limited local demand. Rates eased to around ws 80 to the East and to under ws 40 to the West accordingly. Aframaxes stayed rather flat over the period, within a ws 110/115 range to Singapore and are likely to remain rangebound well into next week too”, the shipbroker concluded.
Chemical Tankers: Edible Oil Markets On a Downward Path, No Support Expected (06/05)
Ship owners active in the edible oil sea transportation will have little to look forward to over the summer months, as news from various geographical fronts are less than ideal for the support of freight rates. In a recent weekly note, shipbroker Intermodal noted that “the overall performance of each sector within the edible oil markets has remained poor for the past weeks. Apart from the veg oil exports from S. America, which has provided owners with firm rates on the back of a busy CPP market until mid-April, there is not any other positive market sign to report. Once again the palm oil markets remains very weak with further decreases on rates both in both regional and long-haul shipments.
According to the shipbroker, “the palm oil markets could be described as extremely poor. As far as the long-haul runs are concerned, there is very limited new business quoted for May. A long list of FOSFA MR tonnage combined with a very soft Intra-Asia CPP market for similar units, currently earns below USD 10,000/d and should inevitably lead to weaker rates. The going rate for FOSFA MR TC trips to MED-Europe-Continent is about 13,500$/d for tonnage with edible cargo history”.
Intermodal’s, Stelios Kollintzas, from the Specialized Products Division said that “coming to the regional market, the anticipated surge in demand for Ramadan is yet to materialize. This is to say that freight rates to India, MEG and Red Sea remain very weak with no change during the last couple of weeks. Evidence to this is the 20,000MT shipments to WCI, which are currently trading circa USD 20.00pmt. On the lookout for a positive signs for the coming weeks, the Malaysian palm oil council has announced that it will lower its crude palm export tax to 7% in May, down from 7.5% in April. It remains to see if this reduction will translate into more cargoes in the market”.
Kollintzas added that “however, the industry has now a greater issue to deal with going forward. A resolution by the European Parliament, recently called for the EU to phase out by 2020 the use of palm oil and vegetable oils in biodiesel that are allegedly produced in an unsustainable way leading to deforestation. The EU is Malaysia’s second-largest export market, accounting for 2,059,207 tonnes of palm oil products in 2016. 30% of this amount is used in biodiesel. In an initial effort to oppose that, Malaysia and Indonesia will send a joint mission to Europe next month to counter the European Union resolution”.
According to Intermodal’s analyst, “the CPP markets have significantly supported rates in the vegetable oil shipments from S. America in the past month. However, this has now cooled-off and rates are settling back again, but still remain at overall healthy levels. The going market rate to India for 40,000MT shipments bss 2 load / 2 discharge ports is high USD 30 pmt. Despite the adjustment of rates, supply prospects for Argentina and Brazil are looking positive for the coming months. However, traders have few other issues to face. Apart from excessive projected rainfalls, which are threatening the crops, strikes in Argentina are also on the rise lately. Both events are expected to have great impact to the supply chain of charterers”.
“The Black Sea market has remained fairly active, especially on the smaller parcels from 6-12,000MT to Med and Continent. On the other hand, long-haul shipments were fewer for the past month, however, still at healthy freight rates. An active CPP market within Med-Black Sea across the MR and Handy markets resulted to better rates for MRs that loaded sunflower oil from Black Sea to East since charters had to attract owners. Looking into the next months, there is little to expect from the edible oil markets. Unless, there is not any extraordinary change in the trade flows, it feels like a long summer ahead”, the shipbroker concluded.
Tanker Market Bound For Further Softening If Opec Cuts Are To Be Maintained Says Shipbroker (05/05)
The tanker market is faced with slow demand growth, which has led to a softening of the freight rate market over the course of the past few months. In its latest weekly note, shipbroker Allied Shipbroking said that “despite the efforts being made by oil producing nations and especially efforts being made by OPEC members, we have seen limited gains in terms of pricing for crude oil in the year to date. Despite most expectations that were being made during the end of 2016 of the average price of crude reaching in the US$ 60 per barrel, prices have stubbornly held at around US$ 50 per barrel never reaching levels above US$ 55 per barrel. In part this is a reflection of the limited and not so aggressive commitment by OPEC members to curb their output”.
According to Allied’s, George Lazaridis, Head of Market Research & Asset Valuations, “OPEC production levels fell for a fourth straight month in April, despite the fact that there continues to be difficulty with holding compliance with the agreed cuts made in late 2016. With prices however still lagging it does now seem that OPEC may well decide to expand the initially agreed six month time frame while also possibly expanding the amount of cuts in hope to really generate some momentum in the market. The main issue has been that most major imports are still holding fairly high inventories, while over the past years reliance for demand in the market has shifted away from the U.S. (which now has its own production capacity to meet its needs) and Europe, towards the East and more particularly that of China”.
Lazaridis added that “however, China’s thirst for the black gold seems to be limited, with an inability to really drive the market to the levels most oil producers would hope. Despite this however, BP today announced stellar first quarter results, having almost tripled its profits from a year ago. This follows on similar upbeat financial results having been posted by the likes of Exxon and Chevron last week. Things however have not been as rosy for the tanker market, as with even this small gain in prices for crude oil compared to what we were seeing a year back, we have seen a significant slowing down in the rate of seaborne trade. Freight rates on the Eastbound routes have held an overall better performance then westbound voyages, yet overall the market seems to have been constantly underperforming compared to its respective performance in the first quarter of 2016”.
According to Allied’s analyst, “this is likely to continue to be the trend, while if further cuts are agreed or the duration of the production cuts is extended we may well see the overall freight market deflate further. The main Achilles heel is still the underlining fundamentals of the crude oil market, with other energy sources continuing to eat up oil’s market share in the energy mix, while at the same time the growing trend being on increased trade of oil products rather than crude oil in its raw form. Overall, it seems as though the tanker market’s small pains may well continue and there is even an off chance of getting worse before they get better. The main positive thing is that we still have a relatively limited orderbook of crude oil tankers, while new orders have been few even during the good performance of 2015 and the first half of 2016”, the shipbroker concluded.
Tankers: Slow Demand from the Middle East and West Africa Market Hurts VLCC Rates (01/05)
The tanker market experienced a corrective behavior over the course of the past week, mainly as a result of slow demand from the Middle East and West Africa market. In its latest weekly report, shipbroker Charles R. Weber said that “after commencing the week with an extending of bullish sentiment, rates progressed firmly into correction mode by midweek on sluggish demand in the Middle East and West Africa markets, which prompted participants to reconsider the extent of highs rates had reached. In the Middle East market, no fixtures were reported on Monday and although demand picked up thereafter, it remained lackluster relative to expectations – and more than a third of the week’s fixtures were covered under COAs, making the market seem quieter than it was”.
CR Weber said that “for its part, the West Africa market lent little support as fixture activity there declined for a third consecutive week. Just two fixtures were reported (though one Middle East fixture is believed to have a West Africa load option), representing a third of usual demand and a stark reversal of the strong demand run the region observed during Q1 and through the start of April. The combination of slow demand in both regions saw owners aggressively pursue those cargoes that materialized. Adding to the souring sentiment, some participants pointed to China’s contribution to the strong Atlantic basin demand and ton‐mile demand growth observed during Q1, painting the trend as temporary and correlated to inventory building amid low oil prices. Although China has been largely absent from the West Africa market over the past two weeks, demand appears to have migrated to the Middle East instead where China‐bound voyages accounted for 65% of the week’s tally – and total China‐bound fixtures remain above the 52‐week average on both a weekly basis and four‐week moving average basis. Instead, the pullback likely owes to a narrow spread between Brent and Dubai benchmarks with freight components accounted for – and a Saudi OSP discount for Asian buyers of May cargoes”, the shipbroker said.
According to CR Weber, “despite the negative pressures on sentiment stemming from this week’s disappointing fixture tally, we note that fundamentals remain largely unchanged from recent weeks. The May spot Middle East program appears likely to remain unchanged from the March and April programs in terms of volume, and the end‐March/early-April surge in West Africa demand has already done much to rebalance the market from the oversupply which had pushed average earnings to the $18,000/day range in March. With 69 May Middle East fixtures covered to date, there are a further 12 cargoes likely remaining through the conclusion of the month’s second decade. Against this, there are 28 units, from which draws to West Africa should increase modestly to service late May cargoes and thus account for four units, implying a Middle East surplus of 12 units. This compares with 10 surplus units at the conclusion of the April program and 11 surplus units at mid‐May.
“The average TCE of AG‐FEAST routes presently stand at ~$26,541/day, which is largely in‐line with levels suggested by our models in light of prevailing fundamentals. We had noted in our April 6th note that the end‐April surplus of 10 units implied TCEs in the low $30,000/day range; ultimately, they rallied briefly to over the $40,000/day range as participants likely took an excessive forward view of further West Africa draws. As such, we believe TCEs are now largely in range of fundamentals and expect that during the upcoming week will be driven mostly by sentiment stemming from fresh inquiry levels and timing thereof”, CR Weber said.
In the Middle East, “rates to the Far East concluded the week with a loss of 17.5 points to ws60. TCEs on the AG‐JPN route were off 35% w/w to ~$27,584/day. Rates on the AG‐USG route via the Cape shed five points to conclude at ws35. Triangulated Westbound trade earnings lost 6% to conclude at ~$40,178/day”.
In the Atlantic Basin, “rates in the West Africa market retained their usual lag of movements in the Middle East market. Rates on the WAFR‐FEAST route shed 10 points to conclude at ws62.5. Corresponding TCEs were off by 21% to ~$28,702/day. The CBS‐SPORE route was unchanged at the $4.40m lump sum level. Declining forward USG arrivals should set the stage for stronger ex‐CBS rates during the coming weeks”.
In the Suezmax market “demand in the West Africa Suezmax market surged to a YTD high this week on a sharp pullback in Asian purchases of regional cargoes for loading past May’s first decade which left a greater volume for Suezmaxes than has been the case for much of the year. A total of 14 fixtures were reported, representing a 40% w/w gain. Europe led the discharge profile, accounting for more 11 fixtures – and marking a 12‐ month high. The regional supply/demand positioning was more balanced as a result, allowing rates to extend gains. The WAFR‐UKC route added 12.5 points to conclude at ws92.5. With a narrower spread between Brent and Dubai benchmark prices once freight is accounted for and an advantageous Saudi OSP for Asian buyers both working to keep VLCC‐oriented demand at bay, we expect Suezmaxes to remain active during the coming week with further rate gains likely. Thereafter, however, we expect that the structural set‐up of the market amid OPEC cuts and stable supply from the Middle East will return, favoring VLCCs at the expense of Suezmaxes and coinciding with a likely appearance of ballasters into the region. These factors will likely weigh negatively on rates when charterers move into the June program”, the shipbroker concluded.
Growing Long-haul Arbitrage Crude Trades To Benefit VLCC Tankers (28/04)
The OPEC production cuts since the start of 2017 has tightened supplies of medium and heavy sour crudes, leading to a narrowing Brent-Dubai EFS. This has made long-haul crude trades from the Atlantic Basin to the Far East economically viable, resulting in a surge in flows from the North Sea as well as Americas which has in turn boosted ton-mile demand in the VLCC sector. Growing ton-mile demand has helped to halt declining rates in a sector flooded with newbuild deliveries in Q1, as seen from the chart below. VLCC rates for the benchmark AG/Japan route rebounded from w46 end-March to current levels of w65.
Rates for a Hound Point/Far East voyage climbed by $625,000 over the past two weeks to current levels of $4.925 million on the back of tighter tonnage in the region. Our data shows that at least 9 VLCCs are carrying crude from the North Sea to Asia in April, with another 4 VLCCs fixed for May loading so far. The Brent-Dubai EFS hit a seven-year low on Monday at $0.57/bbl on Monday according to Bloomberg, which will continue to incentivize more long-haul arbitrage trades. The widening contango in Brent timespreads will also encourage traders to place more barrels into Asia. Similarly, rates for a Caribs/Singapore run grew by $300,000 over the last two weeks to $4.3 million due to increased movements from the Caribbean, Brazil and the USGC to the East.
The unwinding of onshore storage in the Caribbean as reported by Bloomberg accounts for the growing outflows to Asia, with at least 10 VLCCs heading from the Caribbean to Far East in April (up by 43% m-o-m). Robust Chinese demand for low sulfur Brazilian crude has led to a surge in Brazilian exports over Q1. Brazilian crude exports to China hit 470 kb/d in Q1, up by 70% y-o-y. While the recent rally in VLCC rates seems to have come to an end, increasing ton-mile demand from such long-haul arbitrage trades should lend some support to rates. However, whether such opportunistic trades will continue to flourish depends on a potential extension of the OPEC production cuts as well as crude spreads.
VLCC ton-mile surges to record high during first quarter of 2017 says shipbroker (25/04)
Tanker owners active on spot markets will have been among the most fortuitous ones, as, according to shipbroker Charles R. Weber, “VLCC spot ton‐miles surged to a record high during 1Q17 as rising Asian crude imports amid stable Middle East demand supported a greater number of longer‐haul voyages to Asia from West Africa and Latin America. The present VLCC rally ‐‐ which has seen earnings rise into the mid‐$30,000/day range ‐‐ is partly a function of the Q1 demand surge on slower reappearances of units on Middle East position lists and partly a function of sustained demand for West African crude by Asian buyers sourcing VLCC tonnage as Middle East cargoes compete more aggressively for units”.
In its latest weekly report, CR Weber noted that “this underscores our belief that the OPEC agreement to cut oil production during 1H17 offers a positive impact to VLCC demand trends and cushioning cyclical lows. Structurally, we retain our view that the bottom of the cycle will occur during 2017 with a slow recovery materializing during 2018 before a healthier recovery prevails from 2019 as deliveries of the current orderbook subside and phase‐outs accelerate in response to the regulatory environment. We are concerned, however, with the extent of recent newbuilding contracting and note that if low newbuilding prices continue to entice ordering at the pace observed in recent weeks, we would likely see an observable recovery delayed at least into 2019”.
Meanwhile, the shipbroker noted that “Suezmax rates were cushioned during Q1 as strong demand trends in the USG/CBS and Middle East markets and delay issues in the Caribbean and Turkish straits constrained overall tonnage availability. Nevertheless, with delay issues having subsided, demand trends in West Africa are proving highly unfavourable to Suezmaxes (as more of the region’s supply is being serviced by VLCCs), and net fleet growth for the year projected at nearly 10%, we remain pessimistic on near‐ and intermediate‐term fundamentals. As with VLCCs, we expect that 2017 will represent a low in the present cycle and note that a recovery could materialize by 2H18 as 2018 net fleet growth is projected at just 0.59% with the bulk of the year’s deliveries during H1 and a likely surge in phase‐outs expected during H2. Additionally, we note that investment appetite in the size class has been warded off by the large orderbook (representing 17% of the current fleet), raising less of a threat for a longer‐term recovery than with VLCCs”.
Finally, according to CR Weber, “Aframaxes faced lower competition from Suezmaxes during Q1 than expected which together with delay issues in the Caribbean and Turkish straits helped to keep rates relatively elevated. Volatile exports from Libya remain a marked challenge and we expect that Suezmax competition will rise during the coming months as the larger class’ fleet expands well out of step with demand, applying negative pressure on rates and earnings. Limited fleet growth in the Aframax and Suezmax classes during 2018 should help to support a recover during 2H18”, the shipbroker concluded.
Meanwhile, in the clean tanker market segment, CR Weber noted that “the USG MR market observed an accelerating of rate losses this week as the reality of last week’s strong buildup of available tonnage bit. Though availability levels declined this week as a resurgence of rates in the UKC market is drawing units freeing on the USAC and this week’s USG fixture tally rose, rates remained disjointed from levels dictated by fundamentals. A total of 34 fixtures were reported this week, a 17% w/w gain. Of these, just three were bound for points in Europe (‐2, w/w), 19 were bound for points in Latin America or the Caribbean (‐1, w/w) and the remainder were yet to be determined or bound for alternative destinations. Rates on the USG‐UKC route shed 50 points to conclude at a five‐week low of ws90 while the USG‐CBS route shed $250k to conclude at $375k lump sum. Availability remains high at the close of the week with 53 units populating positions through the coming two weeks; although this marks a 12% w/w decline, the volume remains high against a recent low of 25 units and a 52‐week average of 41 units. On this basis we expect that rates will continue to correct during the start of the upcoming week before finding a floor around mid‐week as demand prospects remain strong and isolated arbitrage opportunities reemerged this week on the back of the declining freight component, which could help to enable trades beneficial to fundamentals”, the shipbroker concluded.
Tanker Market: China’s Shifting Trade Patterns Could Impact Product Tanker Market (24/04)
The looming increase of import taxes on oil by-products in China, combined with the gradual demise of the so-called “teapot” refineries, both as a result of new Chinese policies, could have a significant impact on the product tanker market in Asia moving forward, both in a negative and a positive way. In its latest weekly report, shipbroker Gibson noted that “according to data provided by Reuters, China’s crude oil imports and refinery processing in Q1 2017 have reached new highs and painted a particularly healthy picture. Overall, despite slowing economic growth, China’s continued growth in crude oil imports since 2016 has been attributable to strong demand from independent refiners, commercial and strategic stockpiling and declining domestic production from maturing fields”.
According to Gibson however, several factors are beginning to emerge which could shake up China’s refinery sector and impact on the tanker markets. “Throughout 2016 China’s clean petroleum product (CPP) exports were boosted in part by independent or ‘teapot’ refineries being granted export quotas and competing with state-run refiners to place barrels domestically (hence stronger growth in crude imports). However, in a major shake up to the sector, it was announced in December 2016 that fuel quota export licenses for independent refineries will be scrapped. Independent refineries could still export product, although this would now need to be done through state owned energy companies. This should put the CPP export market back into the hands of China’s big four state-owned refiners. In addition, favourable export permits have been granted to state oil refiners which allow for an exemption or rebate on import taxes and export taxes for oil and refined products respectively. The permits will only cover a portion of total imports and exports and will most likely affect diesel and gasoline exports equating to roughly 4.65 million tonnes worth of exports. It is important to note that removing export licenses for independent refiners should not affect China’s total exports significantly, in part due to the favourable export quotas granted to state refiners”.
However, something with the potential to have a significant impact on exports is lurking just around the corner. Gibson says that “Chinese authorities are moving closer to imposing a consumption tax on imports of oil by-products; such as mixed aromatics, light cycle oil and bitumen blend. These taxes could have negative effects on product tankers in Asia. Mixed aromatics is the main blending component of gasoline, while light cycle oil (LCO) is the same for gasoil. As both products are currently free of import duty, imports have surged in recent years, supporting record exports. According to data provided by China’s General Administration of Customs, imports of mixed aromatics reached 11.7 million tonnes in 2016 and LCO imports of 4.46 million tonnes. If imports of mixed aromatics decline significantly, then refiners will be forced to boost domestic supply which could lead to less product being available for export. An example of the impact of a consumption tax can be found in fuel oil imports into China. Imports have been declining for several years after the introduction of the tax and it looks increasingly likely that mixed aromatics and LCO imports would follow a similar trend. As mixed aromatics make up such a large share of China’s gasoline market, exporting surplus product would naturally be affected as mixed aromatics become more expensive to import. This has the potential for a double hit on product tanker trade, translating into less imports of blending components and fewer exports of finished products. However, as is often the way the closing of one door can lead to new opportunities. Potential positives could be that refiners would need to increase imports of lighter crudes (many of which originate from the Atlantic Basin) in order to increase production of gasoline. Furthermore, the decline in product exports out of China will not only reduce the regional excess but could also stimulate longer haul imports”, Gibson concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “a holiday shortened week, but an active delayed start for VLCCs allowed for rates to push recent peaks to the high ws 70’s East and into the low ws 40’s to the West. Thereafter, things did slow down, but Owners retained confidence that momentum will be regained from early next week…Charterers’ compliance is not a guarantee, however. Suezmaxes, on the other hand, started slowly, but then became busier and rates started to break away from their recent handcuffs. Now, close to ws 40 to the West and into the mid ws 80’s East, with further upside at least possible. Aframaxes kept a steady profile at 80,000 by ws 117.5/120 to Singapore, but again fall short of enough interest to achieve critical mass and little early change seems likely”, the shipbroker concluded.
VLCCs Enjoy Active Week Despite Holidays, but Product Tankers Fare Worse (22/04)
Despite the Easter holidays in the west, the week has been very active for VLCC said Fearnleys in its latest weekly report. According to the shipbroker, “thinning tonnage lists basically all over and steady supply both Wafr and Meg for East has created a sharply upward momentum on rates. Earnings closing on $30k/day, which far better than many had feared at this stage. Therefore optimism among owners for now and question remains how sustainable the present trend will be”.
According to the shipbroker, “pre-Easter we saw a surge in Suezmax activity as charterers left it late to cover the 1st decade of May for Wafr in a condensed week. The owners sensed an opportunity and pressed for higher levels gaining some ground with Td20 briefly hitting the ws80 mark. The Bsea and Med followed suit and managed some moderate gains improving the sentiment going into the holidays. We have seen a more measured approach from the charterers this week with cargoes being shown in a orderly fashion and they have wrestled back some control steadying the rates. Current earnings could be described as reasonable but the forward paper curve suggests that there will be erosion in the coming weeks, in the short term the owners will be looking for any excuse to capitalize. Aframaxes in the NSea and Baltic have been pretty well balanced the last week. The ice season is coming to an end in strategic ports in the Baltic. However, we expect the market to hover around present levels in the week to come. The days leading up to Easter proved to be quite busy in the Med and Bsea. But a very long position list kept rates under downward pressure and as such rates moved down to ws100, despite this good activity. Now that a small ship clearance have taken place and Libya activity have blossomed, the market is slowly firming again”, said Fearnleys.
Meanwhile, in the product tanker market, things weren’t so rosy. According to Fearnley’s, in the East of Suez, “having a few days holiday does not seem to have had any positive effect on the market in the Middle East Gulf. The decline in rates for both LR1’s and LR2’s have continued and today rates obtained are around ws 85 for LR2’s and ws100 for the LR1’s and the sentiment is not actually very positive, on the other hand current levels are so low that there Is not much downside. Today daily earnings for a voyage to Japan is about USD 5.500 for both LR1 and LR2. Current rate for Continent discharge for LR2’s is around USD 1,3 mill and USD 1,1 mill down about USD 200.000 since last week. Mr’s fixing out of Sikka for Japan discharge is fixing around the ws125 mark, down ws10 points from last week. In the Far east both the Singapore to Japan mr voyage and the short haul voyage from south Korea to Japan has declined to ws 140 mark for the Singapore to Japan and lumpsum USD 225.000 for south Korea to Hong Kong” said the shipbroker.
WEST OF SUEZ
“In the western hemisphere rates are under continuous pressure form the charterers. The straight MR voyage from the Continent to the States have dropped from ws180 mark before Easter holiday’s to ws145 level today and the back haul voyage from the U.S. gulf have also dropped from ws140 to ws120 level today. This means that the daily earnings for a combination voyage has dropped from USD 19.000 to USD 14.000 today. LR1’s trading from Continent to west Africa have only lost ws10 points last week and is today fixing at ws 110 level. For the LR2’s the levels paid are still low and latest assessment from Mediterranean to the Far east is at USD 1,650 mill. The handy segment in the Mediterranean and on the Continent as again going in opposite direction of each other with rates in the Mediterranean once again shooting upwards from ws 165 to ws210 level today whilst at the Continent rates have dropped ws10 points to ws190” Fearnleys concluded.
Tanker Market on Mixed Fortunes During March (18/04)
According to the latest monthly report from OPEC, in March, the tanker market showed mixed patterns with VLCCs seeing a decline in spot freight rates on its various trading routes, with spot freight rates remaining under pressure from the supply of high vessels in this sector, while all other classes showed improved sentiment from the previous month. Average freight rates in March increased for Suezmax and Aframax classes by 14% and 4% from February, respectively. The higher rates were supported by several factors, but most importantly transit delays in the Turkish Straits, discharge delays in the East, and the occasional tightening in tonnage supply in some areas. Similarly, the clean market showed higher monthly freight rates on most reported routes, reflecting higher rates from those registered a year ago on both eastern and western directions of Suez.
According to preliminary data, global spot fixtures increased by 5.7% in March compared to the previous month, to average 16.87 mb/d. Higher spot fixtures were registered from the Middle East-to-West destinations, which increased by 0.08 mb in March from February, to average 2.65 mb/d. Spot fixtures from outside the Middle East registered a gain of 0.32 mb/d, or 9% in March, compared with one month before.
Sailings and arrivals
OPEC sailings increased by 0.02 mb/d, or 0.1% in March, to stand at 23.97 mb/d. This came along with an increase in Middle East sailings. In March, Middle East sailings gained 0.09 mb/d, or 0.5% from the previous month, to stand at 17.33 mb/d.
March Crude oil arrivals increased in European and Far East ports compared to the previous month, expanding by 0.41 mb/d, or 3.4%, and 0.07 mb/d, or 0.8%, respectively, while arrivals to North America and West Asia declined by 1.4 % and 1.5%, respectively.
The VLCC market saw steady activities at the beginning of March. However, this was not enough to support VLCC spot freight rates, which remained under pressure, mostly edging down, as the tonnage list kept growing. Spot freight rates for tankers operating on different routes showed a decline, with the exception of some replacement fixtures. Despite April’s requirements into the market, March rates remained on a declining trend as the ample tonnage supply subdued any chance for freight rates gains. Vessel earnings hit multi-month lows. In March, VLCC spot freight rates for tankers operating on the Middle East-to-West route showed the highest drop among all routes, down by 26% from the previous month to stand at WS28 points. Freight rates registered for tankers on Middle East-to-East routes declined by 26% m-o-m, while VLCC spot freight rates for tankers trading on West Africa-to-East routes fell 17% m-o-m to stand at WS59 points in March.
Suezmax closed the month exhibiting general freight rate improvements compared to one month before. Suezmax average freight rates went up by WS10 points, or 13%, to stand at WS79 points in March. The average gains in rates were registered despite limited activities at the beginning of the month. Chartering conditions improved when April loading requirements were seen in the market and combined with a flurry of inquiries, Suezmax rates strengthened with improved sentiment on various routes. In the Mediterranean, the Suezmax market was active, which supported rates in the Mediterranean and the Black Sea, the latter also witnessing a steady flow of cargoes. Delays in the Turkish Straits due to foggy weather also supported higher rates. In West Africa, a tightening supply of vessels supported freight rates.
On average, spot freight rates for tankers operating on the West Africa-to-US route increased by WS14 points in March to average WS88 points. On the NWE-to-US route, Suezmax spot freight rates increased by 7% from February, to average WS69 points. Suezmax freight rates were corrected down at the end of month, with rates adjusted when charterers slowed market activities in order to arrest the increase in freight rates.
Aframax spot freight rates turned positive in March, showing gains from the previous month, albeit at lower levels than those registered by Suezmax. On average, Aframax freight rates increased by 6% to stand at WS113 points in March. Aframax freight rates in the North Sea and the Baltics showed improvement, supported by high levels of inquiries during the month and despite a surplus availability of ice class ships. Aframax spot freight rates in the Mediterranean were also supported by port delays and long transit times at the Turkish Straits.
Tankers operating on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes registered higher spot freight rates of 10% and 14% during March, to stand at WS113 points and WS107 points, respectively. Spot freight rates for tankers operating on the Indonesia-to-East route showed an increase of 16% from the previous month to average WS121 points. In the Caribbean, rates were affected by bad weather conditions that reduced lighterage activities, in combination with a generally slowing market and limited delays in the US Gulf Coast. Aframax spot freight rates in the region for tankers operating on the Caribbean-to-US East Coast went down by 16% in March to average WS110 points, lower by WS22 points from the previous month. This was the only trading route that saw an average drop in freight rates in March.
Clean tanker freight rates
Clean spot tanker freight rates shared the tanker market’s general upward momentum, with mostly higher March freight rates, apart from one route. Average clean tanker rates rose in March, to show an improvement not only on a monthly basis, but also on an annual basis. Average clean tanker freight rates went up by 20% from February and by 38% from the same month a year earlier. The clean tanker market has been fairly active in several areas, with improved sentiment mostly for LR1 and MR tankers.
In the East of Suez, clean tanker spot freight rates from the Middle East-to-East route experienced an increase of 9% compared with the previous month. Clean spot freight rates for tankers trading on the Middle East-to-East route averaged WS126 points in March, while average gains were offset by lower spot freight rates registered for tankers operating on the Singapore-to-East route. These fell by 4% from the previous month. In the West of Suez, clean tanker spot freight rates increased as rates edged up for tankers of different sizes.
Spot freight rates for tankers operating on the NWE-to-US East Coast increased by 23%, to average WS166 points in March. In the Mediterranean, March clean spot freight rates increased compared with the previous month, partially on the back of operational delays.
Clean spot freight rates for tankers trading in the Mediterranean-to Mediterranean route rose by 38% in March compared with the previous month, to average WS203 points. Clean spot freight rates for tankers operating on the Mediterranean-to-NWE route gained 36%, to stand at WS213 points. On average, spot freight rates registered in both East and West of Suez showed an annual increase of 8% and 59%, respectively.
VLCC spot ton‐miles surged to record high during the first quarter says shipbroker (11/04)
It seems that it’s a good thing to trade your VLCC tanker in the spot market these days. In its latest weekly report, shipbroker Charles R. Weber noted that “an absence of meaningful crude oil supply growth in the Middle East during the first prompted strong Asia‐bound trades from alternative markets during Q1, spurring record spot market‐generated VLCC ton‐miles. A total of 1.10 trillion ton‐miles were fixed on the spot market during the quarter, surpassing the previous record of 1.02 trillion ton‐miles observed during 1Q12 during the run‐up to sanctions against Iran’s petroleum sector. Ton‐miles generated by voyages originating in the Middle East gained just 0.5% y/y, meanwhile those originating on the Atlantic side of the Americas jumped 33% and those originating in West Africa jumped 26%. Smaller markets also logged their contributions: The North Sea market, which accounted for 8% of total ton‐miles, observed a y/y rate of growth during the quarter of 9%. Remaining loading regions, which collectively accounted for 3% of total ton‐miles, more than doubled from the same period during 2016”.
According to CR Weber, “the implied diversification of VLCC trades follows an agreement by OPEC states and a group of non‐OPEC states to curb production during 1H17. As we noted following the agreement, with more than three quarters of the cuts distributed to Middle East producers and a Nigeria exemption allowing for a net increase from West Africa producers, Asian crude purchases migrating to West Africa raised prospects for ton‐ mile demand gains”.
Meanwhile, “on the supply side, the VLCC fleet has grown by 18 units, or 2.6%, since the start of the year and the average fleet size during Q1 was 7.6% larger than during 1Q16. The impact of increased tonnage supply was compounded by the fact that newbuilding units are commercially disadvantaged on their first trades which in no small part complicated any positive influence from the ton‐mile demand surge as those average earnings declined to ~$34,781/day during Q1, off 34% from 4Q16 and 46% from 1Q16.
As we have long maintained, ton‐miles represent an antiquated measure of the market’s positioning, having been most useful when most voyages had equal laden and ballast legs and just one major loading region. Widening geographic distribution of trades and greater instances of triangulation present additional factors to consider when assessing demand – just as highly elastic ballast speeds, ullage delay issues and storage time bring additional factors to consider when assessing supply. To account for these issues, we regularly monitor ton‐miles and fleet size with the inclusion of proprietary adjustment factors to provide a more indicative comparison. Even when viewed on this basis, overall ton‐mile/supply developments during Q1 appear positive” said the shipbroker.
CR Weber added that “any changes to the ton‐mile/supply positioning impacts earnings both immediately as the voyages are being fixed (as charterers and regions compete for tonnage) and subsequently following a lag period as ton‐mile demand swings start to impact availability replenishment. Given that a sizeable portion of the Q1 ton‐miles were fixed relatively late during the quarter, the market has only just started to witness a positive impact on earnings stemming from the immediate impact. The lagging impact is not expected to become evident until later during Q2 and early during Q3, but we believe that the floor on earnings during both quarters is now modestly higher than it appeared just a few weeks ago on this basis”.
Meanwhile, in the crude tanker market this past week, in the VLCC segment, CR Weber said that “following last week’s late bounce from YTD lows, rates remained in positive territory as participants continued to react to a markedly tighter supply/demand positioning during the second and third decades of the April Middle East program. The tightening commenced on the back of last week’s surging West Africa demand, when the regional fixture tally jumped to a two‐year high of 12 fixtures. This week, the West Africa fixture tally was unchanged from that level, boosting the region’s four‐ week moving average to a record high. West Africa cargoes are generally – and often exclusively – reliant upon Middle East positions for tonnage and the corresponding draws have reduced the Middle East market’s surplus tonnage considerably. Whereas prior to the surge, the first decade of April’s Middle East program appeared set to conclude with a three‐year high of 25 surplus units, the balance has now narrowed considerably”.
According to the shipbroker, “there are presently 42 units remaining available through the conclusion of the Middle East April program against an expected 25 further Middle East cargoes and 7 further West Africa draws, implying a surplus of 10 units. Historically, this balance has dictated AG‐FEAST TCEs in the low $30,000s/day range while these routes presently yield around $20,000/day, illustrating potential near‐term upside. Achieving AG‐FEAST TCEs over $30,000/day during the upcoming week could be complicated, however, by uncertainty over forward Middle East demand (Basrah May stems remain a week away) and this week’s appearance of four fresh oil company relets into the spot market, both of which appear to have been factors behind this week’s relatively limited rate gains. Moreover, reports indicating that commercial managers are concertedly reducing ballast speeds do not appear to be indicative; our analysis of unfixed spot units presently ballasting towards the Middle East shows an average speed of 11.5 kts, which represents a reduction of just 0.3 kts, or 2.5%, from the Q1 average. Spot units already fixed are ballasting at a markedly higher average speed of 13.7 kts”, CR Weber concluded.
Why VLCC Rates in West Africa are Firming (06/04)
In an interesting turn of events, the VLCC market in West Africa rebounded last Thursday from its lowest point in six months.
Belying its usual trend of aligning with the AG market, VLCC rates on the WAF/East route grew by w1.5 points on the week to w55 last Thursday due to increased activity in WAF as well as owners’ increasing refusal to lock in long-haul voyages at low returns. The lack of disadvantaged units in WAF also allowed owners to grab a premium for modern tonnage.
The total number of ex-WAF VLCC fixtures last week grew by 62.5% w-o-w to 13, marking a four-week high. This reflected a surge in third-decade April loading cargoes which helped to tighten tonnage in the region. However, overall WAF April loading crude exports to Asia fell by 2.1% m-o-m to 2.07 mmb/d according to Reuters data. Our data indicates that around 35 ex-WAF VLCC stems have been fixed for April loading, down by 12.5% m-o-m. Demand from Asian buyers (notably China) was muted compared to the last two months due to heavy refinery maintenance in Asia which peaks in April. At least 2.5 mmb/d of refining capacity is likely to be shut in April, up by 1.2 mmb/d y-o-y.
As we move into the fixing window for May loading cargoes, Asian demand for WAF crude may recover as refinery maintenance starts to ease in May. Rates for a WAF/East journey have since strengthened further to w61 on Wednesday, with at least 4 ships placed on subs at w60 and above for first decade May loading as owners try to sustain momentum. Unipec placed Olympic Leader on subs for a WAF/China run at w61.5, loading May 3-5 basis 270 kt. A narrow Brent-Dubai EFS will continue to incentivize the movement of barrels to the East.
Tankers: VLCC market finds floor, bounces back (04/04)
Things have been tough for VLCC owners of late, with the negative direction of the VLCC market extended through the start of the previous week, as the reality of a supply/demand imbalance at multiple‐year highs combined with a pullback in Middle East demand further soured sentiment. “As the week progressed, however, rates appeared to have found to an effective floor – from which they subsequently bounced to conclude with a modest weekly gain. Key factors behind the bounce likely include a further acceleration of demand in the West Africa market, where the fixture tally jumped 38% w/w to a ten‐week high of 11 fixtures and growing resistance from owners reluctant to lock into trades with potentially sub‐OPEX returns”, said shipbroker Charles R. Weber in its latest weekly report.
“Moreover, we note that the swollen availability surplus of 30 units observed at the conclusion of April’s first‐decade has contracted markedly during the second‐decade due to lower tonnage replenishment and this week’s above‐expected draws to service West Africa demand. With 68 April Middle East cargoes covered to‐date, we anticipate a further 15 will materialize through the end of the month’s second decade; once accounting for further likely draws thereof to the West Africa market, we estimate that the surplus will decline to 10 units. This level matches the end‐ month average surplus during 1Q17, when benchmark AG‐FEAST TCEs stood at ~$33,346/day. The routes are presently averaging ~$15,493/day . As developments in supply/demand fundamentals tend to have a lagging impact on rate levels, we expect that this has been limitedly priced‐in thus far, suggesting that rates are poised for further gains during the upcoming week. The extent of any gains, however, may be capped by uncertainty around April’s final decade Middle East balance – and particularly the extent of “hidden” positions available during the period – with some participants opining that the level may be high and halt any rally that prevails during the upcoming week when participants shore up remaining second‐decade cargoes”, the shipbroker noted.
Meanwhile, in the Middle East, “rates to the Far East concluded the week with a gain of one point to ws46, having dipped to as low as an assessed ws43 at mid‐week. Corresponding TCEs rose nominally to conclude at ~$13,871/day. Rates to the USG via the Cape were unchanged at ws25. Triangulated Westbound trade earnings fell by 3% to conclude at ~$27,825/day”, CR Weber noted. In the Atlantic Basin, “the West Africa market was stronger this week with the WAFR‐FEAST route gaining 1.5 points to conclude at ws55, after touching a low of ws53 early during the week. Corresponding TCEs rose by 2% to conclude at ~$23,070/day. The Caribbean market continued to decline as regional supply/demand fundamentals remain widely disjointed. The CBS‐SPORE route shed a further $100k to conclude at $3.80m lump sum, the lowest seasonal rate for the route in four years. Rates should stabilize at this level during the upcoming week, subject to sentiment elsewhere in the VLCC market”.
Similarly, “the West Africa Suezmax market remained quiet this week as charterers slowly progressed into the April program. The week’s fixture tally dropped to a three‐ month low with just five fixtures reported – a 58% w/w decline. The slowing came as VLCCs were markedly busier in the region, ushering further pessimism for the forward Suezmax outlook as fewer cargoes will remain available to the smaller class. While this may have negative implications once charterers progress into April’s final decade, the light coverage by charterers to‐date in the first two decades implies that demand should accelerate during the upcoming week, as overall coverage has been light even once accounting for VLCC coverage. This likely factored into sentiment this week, helping to prevent a weakening of Suezmax rates and the WAFR‐UKC route was unchanged at the ws87.5 level throughout the week. During the upcoming week, we expect that rates will remain around this level before starting to weaken thereafter”, said CR Weber.
Finally, in the Aframax segment, the shipbroker said that “the decline came as regional demand shrank for a fourth consecutive week. Rates on the CBS‐USG route lost 5 points to conclude at ws90 with corresponding TCEs falling 37% to ~$3,369/day. With this level having been repeated a number of times, it seems that the market has reached an effective floor; while it remains to be seen if this floor will be broken through, we believe that a marked further slowing of would be required during the upcoming week to test lower rates”, it concluded.
VLCCs Could Benefit From Rise Of US Crude Oil Exports To Asia (03/04)
Another major shift is underway in the tanker market, as a new trade route is fast emerging, as US to Asia exports are rising, commanding larger ships for the inevitable economies of scale. In its latest weekly report, shipbroker Gibson said that “for crude tankers, voyages from the Caribbean to Asia via the Cape of Good Hope are generally considered the longest haul; however, the lifting of the US crude export ban made possible an even longer route from the US Gulf to Asia Pacific. The volumes traded were fairly modest in 2016: almost nothing was transported to Asia during the first half of year, while shipments rose slightly to around 60,000 b/d during the 2nd half. This was largely expected considering the decline in US crude production for most of 2016, which fell by over 0.5 million b/d year-on-year. This not only limited the scope for the increases in total US crude exports (which were up modestly by just 55,000 b/d, including those barrels to the East) but also translated into higher crude imports, which registered much stronger gains. In addition, shipping US crude to Asia is relatively high cost and there are also infrastructure limitations.
According to Gibson, “US crude is largely exported on Aframaxes and Suezmaxes, while a VLCC loading (most practical for long haul) involves an expensive reverse lightening exercise. AIS tracking data shows that just four VLCCs shipped US crude to Asia in 2016, all in the 2nd half of the year. The dynamics of the market have changed this year. US crude production has started to bounce back and is forecast to continue to grow. At the same time, massive Middle East OPEC cutbacks have limited regional crude availability, translating into higher values for the Middle Eastern barrels relative to the Atlantic Basin benchmarks. The price differential between DME Oman and WTI crude futures moved from an average discount of around $1.4/bbl in 2016 for DME Oman to a premium of around $1.5/bbl so far this year”, said the shipbroker.
These developments have stimulated total US crude exports to a number of destinations, including higher demand from Asian refiners. “Preliminary weekly US data suggests that total crude exports averaged around 0.77 million b/d so far in 2017, up massively by 350,000 b/d versus the same period last year. AIS tracking data also shows a notable increase in shipments to Asia, with 3 VLCC loadings in January, 5 loadings in February and another 5 in March. Whilst Middle East OPEC production cuts remain in place, such “restraint” is likely to support robust demand from Asian refiners for US crude”, said Gibson.
However, “as this trade is primarily arbitrage driven, greater availability of the Middle Eastern barrels is likely to make US crude less appealing, particularly if prices for the Middle East grades decline relative to the Atlantic Basin crudes. In the medium term, the picture may change again. Prospects are strong for continued gains in US crude production. Some may argue this is likely to reduce seaborne crude imports. However, increases in US crude exports will alleviate the downward pressure on imports. The case for further growth in exports is also supported by the fact that US refiners are more geared up to run on heavier imported crude versus light sweet domestic grades. Crude export pipeline infrastructure to the US Gulf increased towards the end of 2016 and further projects are expected to be completed over the next few years, paving the way for further growth in export volumes. However, reverse lightening is expensive and can add up to 15-25% to the overall cost of freight for a VLCC load. To make US crude more attractive to Asian buyers, economies of scale are needed – that is efficient VLCC shipments. Last year plans were evaluated to transform LOOP into a crude export facility but the infrastructure is not there yet. Nevertheless, if there is strong demand, sooner or later progress is likely to be made, opening the door for strong gains in the longest haul trade from US to Asia for crude tankers”, Gibson concluded.
Meanwhile, in the crude tanker market it was “another challenging week for VLCC Owners as supply continued to easily overhang only moderate daily demand. Rates barely moved from an average ws 45 to the East and ws 25 to the West, but there was a degree of resistance building at the week’s end and perhaps some gentle pull back may develop for the traditionally busier end month fixing phase. Suezmaxes moved no better than sideways to the East – 130,000 by ws 80/82.5 – but took a further hit to the West at down to ws 32.5 due to heavy competition for that preferred direction and ballasting to the Atlantic is becoming more popular. Aframaxes tailed off a bit from recent highs to end at 80,000 by ws 115 to Singapore and a weaker phase looks set to take hold over the near term”, Gibson concluded.
Crude Tanker Market Prospects Not Looking Bright, as Far East Demand Has Reached its Limit (01/04)
In its latest weekly report, shipbroker Allied Shipbroking noted that “the tanker market has been under considerable pressure for many months now, with a first shock being felt during early summer last year as demand struggled to keep its pace, while only a few months later OPEC made a key decision to cut back its production in order to create a positive boost on prices which inevitably stifled demand further. Over the course of 2017 we have seen a strong downward correction in freight rates, especially in the larger crude oil carriers, while sentiment in the sector has been dropping to a near term low, as most fear that the demand hikes generated in the past by the heavy stockpiling going on are now a thing of the past, especially as prices for crude oil have risen somewhat since their low last March”.
According to Mr. George Lazaridis, Head of Market Research & Asset Valuations, “over the past weekend five OPEC members along with Oman and Russia met up in Kuwait in order to push for a further six month extension on the production cuts, with many pointing out that there would be more time needed in order to drain out swollen stockpiles around the globe. With many in the market not feeling the production cuts and with the increased American production levels sending U.S. inventories to an all-time high, traders have started in mass to pull out from their long term positions on a crude oil price increase. It seems as though we have reached a sort of mismatch in market right now, whereby prices continue to hold at fairly “low” levels due to the excess production still being pumped out, while at the same time there seems to be limited underlining demand to drive for increased trade volumes and be able to quickly absorb the excess capacity that is becoming available”.
The shipbroker added that “this is fairly bearish news for the tanker market and in particular crude oil tankers, which seem to be suffering under the strain and seeing a market which is slowly trending back to its old ways. Given that we are at a point in the year were there is an increased amount of refinery maintenance taking place, there is a sense that things should start to “perk up” come April, whereby a considerable amount of refinery capacity should have come back online and help clear out some of the excesses in inventories that have taken place. The problem however will persist to some degree, as demand from the Far East, a market that has mainly been driving new demand for several years now, has reached a plateau from where it is finding it difficult to escape.
Lazaridis said that “things have been slightly more positive on the oil products front, with increased refineries placed around the world having helped to generate more trade and allow for bigger cross-market movements, as traders try to take advantage of the any price arbitrage that shows face. For the moment this bearish sentiment for the seaborne oil trade market has been equally reflected in both the freight market but also in the secondhand market for tanker vessels. Although the number of transactions that have been taking place for several months now have been minimal, with some size segments showing hardly any vessels changing hands, the feel on prices is that we have seen a significant downward correction. In part sellers have withdrawn from the market feeling that the prices on offer are too low to consider, but equally so we have seen buyers put further pressure on the market, with few actively shopping around at the currently quoted price levels. Given all that’s going on right now, it seems as though everyone is waiting for the market to find a new equilibrium. At this point in time this seems to be a lot harder than it sounds with the volatility being noted in the oil market causing “shake ups” and uncertainty for tanker vessels as well”, he concluded.
Shipowners back down from tanker ship purchases as future market prospects fade (31/03)
Activity in the S&P tanker market has fallen by 68% y-o-y during the first quarter of the year, in a clear sign that ship owners are “turning their backs” in what used to be a very hot “commodity” a couple of years back. In its latest weekly report, shipbroker Intermodal noted that “shipowners will always look for market signals in order to gauge market perception and decide upon which strategy to follow next. And while owners investing in the dry bulk market have been particularly busy lately, there is limited interest in the second-hand tanker market, activity in which is about 68% down compared to the first quarter of 2016”.
According to Intermodal’s SnP Broker, Mr. Nasos Soulakis, ‘sluggishness’ is therefore the defining characteristic used to describe the situation in the tanker SnP market, while in the freight market, rates maintain healthy, well above OPEX levels, but not high enough to inspire overwhelming positive expectations. This trend has resulted in decreasing asset prices and may well be the window of opportunity for owners wishing to invest in vessels priced at fairly reasonable levels”.
Looking into the MR segment, “the last done “MARE ACTION” (30,058dwt-blt 05, S. Korea), which was sold for a price close to $10.0m together with the small 15-yr old MR2, basis SS/DD due, which can be fixed close to $8.0m, are indicative of the particularly attractive prices currently prevailing in the sector”, said Soulakis.
The shipbroker added that “despite those rather attractive prices in the tanker market though, it is SnP activity in the dry bulk sector that has been monopolizing everyone’s interest lately. However, after consecutive weeks of increasing asset prices and with more than 200 dry bulk SnP deals – ranging from Handies to Capes – at the closing of Q1, there are a few voices now in the market insisting that this rally will gradually show signs of cracking and exhaustion”.
According to Soulakis, “the above estimation is based on a couple of things. On one hand potential buyers have gradually started to lose interest in paying today’s’ increased levels, thinking this momentum might ease at some point and push prices – even slightly – down. On the other hand, Sellers seem to be the one in control at the moment, able to set the premium over the last done and consequently asking for significantly higher prices even a few days after the last reported deal. The above market dynamics create a gap in the second hand market that is capable of restricting second hand activity until market perception becomes more accurate with both buyers and sellers re-adopting a more realistic attitude. To summarize, while the dry bulk and tanker markets may be at different stages of their respective cycles, they both certainly display interest for different reasons nonetheless”, Soulakis concluded.
A similar pattern was evident in the S&P market during this past week as well. According to Intermodal’s data, “dry bulk SnP activity remains particularly firm with every new deal at a premium over the last done. On the tanker side In the Aframax sector we had the sale of the “MORNING GLORY VIII” (99,990dwt-blt 02, Japan), which was sold to Far Eastern buyers, for a price in the region of $10.2m. On the dry bulker side, we had the sale of the “TENSHOU MARU” (52,450dwt-blt 06, Philippines), which was sold to Indian buyers, for a price in the region of $9.0million”.
In the newbuilding market, “with prices stubbornly pointing downwards in the newbuilding market, it is evident that competition among breakers is becoming stronger amidst the race to secure part of the ordering interest that has remained suppressed for well over a year now. Saying that, the signs of life contracting activity witnessed during the past weeks appear to be extending well into the end of the quarter, with most noticeable those orders that concern dry bulk vessels. The almost non-existent activity in the sector during last year was expected to last at least throughout 2017 as well, but it seems that the strong momentum in the SnP market that has pushed second-hand prices up since the beginning of the year, has be slowly turning in favour of newbuilding activity and logically so. If we look for example the price for a 5-yr Japanese Kamsarmax that is today quoted at excess USD 21 million and compare it to the average Kamsarmax newbuilding price that is around USD 24 million, the attractiveness of the later is evident. In terms of recently reported deals, Chinese owner, CSSC Leasing, placed an order, for two firm Tankers (76,000 dwt) at CSSC Offshore/Marine, China for a price of $37.0m and delivery set in 2018 and 2019”, the shipbroker concluded.
Product Tanker Market Heats Up on High Atlantic Basin Activity (28/03)
In what bodes well for the beleaguered product tanker market, freight rates for MR tankers were lifted considerably over the past week throughout the Atlantic Basin, as an emerging shift in trade patterns and intermittent delay issues have enabled a markedly tighter supply/demand positioning. In its latest weekly report, shipbroker Charles R. Weber noted that “USG exports have become more diverse since the start of the year. Voyages to Mexico’s east coast have been directionally softer since the start of the year, in line with reports indicating a hike in Mexico’s refinery utilization rates from January. Our data shows that ECMex has accounted for 15% of all ex‐USG fixtures MTD and 18% YTD, as compared with 20% consistently during 2016. This has enabled exports to migrate to longer‐haul routes with gains observed for voyages to points in Brazil, Chile and Asia. Voyages to Brazil, for instance, have moved from accounting for 11% of all ex‐USG voyages during 2016 to 13% YTD and 15% MTD”, said the shipbroker.
According to CR Weber, “USAC arrivals declined during February following a build up to peak PADD1B (Mid‐ Atlantic) gasoline inventories and waning US gasoline demand growth and overall cargo flows from Europe to the Americas declined in March as European refineries moved to peak seasonal maintenance levels. As a result, arrivals into the Americas of units trading cargoes from Europe has declined, reducing USG/CBS regional availability. We note that at the start of this week, USG forward availability was at a 15‐month low. This has seen ex‐USG rates extend gains”.
Meanwhile, “following lower USAC gasoline arrivals and amid seasonal refinery maintenance at PADD1 and PADD3, an arbitrage opportunity reemerged earlier this week, driving an resurgence in UKC‐USAC fixtures which further drew on tight availability and leading to strong gains in both the UKC and USG market as both vie for units freeing in the USAC, BRZL/ARG, and WAF regions. Delays have become an increasing issue: operational turnaround delays for units arriving at Mexico’s east coast have been supplanted by delays in Brazil, Argentina, West Africa and the Turkish straits. We note that Handy tanker plying the cross‐Med route are earning in excess of $40,000/day presently. Voyages from the Atlantic basin to points in Asia have increased modestly, plying cargoes of vegoils and naphtha, moving more units out of the Atlantic basin. Additional structural factors we note tying into the stronger Atlantic basin include stronger diesel demand in Asia which reduces flows into the European market and refinery turnarounds in some OPEC and non‐OPEC member states (partly to coincide with agreed production cuts during the current agreement period covering 1H17)”, CR Weber said.
Meanwhile, in the crude tanker market, in the VLCC segment, CR Weber noted that “despite an improvement in demand, rates across the VLCC market continued to fall this week as a growing oversupply situation in the Middle East market’s early April program became clearer. Through the first ten days of the program, there are 30 units vying for an estimated two remaining cargoes; once accounting for likely draws to service requirements in West Africa, the implied surplus is 25 units. This compares with 17 surplus units at the conclusion of the March Middle East program. Though there is an inherent uncertainty about the supply/demand balance beyond then (particularly as positions are being increasingly hidden by large commercial managers), we note once the April program is eventually completed, the number of surplus units could stand at a three‐year high with over 30 units.
According to the shipboker, “compounding the growing surplus’ impact on rates, disadvantaged units continue to populate the position list in large numbers whilst COA fixtures appear to be taking an increasingly large share of the spot cargo balance and decreasing the number of options for commercial managers to consider. This week, COA fixtures accounted for 35% of the Middle East spot fixture tally; on a YTD basis, COAs have accounted for 22% of the Middle East spot market versus 17% during 2016. While near‐term prospects appear bleak, there are some signs that fundamentals should prove modestly more positive further forward. Key among these, West Africa VLCC demand this week rebounded to a four‐week high of nine units and the pace of newbuilding deliveries should halve from six units per month during Q1 to 3 units per month during the balance of the year. West Africa demand influences the market in two ways: immediately (competition for units with the Middle East market) and on a ton‐mile basis (voyages from West Africa to Asia have a longer voyage duration and thus longer time for reappearance on Middle East position lists). We note that the present availability gains follows a drop in West Africa demand around mid‐ December/early‐January, and thus are optimistic that rebounding demand there will help to reduce overall availability around late‐May. Tempering the extent of upside this may offer around that time, we project that the fleet to have grown by 28 units since the start of the year, or by 4.1% on a net basis”, the shipbroker concluded.
Tanker Market: New oil production shifts could change ton-mile demand, but the Middle East will remain “king” for the VLCC market (27/03)
The tanker market is about to face new trade flow changes, as soon as new oil producing projects enter the market, however, it seems that, at least in the medium term, the Middle East will still remain the main source of VLCC cargoes. In its latest weekly report, shipbroker Gibson said that “the global oil markets have been digesting the impact of the OPEC led production cuts, which were hoped, would push up prices whilst absorbing some of the excess global supply. Whilst the concern right now is too much oil, over the horizon the opposite could be true. Lower oil prices over the past few years have resulted in lower investment, leading the IEA to warn of a potential oil supply crunch in the next 3-5 years”.
According to the shipbroker, “evidently, investment in conventional oil exploration and production has declined over the past two years. Conventional oil refers to oil produced by traditional drilling methods both on land and offshore. Often these are long term projects requiring high levels of CAPEX, with long payback periods. The IEA estimates that yearly global oil and gas investment dropped by a quarter in 2015 and by an additional 26% in 2016. Meanwhile, oil demand is forecast to grow steadily year-on-year at an average rate of 1.2 million b/d per annum through to 2022”.
Gibson added that “while the oil majors have not simply stopped investing in oil and gas completely, a greater emphasis has been placed on investment in short-cycle projects such as shale oil, which offer quicker returns and less long term risk. Chevron recently announced it would focus spending on short-cycle projects in the US Permian Basin, a view echoed by ExxonMobil, who confirmed a $6.6 billion acquisition of oil fields in the same region. Although the potential of these projects is undoubted, this is not considered enough to fill a potential future supply shortage at current oil price levels”.
“If new oil supply is not brought online to meet future demand, markets will begin to place an ever greater reliance on Middle East OPEC producers. On one hand this could be good news for VLCC demand out of the region. However, the cost might be fewer loadings from West Africa and Caribbean/Latin America to the East, where investment levels have been trimmed over the past two years. Furthermore, OPEC spare capacity would be reduced, limiting their ability to intervene during times of market instability”, said the London-based shipbroker.
Thankfully, “oil industry costs are pro-cyclical and the cost of everything from labour to field services, raw material and spare parts tend to rise and fall with the price of oil. This cycle has helped reduce shale investment costs and also offers hope for future conventional oil investments. Royal Dutch Shell, Chevron and ExxonMobil have all recently signaled their intent to return to deep water drilling in the Gulf Mexico with big investments. It may be a little too early to tell what this means for tanker markets and where the actual balance will lie in terms of the trade flows in the medium term. However, one thing is clear. The Middle East will continue to play an important role, with crude exports out of the region remaining one of the key demand drivers for the crude tanker market”, Gibson concluded.
Meanwhile, in the crude tanker market, in the Middle, Gibson said that “only moderate VLCC fixing volumes and not nearly enough to eradicate the supply over-hang that had already negatively impacted. Owners therefore came under more pressure and rates cracked again under the strain – now down into the low ws 40’s East and mid ws 20’s West reflecting the lowest TCE’s since last summer. Things look to continue challenging over the near term, at least. Suezmaxes chipped lower to the East at down to ws 82.5 and then Owners turned their attention to fighting for West runs to leave rates at little better than ws 37 with no positives in early sight.Aframaxes remained busy, but failed to move past last week’s peaks. 80,000 by ws 125 now to Singapore, but lists are once again tightening and modern units will try again next week”, the shipbroker said.
Product Tankers: Higher Tonne Mile Demand will come from Asia says shipbroker (21/03)
The growth prospects of the product tanker market have been in debate over the past few months, after the subdued performance of the clean tanker segment during 2016. As such, the latest IEA medium term oil market report, which was released earlier this months could provide cause for at least some degree of optimism. Shipbroker Gibson noted in its latest weekly report that “most relevant to the product tanker market, was the IEA’s analysis of product balances, broken down into light (gasoline/naphtha), middle (gasoil/kerosene) and heavy distillates (fuel oil). Interestingly, product balances in Europe are expected to see little change between 2016 and 2022. Europe will remain short on middle distillates, and long on lighter distillates. This signals limited prospects for European imports generating increased tonne mile demand, given the product is likely to remain primarily supplied by the US, Former Soviet Union (FSU) and Middle East/India. The good news for Europe is that there are sufficient outlets for its surplus light ends. The US will have a shortage of about 0.5 million b/d of gasoline, similar to the current picture, whilst other regions such as Africa and Latin America post small deficits for the lighter ends. Evidently there is a reasonable selection of export destinations within the Atlantic for European gasoline”.
According to the London-based shipbroker, “on the subject of Africa, closer analysis of the IEA’s report reveals some background behind the data. The IEA suggests that Africa’s shortage of lighter distillates will be the same in 2022 as it is today, which is surprising considering demand growth in the region. However, there is a significant assumption: the Lekki refinery in Nigeria, which is slated for start up sometime next year. However, the IEA are cautious, and do not factor this refinery as impacting the market until 2022. On the face of it, no change in African import demand is bearish for product tankers, however as this key refinery is not expected until 2022, we can expect African import demand to continue rising until the refinery is brought online. Furthermore, given the track record of refining in Nigeria, one must be cautious as to whether this plant can (a) be built within the next 5 years, and (b) run consistently near design capacity. Any setbacks here will provide upside support for the tanker markets. In terms of middle distillates, Africa and Latin America will see their import requirements shrink marginally to a combined 1.5 million b/d with the primary sources of supply likely to be the US, Middle East (inc. India) and Russia”.
Gibson added that “globally, the Middle East will continue to be the primary source of export growth over the forecast period. The regions surplus of gasoil will grow by approximately 70% over the next five years, whilst the light distillates surplus will post growth of 85% over the same period. All of this bodes well for exports from the region. In Asia, 2016 saw a gasoil surplus, forcing traders to push export barrels long haul, primarily driven by the emergence of the teapot refiners in China. However, by 2022, this surplus will flip to a deficit. In one sense, this is bearish as outbound product flows fall away. However, increased import demand will partially offset these declines. Additionally, Asia’s shortage of gasoline/naphtha will grow by over 0.5 million b/d by 2022. Whilst this growth is positive, it does mark a significant downwards revision from the IEA’s 2016 report which projected light distillates import growth of 1.6 million b/d by 2021. Despite this downwards revision, Asia’s growing product deficits will support long haul imports from both the Middle East and Atlantic basin, generating incremental tonne mile demand, in spite of declining exports from the region”, it concluded.
Meanwhile, in the crude tanker markets this week, in the Middle East, Gibson noted that “March VLCC fixing closed out and Charterers took an easy start to the new April programme. Overall, volumes were reasonable, but the weight of availability limited rates to within their previous flat range. Lows slid into the high ws 40’s to the East with little better than ws 55 for more restricted runs and rates to the West down to ws 27 via Cape. Busy, perhaps, next week, but Owners will find little leverage. Suezmaxes started in reasonable form, but enquiry thinned as the week progressed and rates slid off to 87.5 to the East and ws 42.5 to the West with little early change likely. Aframaxes pushed on as supportive inter Far East action escalated. Rates moved to 80,000 by ws 130 to Singapore and could even add to that next week”, the shipbroker concluded.
Tanker Market on Reverse Mode During February (18/03)
Following the gains in the tanker market registered in the previous month, average dirty tanker spot freight rates declined by 21% in February reversing all profits made one month before, said OPEC in its latest monthly report. Lower rates were seen in all reported dirty classes in February, which was partially attributed to holidays in the East, as well as thin market activity in general and an increase in vessels supply, including new deliveries. Dirty tanker average freight rates showed a drop from the previous month as VLCC, Suezmax and Aframax rates went down by 20%, 22% and 21%, respectively. Clean tanker spot freight rates were no exception as they fell under the influence of the general downward trend, which overtook the tanker market in February. A lack of activity was seen dominating different classes in the clean tanker market, thus on average clean tanker spot freight rates were down by 16% from the month before.
According to preliminary data, global fixtures dropped by 1.5% in February compared to the previous month. OPEC spot fixtures were down by 3.5%, or 0.41 mb/d, to average 11.46 mb/d. Fixtures on the Middle East-to-East route averaged 5.49 mb/d in February, down by 0.06 mb/d from one month ago, while those on the Middle East-to-West route averaged 2.57 mb/d. Outside of the Middle East, fixtures averaged 3.39 mb/d, dropping by 0.21 mb/d m-o-m, compared with the same period a year before it remained flat.
Sailings and arrivals
Preliminary data shows OPEC sailings were 1.4% lower in February, averaging 23.95 mb/d. This was 0.08 mb/d below the same month a year ago. Middle East sailings also went down by 1.4% from the previous month and by 1.6% from a year ago.
February arrivals were mixed, registering declines of 1.8% and 4.7% from one month ago in North American and West Asian ports, respectively, while arrivals to Europe and Far East increased by 0.4% and 2.1%, respectively, to average 12.28 mb/d and 8.62 mb/d.
Following the increase in January, VLCC freight rates saw a softer sentiment beginning of February as a new wave of vessels delivery into the market led to a sharp fall in rates. This occurred despite the cargo loading requirements, mainly in the Middle East, which offset the drop in rates to some extent. In the West African oil market, steady activity (mainly for March loading) supported freight rates and prevented further drops. Nevertheless, in general the VLCC market was lacking activities in February due to holidays in different regions and a flurry of new deliveries, which added to the tonnage build up. Freight rates registered for tankers operating on the Middle East-to-East route went down by 15% from previous month to stand at WS71 points. Middle East-to-West routes declined by 29% from the previous month to stand at WS37 points, influenced by the downward pressure in the region. Similarly, West Africa-toEast routes dropped by 15% from a month ago to average WS71 points. On all routes, the VLCC freight rates were negatively influenced by fewer cargo loading requirements and a prolonged tonnage list. Nevertheless, VLCC freight rates in February remain 18% above those of the same month a year before.
Suezmax average spot freight rates experienced a higher drop than those of VLCCs in February. Rates for tankers operating on the West Africa-to-US route decreased by 23% to average WS74 points. Rates on the Northwest Europe (NWE)-to-US route fell by 21% in February from the previous month to average WS65 points. The drop in freight rates came as a result of weak tonnage demand in West Africa and light inquiries in the Black Sea and the Mediterranean. The relative higher activities, as well as some replacements and fuel arbitrage tonnage requirements, were not enough to support Suezmax rates in February as they dropped from the previous month – and the previous year as well. Reduced weather delays at the Turkish Straits were another factor which contributed to the drop in rates as the tonnage list prolonged further. Generally, Suezmax spot freight rates experienced the highest drop among tankers in the dirty tanker market. Average spot freight rates for Suezmax declined by 22% in February from the previous month to average WS69 points.
The Aframax sector saw a similar decline in freight rates as experienced with other dirty vessels. Freight rates on all reported routes showed a drop from the previous month, despite fluctuations during the month. They edged down on average from the previous month showing a drop of 22%. Rates edged down for ice class vessels allowing Aframax rates in general to fall. In the North Sea, rates for long haul voyage requirements weakened. In the Mediterranean, freight rates for Aframax operating on both Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes showed a decline of 28% and 32%, respectively, to stand at WS103 and WS94 points.
Average monthly freight rates dropped despite a fair level of activities in the Mediterranean and the Black Sea. In the Caribbean, Aframax freight rates were down from the previous month as seen on other routes. Lower rates in February came on the back of limited activities in the Caribbean as cargo requirements were thin. Aframax freight rates in the US Gulf Coast dropped on average despite tightening vessels supply as a result of delays in that area. Aframax rates on Caribbean-to-US routes reported a loss of 16% to stand at WS131 points. Rates in the East were no exception as Aframax rates on Indonesia-to-East routes went down by 9% to average WS105 points in February.
Tanker Market: Atlantic cargoes “save the day” for VLCC market as Fixtures Reach Three-Week High (07/03)
Despite ongoing market “chatter” regarding a fall in Middle East cargoes, reality proved rather different for the VLCC market over the past week, as fixtures’ activity reached a three-week peak and a 10% rise over the 52-week average. In its latest weekly report, shipbroker Charles R. Weber said that “the VLCC market commenced under strong negative pressure this week with an early S‐Oil cargo having received several offers and ultimately setting a fresh YTD rate low. However, despite ongoing talk of sluggish Middle East demand, the tally of fixtures there inched up to a three‐week high of 29 (+12%, w/w), which exceeds the 52‐week average by 10%. Elsewhere, the Atlantic basin experienced a surge in demand in all key load regions: the West Africa market observed nine fresh fixtures (+50% w/w and a six‐week high) while 8 fixtures materialized for loading in the Caribbean and Latin America and five materialized for loading in the North Sea region. After the S‐Oil cargo set a fresh low, rates stabilized on the sustained demand”.
CR Weber noted that “on a combined basis, this week’s demand in the Middle East and West Africa and expectations for both regions to remain active could have proven supportive of rates – even if modestly – independently of supply given usual psychological factors. However, supply was ample throughout the week following last week’s buildup of positions and remains both elevated and heavily comprised of disadvantaged units. On this basis, we expect that rate support will remain elusive during the upcoming week. There are presently 38 units available for loading in the Middle East through the end of March’s second decade. Against this, we expect that there will be an additional 16 Middle East cargoes through the same space of time and 8 additional draws to service West Africa demand, implying a surplus of 14 units. This, however, compares with a week‐ago estimate of 16 surplus units at the close of the month’s first decade, which furthers our thesis that the market has little downside potential in the immediate near‐term”, said the shipbroker.
According to the shipbroker in the Middle East, rates to the Far East lost 7.5 points to conclude at ws60 with corresponding TCEs declining by 20% to ~$25,074/day. Rates to the USG via the Cape shed 1.5 points to conclude at ws31. Triangulated Westbound trade earnings fell 6% to ~$34,891/day. In the Atlantic Basin, rates in the West Africa market lagged those in the Middle East and the WAFR‐ FEAST route shed 4.5 points to conclude at ws63. Corresponding TCEs were off by 12% to ~$28,009/day. Finally, the Caribbean market tested a fresh low early this week and despite being followed by an influx of fresh fixtures rates failed to pare the earlier losses. The CBS‐SPORE route shed $100k to $4.3m lump sum and is likely to hover around this level through the upcoming week.
Meanwhile, in the Suezmax ship class, CR Weber noted that “the West Africa Suezmax market observed further modest rate gains this week. Regional availability remains tight on light availability replenishment, as demand for units in alternative markets has been active. The weekly tally of regional fixtures rose by two to nine, though this remains 23% below the 52‐week average – and the 4‐week moving average remains 15% below the 52‐week average. Light demand for Suezmaxes in the region follows strong recent coverage by VLCCs, which leaves fewer Suezmax cargoes available. Further aiding rates, however, loadings of some export streams have been delayed while a number of March cargoes remain uncovered, raising optimism by owners for the supply/demand ratio to remain in their favor in the near‐term. Additionally, reports indicate that a small number of cargoes for loading from storage facilities at South Africa’s Saldanha Bay will materialize thanks to a flattening contango structure in crude futures markets which makes holding these cargoes uneconomical”, said the shipbroker.
CR Weber added that “limiting the corresponding postive impact on Suezmax fundamentals, however, we note that one VLCC fixture was reported for South African loading this week, which implies that further demand in the region will be limited. Rates on the WAFR‐UKC route gained 2.5 points to conclude at ws87.5. Elsewhere, rates in the Caribbean market slipped this week with the CBS‐USG route shedding 8.3 points to conclude at ws86.7, as a function of by softer Aframax rates and lighter Suezmax inquiry”.
Finally, “in the Aframax market, the shipbroker noted that “the Caribbean Aframax market commenced with rates continuing their retreat from last week’s highs. Strong demand materialized on Monday and Tuesday, however, which quickly tightened positions, leading to a fresh rebound. Rates on the CBS‐USG route lost 12.5 points early during the week to a low of ws130 before rebounding to the ws135 level at the close of the week, representing a 7.5‐point loss for the week. As demand levels pared back sharply after mid‐week, we expect that the appearance of fresh units on position lists on Monday will be sufficient to see rates break into negative territory”, CR Weber concluded.
VLCC market to face short-term headwinds (06/03)
VLCC tanker market could soon be facing significant headwinds, as the decision taken by OPEC in November 2016 to take back control is starting to have an effect. According to its latest weekly report, shipbroker Gibson noted that “promised production cuts of nearly 1.8 million b/d agreed between OPEC and a number of non-OPEC countries are primarily felt in the Middle East. According to the IEA, the Middle East OPEC crude production fell by a colossal 1 million b/d in January from December levels and initial Reuters estimates indicate that these cuts were somewhat further reinforced in February. As the Middle East is by far the largest market for VLCCs, the decline in crude exports at a time of rapid growth in fleet size is starting to hurt tanker owners. VLCC spot TCE earnings on the benchmark Middle East – Japan route started March at around $20,000/day, down gradually from $50,000/day in early January”, Gibson noted.
According to the shipbroker, “the oil markets are also changing. Shortly after production cuts were announced, oil prices firmed, fuelling optimism about the recovery in the US oil production. The latest EIA forecast for domestic output stands for notable increases in supply from October 2017 onwards, up by over 0.4 million b/d year-on-year in December 2017 and by another 0.5 million b/d in December 2018. However, independent industry observers speculate whether an even stronger and faster rebound is on the cards, as the rig count continues to rise, productivity per rig has increased around 20% over the past year and shale breakeven costs have on average fallen to just over $40/bbl (source: WSJ, Drillinginfo)”.
Gibson added that “despite the initial step up in oil prices in early December, very little volatility in prices has been observed thereafter. Yet, notable changes have been registered in the forward curve. Wide contango, which was a feature of the market in 2015/16, has narrowed substantially for near dated contracts; while pricing for longer dated contracts is moving towards backwardation. The front month of oil futures is being supported by production cutbacks, while the expectation of a stronger and faster rebound in US shale is applying downwards pressure further along the curve. There is also much debate for how long OPEC production will remain restrained”.
“OPEC has stressed many times that the main reason behind its current policy is to rebalance the oil markets and to reduce massive oil inventories, accumulated in recent years. Although this strategy will support prompt oil prices, drawdown in stocks and easing forward oil prices threaten floating storage. Our analysis shows that the number of VLCCs in non-trading activities (primarily Iranian/non-Iranian crude storage and fuel oil storage) has started to slip. At the end of February 45 VLCCs were involved in various non-trading activities, down from an average of 52 units seen between July 2016 and January 2017. In fact, Iranian crude storage has started to decline rapidly a few months ago but up until February this was offset by robust non – Iranian crude storage. Despite the latest drop, VLCC floating storage remains substantial, representing around 6.5% of the global VLCC fleet. However, the downward trend is likely to continue. Not only are the NITC ships finding their way back into the international trade, but also the anticipated drawdown in stocks and flirtation with backwardation makes it less attractive to use tankers for storage. This paints a bleak picture for VLCC owners in the short term”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “as expected, an initially busier VLCC fixing pace merely accelerated the softening trend and rates re-set solidly into a lower range at down to the low ws 50’s East and high ws 20’s to the West. Availability still looks plentiful through the balance of March and Owners are likely to remain pressured over the next phase too. Suezmaxes dipped off a little, but then activity did pick up somewhat and rates returned to close to ws 85 to the East and low ws 40’s to the West and delays in Singapore may provoke Charterers to keep shopping for the more clear cut positioned units. Aframaxes tightened further and rates took a step higher to 80,000 by ws 120+ to Singapore with perhaps a little more to come in the short term”, the shipbroker concluded.
Tanker market could face downward pressure in 2017 says leading ship owner (03/03)
The tanker market has always been a “tough nut to crack”, with its ever so increasing variables affecting its course, but right now, things are more complicated than ever, as oil prices, one the market’s main directional pointers are more unpredictable than ever. In its latest market update, leading tanker owner Frontline noted that “while capacity additions to the global tanker fleet are expected to put pressure on rates over the next 12 months, the company maintains a positive long term outlook on the tanker market. The company believes that the market will begin to tighten in 2018 as the delivery of newbuilding vessels abates and vessels are retired from the global fleet.
Frontline says 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. 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. Importantly, demand for crude oil continues to increase, and the US Energy Information Agency has forecasted average demand growth of approximately 1.57mb/day per year through 2018. Should the OPEC and non-OPEC production caps remain in force, we expect trade routes to continue to trend towards long haul voyages from the Atlantic basin to Asia. Any such scenario will develop over time, and we are cautious in the near term”.
It went on to note that “all factors considered Frontline believes the tanker 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. During 2016 we have experienced a sharp decline in asset values and the board believes there are several attractive growth opportunities in today’s markets. These opportunities include buying vessels on the water, newbuild/ resales as well as buying shares and companies”, the shipowner concluded.
Meanwhile, in a separate report, shipbroker Intermodal had noted that the oil market is a big unknown at the moment. According to Intermodal, “as far as the performance of the crude oil price is concerned, the signals we are getting are so far mixed, with discouraging fundamentals and optimistic headlines equally affecting prices. Both OPEC and Non-OPEC countries have agreed a production cut as a way to deal with the global oil glut and low prices, which resulted in the Brent blend rallying from $46/bbl to a peak of $57/bbl on 6th January, while it’s currently trading around $55/bbl. So far, so good for the big boys of oil but what about the long-term sustainability of these higher price levels?”, wondered the shipbroker.
According to Konstantinos Kakavitsas, Tanker Chartering with Intermodal, “Russia’s production reached record highs in December and the second-biggest oil producer seemed very happy at this year’s World Economic Forum not only due to their large oil-driven revenues so far, but also due to positive expectations deriving from the new US president who suggests to ease or even remove sanctions imposed on Russia. Even though Russia’s production plays a significant role, the bigger determinant leading to the persistence of the glut could be US shale oil producers. With notably more operating costs and thus a higher breakeven than other oil extractors, most of shale drillers had shut-down production during lower prices only to come back into profitable business at current levels. Finally, taking into consideration the fact that the US dollar has strengthened, hitting a 14-year high during December, pressure for lower price levels grow stronger”.
Kakavitsas added that “keeping this insight melodic, you might recall the lyrics of another popular song of the 90s; “Hello, hello, hello, how low?”. Could this be the tune for the tanker market in 2017? The dominant common factor for both the dirty and clean market is the large number of newbuilding deliveries that could potentially lead to lower freight rates. Saying that, as in the short-run tonnage supply will not significantly change; demand is expected to primarily drive the market in the following months. In the dirty sector, lower oil prices may drive demand for ships higher however; those already excessive inventories could be an obstacle to such rally. The outlook for product tankers falls no further from the mixed-signal environment the dirty market operates in, with the LR market seeing a record-high in vessel deliveries. Greater diversification with respect to trade routes and cargoes, especially in the MR market allow for wider range projections; still forecasts for demand growth for petroleum products making any prediction for the freight market challenging”, he concluded.
VLCC tankers storing crude are much less than claimed, says shipbroker (28/02)
Reports this week indicated that VLCC availability has been limited by a surge in floating storage which has consumed a large segment of the fleet, raising fears about the timing and implications of a mass return of these units to normal trading. However, according to shipbroker Charles R. Weber, “in examining both AIS idle fleet data and our proprietary commercial deployment data on a granular basis, we believe that the extent of floating storage has been overstated”.
CR Weber said that “there are presently 42 VLCC units that have been idle for at least two weeks and 27 units that have been idle for at least one month. Far from the notional implication, however that the number of units engaged in storage has expanded by 56% over the past two weeks to now account for 6% of the trading fleet we find the reality to be quite different on the basis of individual vessels’ circumstances. Three of these units are in dry dock, seven are constituents of Iran’s NITC fleet (which regularly interchange between storage, ship‐to‐ship transfers and customer deliveries), seven are being actively used for either fixed storage (having been withdrawn from trade by their current owners for this purpose) or to facilitate ship‐to‐ship transfers. Ullage issues or onward trade complications have delayed the discharge operations of three units. Once factoring for the above, we find that just 14 units, or 2% of the trading fleet, are actively storing crude. This tally of units engaged in floating storage does not represent a material deviation from storage levels observed over the past 18 months”, said the shipbroker.
“How readily the market will be able to absorb the 14 units upon their exit from floating storage depends heavily on how global VLCC trade routes are distributed at the time. As has become the case in recent years, vies between markets for tonnage and declining efficiency in trade patterns have helped the VLCC market to escape a structural oversupply situation that would otherwise be suggested by the traditional supply vs. ton‐miles view”, said CR Weber.
Meanwhile, in the crude tanker market this past week, in the VLCC segment, the shipbroker noted that “rates in the VLCC market commenced the week with a modest degree of support as participants took stock of a relatively balanced overall Middle East and West Africa combined supply/demand positioning. As the week progressed, however, sluggish demand in the Middle East market eroded owners’ bullish position by raising fears over likely March volumes which led to fresh rate losses. A total of 24 units were reported fixed in the Middle East market; although the figure represents a 71% w/w gain, it remained 10% below the 52‐week average. The West Africa market observed a rebound of demand with the week’s fixture tally of six representing a doubling from last week’s tally”, said CR Weber.
According to the shipbroker “to‐date, a total of 36 March Middle East cargoes have been covered (inclusive of 32 for loading during the month’s first decade and four during the second decade). We anticipate that a further 8 first‐decade cargoes will materialize and anticipate further demand length in the West Africa market given that the March export program there was heavily subscribed by Asian buyers (thus favoring VLCCs over Suezmaxes). There are 31 units available for loading through March’s fist decade in the Middle East which implies a likely surplus of 16 units once additional demand in both markets is accounted for. A week ago, the surplus appeared likely to fall between 6 and 12 units, illustrating a widening supply/demand imbalance. Despite this, rates could stabilize during the upcoming week as charterers are likely to be busier in the Middle East market covering remaining first decade cargoes and progressing concertedly into the month’s second decade”, CR Weber concluded.
Tankers: Japan’s influence on the tanker market not what it used to be (27/02)
Japan used to be one of the most important markets for the tanker industry, as crude oil imports, mainly from the Gulf Arab region were the norm for decades. This is beginning to change these days, with shipbroker Gibson noting that “the Japanese refining industry has been experiencing challenging circumstances for a number of years, with significant rationalisation of refining capacity. Reform in the Japanese refining sector is not a particularly new story; however, in March 2017, a government directive will come into effect, forcing refiners to further boost efficiency, whilst enhancing output of higher value clean products such as diesel and jet fuel. The latest directive is not the first introduced by the government and nor would it appear to be the final phase of the industry restructuring, with further directives potentially announced later this year”.
According to Gibson, “domestic consumption of petroleum products has been falling in recent years, in part due to a contraction of industrial output, more fuel-efficient vehicles and the introduction of a mandatory blending of ethanol into transportation fuels. The Petroleum Association of Japan pegged crude oil refining capacity at 3.8 million b/d at the end of 2016, with production spread across 22 facilities. However, over the coming years it can be expected that this figure will come under increasing negative pressure. In an attempt to streamline the industry, a merger between JX Holdings and TonenGeneral, Japan’s largest and third-ranked refiners respectively has been approved for April 2017, creating the new company JXTG Holdings. TonenGeneral has also announced there will be reductions at four refineries in 2017 totalling 71,500 b/d, with capacity already reduced at the companies Kawasaki plant. In addition to this, Idemitsu Kosan Co, the country’s second-biggest refiner, had been in discussions with Showa Shell on the potential of a merger, however, this deal appears to be off the table as it has not won approval from the Idemitsu founding family”, said the shipbroker.
It added that “overall, the March directive is expected to reduce refining capacity to close to 3.57 million b/d, according to Reuters data. The introduction of a third directive, potentially later this year, will further reduce refining capacity and could also aim at reducing the number of major refiners in the country from 5 to 4 by 2020 or 2021, although this has not been confirmed. Japan’s shrinking refinery capacity has had implications for the crude tanker market. According to IEA data, crude imports into the country have been falling over the past five years, down by 300,000 b/d since 2012. Although it represents a notable drop in trade volumes, this had been more than offset by increases in China’s crude buying. Some support to crude tanker demand was also found in a temporary surge in fuel oil imports (on the back of the Fukushima Nuclear disaster in 2011)”.
Gibson says that “with further restructuring directives expected later this year, it would appear that Japan is braced for further reductions in crude oil imports. However, as it was the case in the past, oil demand in other parts of Asia continues to grow, most notably in non-OECD countries. As such, Japan’s falling demand will most likely will be absorbed by gains in other markets. What this highlights though is the declining importance of Japan in the regional crude tanker market and a growing involvement of a large Japanese fleet in international trade”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “despite receiving final March programmes, VLCC Charterers kept to a slow pace, encouraged by easy looking availability through the current and medium term fixing windows. Rates just about held up at the bottom end of the recent range, but there has certainly been damage done and a busier phase is likely to now accelerate the softening trend. Rates operate at down to the very low ws 30’s West and at no higher than ws 70 to the East. Suezmaxes enjoyed better early attention and rates did pick up a little to ws 85 to the East and into the high ws 40’s West, but things quietened later. Aframaxes tightened further to allow rates to edge over 80,000 by ws 115 to Singapore, but Charterers moved onto more populous forward positions in response and to limit onward potential”, the shipbroker concluded.
Long Range Tankers Taken for Storage on Expectations of Tighter Asian Gasoline Market (24/02)
Singapore gasoline cracks have averaged $10.72/bbl in February so far, down by 12% y-o-y but still relatively firm. Robust demand from the Middle East and intra-Asia as well as a flurry of both planned and unplanned refinery outages have been supporting gasoline cracks.
ADNOC recently bought nine 27 kt cargoes over March-April delivery as its 127 kb/d RFCC remains shut from a fire. The shutdown of Pertamina’s 125 kb/d Balongan refinery and TPPI’s reformer in Tuban also led to firm buying from Indonesia, Asia’s largest gasoline importer. Singapore onshore light distillate inventories hit their lowest point in 5 weeks, falling by 1.54 mmb to 12.76 mmb for the week ending Feb 15 despite net imports of 404 kb. The decline in onshore stocks could be attributed to traders turning to chartering vessels instead for gasoline storage.
At least four LR2 tankers have been placed on short-term time charters of up to 90 days at rates around $11,750/day. Upcoming peak refinery turnaround season as well as an expected spike in summer demand will further tighten the Asian gasoline market over Q2 2017. At least 1.8 mmb/d of refining capacity in Asia is likely to be offline in March, up by 85.4% y-o-y.
Heavy maintenance at state-owned refineries in China accounts for around 1 mmb/d, which may put a dent in gasoline exports. We may see a surge in arbitrage cargoes from the West should ample inventories in the Atlantic Basin incentivize traders to move some barrels to Asia.
Tanker market in “weakened” mode (21/02)
Chartering demand was down significantly this past week in the tanker market, as charterers were slow in their progression into the Middle East’s March program. In its latest weekly report, shipbroker Charles R. Weber noted that “just 12 fixtures materialized for loading in the region, a 68% w/w decline and the fewest in ten months. Elsewhere, demand in the West Africa market were similarly slow; just two fixtures were reported for loading there, marking a departure from the relatively elevated levels observed since the start of the year. Rates commenced the week relatively buoyant on the back of last week’s strong demand and a balanced supply/demand positioning at the conclusion of February’s program, though as the week progressed sentiment appeared to be shifting as uncertainty over the extent of the March program rose and some owners became more aggressive in seeking to cover units”.
According to CR Weber, “adding to increasingly sour sentiment were reports indicating greater compliance by OPEC producers under the 2016 OPEC/Non‐OPEC production cut agreement than had been expected and the emergence of the March Basrah program showing a sharp decline in total supply from the terminal. We remain skeptical that reported production cuts will translate into reduced supply (given the export length afforded to producing states by inventories and above‐average winter refinery turnarounds, including in states party to the agreement). Moreover, we note that negative notional implications of a fresh reduction of crude supply during March from Basrah may not be reflective of immediate near‐term VLCC demand as our analysis of March stems show a number of likely co‐loadings onto VLCCs which will keep VLCC cargo availability from the terminal unchanged from February levels (albeit at the expense of Suezmaxes)”.
The shipbroker added that “we expect that a rebound in demand in the Middle East will likely stabilize rates by offering owners more options. Fundamentals continue to show a relatively balanced supply/demand position; there are presently 44 units available through March’s fist decade against an anticipated 27 further cargoes and once accounting for likely West Africa draws, we expect that surplus tonnage at the conclusion of March’s first decade will range between 6 and 12. This compares with five surplus units at the conclusion of the February program, though we note that early during the February program the surplus temporarily appeared likely to exceed 20, illustrating the tenuous nature of the market’s fundamentals. Further clouding near‐term rate expectations is the potential for further Suezmax rate weakness in the Middle East market to start eating into VLCC demand by preventing co‐loadings or causing charterers to split VLCC cargoes onto Suezmaxes. Thus, while fundamentals presently suggest that rates are poise for fresh upside during the upcoming week, the corresponding support could evaporate and keep rates on a negative trend”.
Route-wise, in the Middle East, “rates to the Far East lost 4 points to conclude at ws71 with corresponding TCEs declining by 3% to ~$35,995/day. Rates to the USG via the Cape shed five points to conclude at ws35. Triangulated Westbound trade earnings were off 17% to a closing assessment of ~$39,287/day” said the shipbroker. In the Atlantic Basin, “rates in the West Africa market lagged those in the Middle East with the WAFR‐ FEAST route shedding 3.5 points to conclude at ws71.5 and corresponding TCEs off by 9% to ~$34,673/day. Rates in the Caribbean market softened on an extending of the region’s relatively slow demand environment of late. Rates on the CBS‐SPORE route shed $250k to conclude at $4.5m lump sum”.
Meanwhile, “the Suezmax market bounced from earlier lows this week on the back of a progressively more active February program in the West Africa market and lower levels of ballasters towards West Africa from the Middle East and the Caribbean. The West Africa market observed thirteen fixtures this week, up two from last week and the most in five weeks. This follows softer earlier spot VLCC coverage of the February West Africa program’s final decade, which left more Suezmax cargoes available. Moreover, spot VLCC coverage of the March program to‐date has been lighter than the pace of March cargo purchases by Asian buyers would have suggested which appears to have bolstered owners’ rate sentiment. Rates on the WAFR‐UKC route added 7.5 points to conclude at ws80. The BSEA‐MED route bucked its downward trend as well despite slower m/m demand levels to‐date, gaining five points to conclude at ws85. The Caribbean observed the strongest gains, with rates on the CBS‐USG route gaining 17.5 points to conclude at 150k x ws90. Rates in the West Africa market appear to have further upside potential with the list of available tonnage through early March presently very thin. Meanwhile the Caribbean market also remains tight on both Suezmax demand for extra‐regional voyages and a firming Aframax market, which may keep rates on a positive trend there”, CR Weber concluded.
Clouds could be leaving the Medium-Range (MR) Tankers’ Horizon (20/02)
Most product tanker delegates seem to be in agreement that the market has had its share of rough patch since the start of 2016. Things have been rather difficult in the Medium-Range (MR) product tanker segment, i.e. ships of between 25,000 to 55,000 dwt, where TCE earnings across a number of key routes have frequently flirted with the operational breakeven, although the winter season has brought with it some temporary relief. In its latest weekly report, shipbroker Gibson noted that “the factors behind the weak market are known. On one hand, we are seeing continued strong increases in supply across all product tanker sizes and cannibalisation between them. On the other hand, demand continues to suffer from swollen land based stocks, accumulated since 2015. Although overall global inventories have started to dip in recent months, some areas remain heavily oversupplied, limiting trade and arbitrage opportunities”.
“So when the tide turns in the owners’ favour? On the macro level, much will depend on demand factors, such as growth in product consumption, the level of stocks, refining developments and regional product imbalances. Although global oil demand is expected to continue to grow, elevated inventories and delays to start-ups of new export orientated refining projects, particularly those in the Middle East – all suggest that the major uplift in the product tanker demand is not quite on the cards yet”, Gibson said.
The London-based shipbroker went on to note that “however, aside from demand, we also have supply side developments which are starting to look a little bit more encouraging, at least for MRs. A multiyear period of intense deliveries is drawing to a close. Limited investment in new tonnage between 2014 and 2016 means that the MR orderbook now is at its lowest level at least since 2005 – at just 6.5% relative to its current size, with existing orders almost entirely in the larger 40,000 to 55,000 dwt segment. The vast majority of these units are scheduled for delivery over the next 18 months, translating into a much lower delivery profile relative to what the market has witnessed in recent years”.
“At the same time, prospects for tanker demolition are also improving. In the near term, scrapping activity will remain primarily driven by earnings at the time and as such a prolonged period of weak market conditions could facilitate demolition activity. Furthermore, around 6% of the trading MR fleet is over 20 years of age and these units are now more vulnerable to near term scrapping than ever before. This is due to the Ballast Water Management (BWM) convention which will come into force in September this year. Certainly, these aging ladies are highly unlikely to install a BWM system so late in their trading life; while the economics of de-coupling the renewal of the IOPP certificate from dry docking to delay BWM installation are questionable”, Gibson noted.
It added that “the analysis of deliveries, the age profile and factors affecting demolition all suggest the potential for flattening MR supply over the next 18-24 months, which will improve the supply/demand balance. The expectation of continued growth in larger product tankers over the same period (due to a later surge in ordering activity) could offset these developments. However, competition from the larger sizes may have a limited effect due to port restrictions on some key trades in the Mediterranean, Baltic and the UK Continent, one of the primary markets for smaller MR tonnage. A word of caution… Newbuild prices have fallen to their lowest level since 2004, the orderbook is minimal and there is strong potential for major increases in demolition post 2020 due to the combined effect of the BWM legislation and IMO global sulphur limits, all this offers an attractive investment proposition in new tonnage. As such, we could see an increase in speculative and counter-cyclical ordering, which if “overcooked”, could lead to another period of strong growth in MR supply in the medium term”, Gibson concluded.
Meanwhile, in the MR product tanker segment this past week, Gibson noted that “sporadic fixing in the Continent shows a market holding value between deals as intermittent positioning of natural tonnage creates an underlying strength Charterers cannot avoid. Fixing ahead in this market has proved a wise option as come Friday some Charterers are left considering coverage on alternative sizes. In the Mediterranean those Owners who opted to move on part cargoes immediately upon this week’s opening may have just performed a chartering masterstroke! As with such limited natural sized enquiry and the Handies shedding value where the week progressed, those early deals now look rather good. This said, with this week concluded, however, and levels being corrected down, it is looking more probable that a floor has been found”, the shipbroker concluded.
Tanker market rises in January despite lower chartering activity (18/02)
In its latest monthly report, OPEC said that spot freight rates in January continued the recovery started in 4Q16, showing general improvements across all tanker sectors. This improved sentiment was seen on all reported routes and in various tanker segments. Dirty tanker spot freight rates registered gains on all reported vessels, with the highest gains reflected on Aframax tankers. On average, VLCC spot freight rates increased by 6%, while spot freight rates for Suezmax went up by 4%. Aframax spot rates increased by 15%, while dirty tanker gains were driven by a firmer market in West Africa, mainly to eastern destinations – Middle East and Mediterranean – as well as delays due to congestion in the Turkish Straits and severe weather conditions. The clean market showed higher monthly freight rates on all reported routes as registered mainly for medium range tankers, edging up by 40% on the East of Suez and by 16% in the West of Suez.
OPEC spot chartering declined by 0.6% in January compared to the previous month to reach 11.88 mb/d, according to preliminary data. Within the Middle East, spot chartering towards the east showed a decline of 2%, while towards the west it dropped by 7.9%. Middle East-to-East spot chartering ended the month at 5.58 mb/d less, while the Middle East-to-West route ended the month at 2.71 mb/d, lower from the 2.95 mb/d registered one month ago. On a y-o-y basis, OPEC spot chartering in January showed an increase of 12.4% compared to the same month a year ago, while global spot chartering declined in January by 3.4% compared to the previous month to stand at 16.19 mb/d. However, this was 12.4% higher compared to the same month a year ago.
Sailings and arrivals
Sailings from OPEC were 0.9% higher in January, standing at 24.28 mb/d, up from 24.07 mb/d in the previous month and remaining 2% higher than in the same month a year ago. Middle East sailings in January averaged 17.49 mb/d, down 0.3% from the previous month. Crude oil arrivals into North America increased by 2.6% in January over the previous month and into West Asia were up by 2.3%. Conversely, crude oil arrivals to Europe and the Far East were all lower m-o-m in January by 0.8% and 3.2%, respectively.
Spot freight rates
The month of January started with slow activity in the chartering market where tonnage demand was limited for several classes, putting pressure on tanker earnings. Nevertheless, chartering activity resumed later mainly when third decade requirements came into the market. VLCC activity in West Africa kept at high levels mainly to the east, reducing the amount of access tonnage and supporting freight rates in that region. Therefore, average spot freight rates for tankers operating from West Africa-to-East showed the highest gains from the same class operating on the different routes, increasing by 8% from the previous month to average WS 84 points. Freight rates for VLCC trading on both Middle East-to-West and Middle East-to-East showed gains of 6% and 3%, respectively, in January from a month ago to stand at WS 53 points and WS 84 points, respectively. Generally, VLCC activity increased for February fixtures, showing an improved sentiment in the Middle East and other areas for old and modern types of vessels, although gains varied.
Suezmax spot freight rates increased by 4% on average in January over the previous month to stand at WS 89 points. The average monthly gains came despite a fairly slow start seen at the beginning of the month, which, combined with a balanced tonnage list, was not enough to support Suezmax freight rates, particularly in the east. However, a flow of inquiries came into the market, lifting activities in several areas, including West Africa, the Mediterranean and the North Sea, which resulted in a clear reduction in the tonnage list, providing support to freight rates. The escalating momentum pushed ship owners to hold their requirements as they were trying to prevent rates from escalating further. Suezmax rates in the Mediterranean continued to receive support from the delays in the Turkish Straits as the fog prolonged the total transit time, reducing spot vessel availability, mainly in the Mediterranean and Black Sea. While Suezmax class experiencing rate fluctuations in January in accordance with the activity in the market and the length of the tonnage list, average rates generally increased by 4% compared with the previous month as the rate for Suezmax operating on the West Africa-to-US route and NWE-to-US routes both increased by 2% and 7%, respectively, from a month earlier.
Aframax spot freight rates increased in January, up by 15% from a month before, benefiting from the cold weather as higher fixtures on the ice class ships became a main requirement for loading in some ports in the Baltic Sea. Difficult weather conditions caused further delays in the Turkish Straits and in several ports, leading to a sudden jump in Aframax freight rates in the Mediterranean and Black Sea. Freight rates in the Mediterranean declined afterwards, despite continued severe weather conditions and the closure of the Turkish Straits; however, lower volumes of cargoes in the market combined with tonnage build-up, along with competition from larger vessels, to push down freight rates from the high level they reached earlier. Thus, on average, spot freight rates for tanker trading on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE increased by 23% and 21%, respectively, from a month ago. In the Caribbean, Aframax spot freight rates registered a bounce of 14% from a month before for tankers operating on the Caribbean-to-US route to stand at WS 156 points. Those gains were driven by delays caused by foggy weather, as well as lighterage requirements. On the other hand, average freight rate on the Indonesiato-East route exhibited the smallest increase amid other routes, growing by WS 1 point from a month ago.
Aframaxes taken for short-term time charters in Asia (15/02)
The Asian Aframax market is currently stable but seems to be facing a more positive outlook on the back of short-term time charters as well as an increase in third decade cargoes. Rates for an Indonesia/Japan run basis 80 kt are hovering around w100 to w102.5, while rates for the AG/East route basis 80 kt stand at w115. Reflecting firmer owner sentiment, TD14 inched up steadily w-o-w to w100.78 which translates into daily earnings of around $8,700/day.
At least three Aframaxes have been taken by ST Shipping and Petrochina on short-term time charter of up to 90 days to potentially store fuel oil. As seen from the structure of the 380 cst fuel oil complex from March onwards, this does not seem to be a contango play but instead due to a lack of onshore storage facilities. While prompt-month time spreads of 380 cst fuel oil recently flipped into contango at -$0.50/T, the near-term market structure remains in backwardation. Singapore’s onshore fuel oil stocks expanded by 8% to reach 25.8 mmb for the week ending February, hitting a whopping eleven-week high. Despite bloated inventories, lower March Western arb volumes (down by 20% m-o-m) as well as steady bunker demand is expected to keep the Asian fuel oil market supported.
Tanker Market on “Wait-and-See” Mode as Oil Market (14/02)
The tanker market is currently reflecting the “wait-and-see” mode of the oil market, looking for future direction, said shipbroker Charles R. Weber, in its latest weekly report. Based on initial data from the IEA, OPEC has reportedly achieved about 90% of their pledged compliance cuts. If this proves to be correct, it would be the best compliance rate in its history at the outset of a production cut agreement.
According to CR Weber, “the International Energy Agency (IEA) ‐ one of OPEC’s six sources – commenting on the initial figures said “Some producers, notably Saudi Arabia, are appearing to cut by more than required.” According to one source; OPEC’s own data, derived from six external sources including the IEA, showed a compliance rate of 92 percent. The organization will publish the statistics in its monthly report on Monday February 13, and it should be noted that the figures could be revised before they are published”.
CR Weber noted that “OPEC has pledged to cut its crude output by about 1.2 million bpd from January 1, 2017 to prop up oil prices and reduce a supply glut. Russia and 10 other non‐OPEC countries agreed to cut half as much. However, the 11 non‐OPEC producers that joined the deal have not cut as much, delivering 40 percent of their promised curbs in January, two OPEC sources said, citing OPEC calculations based on data from the IEA. Non‐OPEC’s lower compliance figure to date is partly due to the phased implementation of the deal by Russia, the largest non‐OPEC producer cooperating with the organization”.
“The group uses two sets of figures to monitor its output ‐‐ figures provided by each country and by secondary sources that include industry media. This is a legacy of old disputes over how much countries were really pumping. The secondary sources used by OPEC are: the IEA, Platts, Argus, the EIA, CERA and Petroleum Intelligence Weekly. In tandem with the scheduled cuts, the industry does expect significant increases in production from non‐member countries such as Brazil, Canada and the US whose combined output is expected to grow by 750 kb/d in 2017. The net change for non‐ OPEC production in 2017, taking into account cuts by eleven countries, is close to a 400 kb/d increase. In the United States, recent increases in drilling activity suggest that production will recover and the IEA’s forecast is growth of 175 kb/d for the year as a whole with production in December expected to be 520 kb/d up on a year earlier”, CR Weber said.
The shipbroker went on to note that “on the demand side, the IEA have revised global demand upwards for the third month in a row and for 2016 it is now seen at 1.6 mb/d. Stronger than expected growth in Europe, partly influenced by colder weather in 4Q16, is a key factor alongside the long‐term growth in China, India and non‐OECD countries. In 2017, assuming normal weather conditions the IEA expect demand to grow by 1.4 mb/d, an increase of 0.1 mb/d from their last estimate. The continued existence of high stocks, plus caution from the markets in assessing the level of output cuts and how other producers might grow production, explains why Brent crude oil prices have remained at the mid‐$50s/bbl since mid‐December after receiving a post‐output deal boost of close to $10/bbl. The oil market is very much in a wait‐and‐see mode and as such this has reverberated through the tanker market”, concluded CR Weber.
Meanwhile, in the crude tanker market this week, “following the completion of the Chinese New Year holiday’s it was not surprising that inquiry picked up this week. While the increased activity was expected, the volume of the February program proved surprisingly high with the middle decade of the month yielding one of the highest tallies over the past six months and the cargoes per day for February (4.5 pd) out‐pacing both January (4.42 pd) and December (4.23 pd) with several cargoes still outstanding for the month. The aggressive pace of activity through the middle and final decades of February increased Owners resolve, putting upward pressure on rates. Add to this a busy West Africa sector where March program in Nigeria expects to see exports climb and we get the almost twenty percent increase witnessed in eastbound rates this week”, said CR Weber.
According to the shipbroker “charterers did look to slow the momentum with the prospect of a lull ahead of the March program, but as February cargoes flowed, no such break appeared with one charterer reaching to secure March tonnage. While most March stems confirmations are still over a week away, the Basrah stems could appear as early as tomorrow and how quickly we progress into March will determine the sustainability of the current upward swing”, it concluded.
Large Product Tankers are facing headwinds despite promising potential (13/02)
The high aspirations regarding a potential success story centered around the LR (Long Range) product tanker segment, seem to be failing to live up to expectations thus far. According to the latest weekly report from shipbroker Gibson, “there has always been a compelling story being told about how larger product carriers are the future, in particular the LR2s. However, the sector has had a particularly challenging few months, with little optimism regarding a sustained recovery in earnings”.
According to Gibson, “the LR2 story centered around the expansion of refining capacity in the Middle East, capacity reductions in Europe and wider product imbalances driving long haul trade. In some regards that story delivered. Middle East refining capacity expanded and exports surged. Refineries in Europe came under pressure with some capacity being mothballed. However, the story didn’t quite deliver on its full promise. The Jazan refinery, which was originally slated for commission in 2016 is not expected to start initial runs until 2018, leaving some of the expected demand growth on the table, whilst the collapse in oil prices saw stronger global refining margins, staving off refinery closures in Europe until later in the decade. With both new and old plants competing with each other, a new and unexpected problem of product overhangs soon emerged, killing many arbitrage opportunities, particularly hurting product loadings in the West”.
Despite these issues, “the main driver behind the LR2 story (Middle East export growth) largely delivered, supporting a period of strong LR2 earnings. However, the growth was always going to be finite as exports plateaued into 2016, whilst fleet growth started to accelerate. Clearly the initial fleet expansion was manageable. However, as is often the case, it was the extent of previous ordering activity which is being felt today. Demand growth may have taken a hit from the factors described above, but was always expected to ease relative to the past few years. On the immediate horizon with limited new capacity coming online, coupled with the headwinds currently facing the global products markets, a speedy recovery may not be on the cards”, Gibson said.
The shipbroker added that “so where will the next surge in demand come from? We’ve written at length in the past about how stocks need to come down to allow for a return to normal trading conditions. However, beyond these factors some supportive developments are starting to appear just over the horizon. Collectively Saudi Arabia, Kuwait, Oman, Iran, Iraq and the UAE plan to add over 1.5 million b/d of capacity between 2018-2021 which, will start to support export growth from the region once again. Furthermore, this will coincide with a major change in the global bunker specification and shift towards middle distillates. With more export oriented demand coming online and a tighter middle distillates market, larger product carriers could once again be in high demand to move large volumes of compliant gasoil long distances. Furthermore, if ordering activity stays within reasonable limits, and scrapping begins to accelerate driven by regulatory developments, the foundations for a more sustainable market recovery could soon be laid”.
Meanwhile, in the crude tanker this week, in the Middle East, Gibson said that “VLCC Charterers kept to a brisk pace to conclude the back end of the February program in readiness for March allocations that should be fully in hand by late next week. Volumes were therefore sufficient to allow Owners to gently raise rates, but were not quite heavy enough for a true breakout and the cross-month interval is likely to stall further potential. Currently rates peak at ws 77.5 to the East and into the low ws 40’s West. Suezmaxes enjoyed a modest pick-up in activity, but only a slight gain in rates that edged higher to 130,000 by ws 77.5 to the East and to ws 42.5 to the West, broadly equalizing with VLCC numbers – the differential will open again, but the jury is out as to which size will make the necessary move. Aframaxes trod water over the week at up to 80,000 by ws 115 to Singapore and look set to continue to operate at close to that over the next phase”, the shipbroker concluded.
Tankers could see higher ton-mile cargoes this year says shipbroker (10/02)
While oversupply is always a concern, tanker owners could be in for a pleasant surprise during 2017, as a number of factors are coming into play at the market, leading to higher ton-mile usage. In a recent weekly report, shipbroker Gibson noted that “when OPEC began planning for the now implemented supply cuts, one of the messages resonating was the need to protect Asia (the biggest buyer of OPEC crude) from production cuts and protect market share in the region. However, this raises the prospect that protecting this level of market share could impact negatively on any price recovery output cuts could have stimulated. Initially the areas expected to be most impacted by production cuts were US and European refineries. January’s allocation from Saudi Arabia, Kuwait and the UAE to western refineries was tabled as an initial area where production cuts would be felt”.
According to Gibson, “in late December several refineries in Japan, China and South Korea expressed confidence in maintaining supply levels, announcing that they had not received any reduction notices from Middle East suppliers. One of the main purposes of OPEC’s cuts is to help stabilise prices on the back of the lows reached during 2016. Although it is still very early to ascertain the full impact of production cuts, in terms of pricing some success has been achieved. The Dubai crude benchmark has risen from close to $42/barrel in early November to $54/barrel at the time of writing. This has understandably not gone unnoticed by buyers in Asia”.
The shipbroker noted that “the tentative signs of increases in oil prices have come at a time when Asia is bracing itself for declining oil production. Largest crude producers East of Singapore are China, Indonesia and Malaysia; however, a lot of fields are mature and require increasingly expensive techniques to extract oil. Coupled with upstream Capex cuts during previous years of low prices and with most of new exploration being in gas fields, the region appears braced to rely on further imports in the coming years just to offset the decline in domestic output. Furthermore, oil demand East of Singapore is expected to continue to increase, with the IEA suggesting that the consumption could grow by as much as 600,000 b/d in 2017 alone”.
“Apart from growing consumption, refining capacity is anticipated to increase in at least 3 countries this year. China, Taiwan and Vietnam will add more refining capacity helping to balance out closures in Japan. Wood Mackenzie expects net refinery capacity additions of 430,000 b/day in 2017; however, it is worth noting that a large amount of this is taken up by the new inland refinery in China’s Yunnan province supplied by pipeline through Myanmar”, said Gibson.
According to the London-based shipbroker, ‘”as prices have climbed in recent months, eastbound shipments from sources like Azerbaijan, Alaska and the North Sea have increased. Supply cuts have increased the relative value of Middle East oil, allowing other suppliers to compete into the Asian market. Early trade data shows that January’s North Sea exports are on track to be noticeably higher than previous years, indicating a 3 million bbls increase on January 2016 levels. In a further sign of diversifying supply, BP shipped their first cargo of US crude to Asia in October. The reduction in Middle East crude availability could also prompt Asian refiners to source more Caribbean & Central American barrels. The resulting increase in these long-haul developments could provide a boost to tanker owners this year; however, it is also important to note that this supply diversion will be heavily price dependent”.
He concluded by noting that “as the major importers in Asia have long standing relationships with OPEC’s Middle East suppliers, a fundamental change in buying patterns may prove hard to push through, despite some refiners’ eagerness to diversify supply. Prior to the November meeting the tanker market witnessed OPEC’s efforts to protect market share, the question now is whether members will be prepared to potentially lose market share in 2017 in attempt to raise prices further?”
Tanker ordering picks up, albeit at slow pace (08/02)
Newbuildings are still hard to come by in today’s market. However, over the course of the past few weeks, a new trend has started emerging, which sees more ordering activity in the tanker segment. In its latest weekly report, Allied Shipbroking noted that “interest in the tanker sector has started to allow for a small inflow of new orders to creep in, with prices having also shown a slight correction from where they closed off at the end of 2016. That’s not to say that these orders are coming in easy, as shipbuilders are facing a considerable squeeze from their negative bottom lines, with some shipbuilders now being reported to be at risk from losing orders they thought they had “in the bag”. The improvement in activity levels should continue despite being at a moderate rate compared to what most shipbuilders would have hoped for. However it seems for some of these builders it will be a case of too little too late and will likely not be enough to help pull them out of their current financial and cash flow difficulties”, said the shipbroker.
Meanwhile, in the S&P market, ship valuations’ specialist VesselsValue noted that in the dry bulk market, ship values remained steady over the week. “The Portage (176,000 DWT, June 2002, NKK) sold for USD 8.6 mil vs VV value 8.67 mil, softening Capesize values.
The JS Pomerol (58,000 DWT, May 2011, Dayang Shipbuilding Co) and the JS Bandol (58,000, Jan 2010, Dayang Shipbuilding Co) sold en bloc for USD 10.15 mil and USD 9.1 mil vs VV values of USD 9.78 mil and USD 8.76 mil respectively firming modern Supramax values. The Epson Trader 1 (82,300 DWT, Mar 2009, Oshima), sold to TMS Dry for USD 13.2 mil ss/dd passed vs VV value 12.13 mil firming mid aged Panamax”, said VV.
In the tanker market though, “Values softened this week except modern Aframaxs and modern LR1s where values have firmed.
Hull 811 (115,000 DWT, May 2017, Hyundai Samho Heavy Ind) sold on subs to Stealth Maritime for USD 43.5 mil vs VV value of USD 41.4 USD firming modern Aframax values. VLCCs have softened this week, shown by the Crude Progress (308,000 DWT, June 2017, Hyundai Heavy Ind) and the Crude Med (308,000 DWT, Apr 2017, Hyundai Heavy Ind) sold en bloc and on subs, to Olympic Shipping and Management SA for USD 81 mil each vs VV value of USD 82.15 mil and USD 81.93 mil respectively”. Finally, in the container ship segment, “there has been very little change in values to the container fleet with no sales to report”.
Similarly, in the S&P market, Allied noted that “on the dry bulk side, we are still seeing a significant level of activity, while prices for most size segments and age groups having already shown a positive course. With Holidays in the Far East now coming to a close, it is likely that sentiment will improve considerably amongst buyers, while we may also see an increase in buying interest, especially from Asian buyers which have been relatively quiet during the first month of 2017. On the tanker side, there was a major increase in activity, despite the negative movements being noted in the freight market during the same time period. Buyers are keen to take up any bargain deals, with prices being kept under pressure, and most units going for slightly lower levels then what we had been seeing a month ago. Overall, the focus has remained firm on product tankers, though we did get to see a number of large VLCCs changing hands this week”, said the shipbroker.
Tanker market could see further changes on trade route patterns and ton-mile demand (07/02)
It has long be touted as a potential “game-changer” for the crude tanker market and it now seems to be gaining traction. US oil exports in quantities enough to make a difference on the market, appear to be on the radar for ship owners, especially after the ascension of Donald Trump in office. In its latest weekly report, shipbroker Gibson noted that “hardly had the creases fallen out of the new drapes in the Oval Office, when the new president commenced overturning several key pieces of legislation implemented by his predecessor. One item of significance to the oil trades was the decision to give a second chance to two controversial oil pipelines. President Trump signed executive orders supporting two projects, Keystone XL and the Dakota Access pipelines, both of which had been opposed by environmentalists under the Obama administration and halted as a consequence”.
In particular, according to the London-based shipbroker, “the Keystone XL pipeline will run for 1,179 miles from Alberta, Canada to Steele City, Nebraska where the pipeline will join the existing network. The new section is designed to increase capacity to 830,000 b/d from the present 550,00 b/d, providing a more direct route from Canada to the US Gulf Coast via Cushing. Following president Trump’s decision, TransCanada immediately submitted an application to the US State Dept. for approval to restart the mothballed project. The pipeline is a privately financed deal. This coupled with the desire to use US produced pipe and labour, makes it attractive to the new administration. However, this particular project may not be a done deal as it is almost certain that opposition to the project could once again cause disruption to the progress”.
Gibson added that “apart from the latest developments in terms of Canadian crude pipeline infrastructure to US, we are also likely to see a significant rise in US crude exports for several reasons. Crude exports ramped up much more quickly than expected in 2016 and we are presently seeing the all important US rig count rising. International oil prices are also rising and more efficient US shale production techniques are providing better margins for the oil producers. The new president’s policy “America first” and in particular, providing energy security as well as providing jobs for American workers was a major part of the Trump election campaign; meaning less dependence on crude imports. In this area, another Trump proposal is to bring in a “border adjustment tax” (BAT); which, if implemented, could add 20% to the price of imported crude (& products). The proposed legislation will directly have an impact on imports, primarily seaborne if the Canadian pipeline is built. Also, the same will boost domestic production. Goldman Sachs believes will lead to a ramp up in US production, resulting in a large oil surplus in 2018. Some will go into domestic refineries, but crude exports could also rise. US refineries have been running in the range 90-95% capacity for some time and, with few major enhancement projects on the horizon, any surplus of crude produced will be up for overseas sale”, said the shipbroker.
It went to note that “putting all the above together, prospects for a rapid increase in US export crude is finally beginning to look a real possibility. In addition, although the potential decline in seaborne crude imports, at first glance, sounds like bad news for tankers, existing crude exporters to the US will need to seek alternative markets but this could actually benefit our market. Venezuelan and West African barrels would in all probability be shipped to the Far-East and India, supporting tonne miles. Another issue here to consider will be the price differential between WTI and the international Brent price which will also influence imports/exports. The US is also taking steps to improve export infrastructure. One of the first cargoes, following the lifting of the export ban in December 2015, loaded at the 2 million barrel Occidental storage facility at Corpus Christi, Tx. Plans to upgrade the 300,000 b/d facility include deepening and widening the Channel to accommodate Suezmaxes. Other projects in the Gulf are also taking place. So perhaps we will see larger volumes of US crude exports, the question is how quickly this will happen and how large the volumes will be?”, wondered Gibson.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “having taken a hard hit prior to the long Chinese holidays, VLCC Owners had to endure another phase of thin interest that more definitely shifted the rate range to lows of ws 55 East for new buildings with a top of ws 70 payable to the most favoured units and to as low as ws 37 to the West. Activity did start to pick up at the week’s end, however, and a busier week to come should prevent further slippage. Suezmaxes drifted lower again on very easy supply and limited interest. Rates to the East eased to ws 72.5 with as low as ws 36 called for runs to the West and no early turnaround in sight. Aframaxes bumbled along and had to give a little ground eventually to 80,000 by ws 115 to Singapore with further drift a possibility into next week”, the shipbroker concluded.
Tanker market positive factors are being outnumbered by negative ones says shipowner (04/02)
The tanker market is actively looking for positive factors moving forward, in a bid to recover some of the lost ground. However, as shipowner Euronav noted in its latest market analysis, things aren’t looking so bright. Euronav said that “the tanker market finds itself at an interesting intersection as medium and longer-term positives (restricted financing driving limited contracting, increased environmental regulation taking effect from 2017, robust demand for crude) continue to build momentum but are likely to be overshadowed by a number of negative short-term factors driving the market during 2017 (OPEC production cuts, delivery of new vessels, limited scrapping, anemic owner sentiment). Euronav sees a number of short-term factors dominating during 2017 before focus on a positive medium-term market structure can develop”.
According to the shipowner, “in terms of short-term headwinds, firstly the OPEC-led production cuts will begin to impact during Q1 (mid to late January) and present a headwind for tanker markets until at least the summer months when long established seasonal trading patterns typically reduce demand. Secondly, 2017 will see the peak of the order book delivery schedule with at least 40 VLCC equivalents (VLCC & Suezmax vessels expressed as VLCC capacity) expected to enter the global fleet in the first half of 2017 alone. Owner sentiment and behavior has been weak in the face of similar vessel delivery albeit at lower levels during the second half of 2016 suggesting potential freight rate pressure during this delivery period. Thirdly, older tonnage is likely to remain and act as disruptive capacity in 2017 as pressure to scrap is neutralized to some extent by an uncertainty over approved ballast water and sulphur cap systems and an ability to defer direct application of the new environmental regulations starting in September 2017, as covered in more detail below. Lastly, continued restrictive access to financing for ship owners and anemic owner confidence are likely to combine all of these factors to produce a challenging freight rate environment for 2017”.
Euronav added that “medium-term drivers though remain positive. Demand for crude oil remains supportive with upward pressure on demand forecasts into 2017 as global GDP expectations are upgraded. Whilst the oil price has risen since OPEC announced production cuts, the resilience of the USA shale output and the return of disrupted supply (Nigeria, Libya) suggest that increased crude supply will respond quickly to higher prices and so prevent price-based demand destruction”.
The shipowner added that “increased regulation under the Ballast Water Management Convention coming into force in September 2017 and the Sulphur Oxides (SOx) Regulation from 2020 limiting the maximum sulphur content in fuel oil will help to increase pressure to scrap over time. There are 267 VLCCs in total (38% of current fleet) that will be at least 15 years old by 2020. This ageing profile will encourage a more rational medium-term behavior as owners will face increased regulatory costs over and above those from special surveys which are scheduled for every 30 months on vessels older than 15 years of age”.
It added that “a combination of rationed capital from traditional sources and a higher cost of capital have substantially reduced contracting activity in the past 12 to 15 months. In VLCC orders, 2016 was the third lowest year on record. The majority of orders were also being industrial replacement rather than speculative. Shipyards are also severely restricted in their financial flexibility and are entering a phase of rationalization, albeit with one caveat – political pressure to address overcapacity has eased in recent months and requires monitoring”.
Nevertheless, Euronav “remains consistent in its view expressed in recent communications that vessel supply in totality remains a manageable factor but that increased pockets of supply would periodically have a detrimental effect. The lack of contracting in the past 12 to 15 months encourages a positive medium-term view supported by consistent crude demand growth (IEA 2017-2020 forecast 1.2m bpd growth every year), increasing effect of environmental legislation toward 2020 and an adjustment to a rationed supply of capital for all. Euronav management has taken affirmative action over the past six months in rejuvenating the fleet whilst simultaneously improving our capital ratios and access to liquidity. With the lowest leverage in the big tanker sector and access to over USD 600 million of liquidity Euronav is well positioned to navigate the cycle – to be strategically opportunistic whilst remaining exposed to any potential upside from an improved freight rate environment”, the shipowner concluded.
Deliveries of crude tankers set for peak quarter, but fleet growth headwinds to remain through to mid‐2018 says shipbroker (31/01)
Newbuilding deliveries are set to spike this quarter across each of the crude tanker size classes, putting over 86 million barrels of new capacity onto the water and marking a peak quarter for the present high‐delivery cycle, said shipbroker Charles R. Weber in its latest weekly report. According to the shipbroker, “the surge comes as yards progress into an orderbook built to high levels between 2014 and 2015 when forward fundamentals indicated a narrowing supply/demand balance. Unfortunately for owners, the surge comes against a backdrop of marked near‐term demand uncertainty and amid a two‐year‐long lull in phase‐outs, threatening to further decouple a fragile supply/demand balance and maintain headwinds on earnings for quarters to come”.
Indeed, according to CR Weber, “supply growth headwinds will likely remain a feature of the market until mid‐ 2018, when we project that the crude tanker fleets will have peaked and phase‐outs exceed new deliveries, ushering a period of negative net fleet growth which we expect will last for a few quarters thereafter. By end‐2018, the moderating of delivery levels will likely have allowed demand to catch up with supply, which should support the start of a new upcycle for earnings. Given the current decline in asset values and a historically slow reflecting in period rates of changing forward prospects and challenges, we believe that after what will likely be a difficult 2017, participants taking an opportunistic approach may view low asset prices and period rates during the first half of 2018 as attractive entry‐points”.
Meanwhile, in the crude tanker markets this week, in the VLCC segment, CR Weber noted that “combined Middle East and West Africa demand expanded modestly this week to 39 fixtures (+5%, w/w) as charterers progressed further into the February Middle East program and remained active in the West Africa market. Despite the demand gains, however, rates were softer this week as vessel availability expanded with fresh positions and a large number of potential units while the extent of demand for the Middle East February program’s second decade was uncertain. The degree of uncertainty is indeed high: we note that with 61 February Middle East cargoes covered to date, there are further 17‐22 cargoes expected through the end of the second decade. Against this, there are 41 units showing availability with a further 10 potentially available. On this basis and assuming that draws from the West Africa market remain around recent averages, the number of surplus Middle East positions at the conclusion of the second decade could be anywhere between 9 and 24 units. The variance is high with materially disparate earnings implied by our models between the high and low ends of the range. Amid all of the uncertainty, what is certain is that surplus supply has expanded with even the low end of the range VLCC Projected Orderbook Deliveries/Phase-Outs representing a four‐month high (the high end of the range would represent the highest surplus since mid‐2014). Thus, while we expect that rates will continue to experience losses during the upcoming week, the extent of rate losses will depend heavily on which supply/demand scenario plays out”, said the shipbroker.
In the Suezmax ship class, CR Weber said that “after a stable first half of the week, rates in the West Africa Suezmax market posted fresh losses late during the week as participants reacted to a widening supply/demand imbalance. A total of nine fixtures were reported, one fewer than a week ago and a quarter fewer than the 52‐week average. Slow recent demand follows elevated VLCC demand in the region during the January program, which has extended into the February program. Elsewhere, demand in the Middle East market has trended stronger since the start of the year, but remains low as compared with levels observed during 4Q16. An accelerating pace of newbuilding deliveries, however, complicates any positive influence from Middle East demand on the overall Suezmax balance as these units generally seek first trades from the region thus reducing absorption of ballast units from Asia, pushing more onto West Africa position lists. Rates on the WAFR‐UKC route shed 7.5 points to conclude at ws80 and the AG‐USG route shed 17.5 points to conclude at ws42.5. High coverage of the February program to‐date by VLCCs leaves fewer cargoes available for Suezmaxes, which will likely see demand remain during the upcoming week at levels which fail to move the balance of favor from charterers to owners”, the shipbroker concluded.
Tanker Markets Awaiting Signals as OPEC Compliance is Debated (28/01)
It seems that the tanker markets are waiting for future direction, amid OPEC’s reported cuts in production, but rising production levels from other oil producers, in what appears to be a mixed bag for the demand/supply balance of the market. In a recent note, shipbroker Gibson began by noting that “late last year 24 countries, with a combined output in excess of 51 million b/d agreed to cut or cap production. Whilst Nigeria, Libya and Iran are generally exempt, barring any major increase from these states, the potential impact on the market, if fully complied with, stands at 1.722 million b/d. Full adherence may not be expected, but the level to which compliance is met, is key for the tanker market. Saudi Arabia has pledged the largest contribution at 468,000 b/d and already claims to have reduced production below 10 million b/d. Non-OPECs largest contributor, Russia states output has fallen by 130,000 b/d, with further reductions to be made over the coming months”, said the shipbroker.
However, as Gibson noted, “cuts by Saudi Arabia were long overdue after the Kingdom maintained production at peak summer levels, counter to its typical behavior of lowering output ahead of winter. By contrast, Russia’s hand may have been forced by extreme (even by Siberian standards) weather, which led to some activity being suspended. Elsewhere in the Middle East, Kuwait claims to have exceeded its commitments, in part through to field maintenance. The UAE also appears committed, although its maintenance is not scheduled until the 2nd quarter; whilst additional Murban cargoes have been offered following a refinery fire at Ruwais”.
The London-based shipbroker added that “Oman insists it has met its obligations, as has Qatar; whilst small producer Bahrain has issued no statement regarding its tiny 10,000 b/d contribution. Perhaps the most controversial issue is Iraq. Despite claims of a 160,000 b/d cut, the country plans to export record levels from the South in February. With limited storage capacity, any production decline should be promptly visible in exports. In any case, further cuts in Iraq beyond those already claimed may be difficult if Baghdad expects the Kurdish government to contribute the balance. Whilst Iranian exports have increased of late, much off the increase has been caused by a sell off of existing stocks. In fact, production eased marginally to 3.72 million b/d in December. Also exempt, Libya claims to have increased production to 700,000 b/d earlier this week, although its supply remains volatile due to operational and security issues. In West Africa, Nigeria remains exempt but Angola claims to have met its commitments, with March loading programs showing lower exports”.
It went on to note that “elsewhere in Africa, small producers Gabon, Equatorial Guinea, Sudan and South Sudan have made no such claims regarding their compliance, although South Sudan is keen to increase output, which has been curtailed by civil war. Algeria claims to cut production by at least 65,000 b/d. In the Americas, production in both Venezuela and Mexico has been under pressure from natural declines. Venezuela has seen its output fall to lows not seen in nearly 30 years; whilst Mexico appears to be managing its compliance through natural declines. Ecuador has not made any comment”.
Gibson also said that “in the Caspian, Kazakhstan claims to have trimmed output by the agreed 20,000 b/d; however, its continued compliance may be difficult given rising production from the new Kashagan field. Azerbaijan has pledged to start reducing output by month end. The only producers to agree cuts in the Far East, Malaysia has announced it is cutting production; whilst there has been no news from Brunei, who pledged a minuscule 4,000 b/d”.
“If all the cuts that have been claimed (ignoring Iraq) are true, then the total impact on the market amounts to a reduction of 1.1 million b/d (see table below). However, hard evidence of these cuts filtering through into export barrels remains to be seen. In any case, lower exports are negative for the crude tanker markets. However, a proportion of Saudi Arabia’s cut was never intended for the export markets; whilst some countries may be overstating their compliance. Equally, production in other areas is rising. The IEA expects Brazilian and Canadian production to increase in excess of 400,000 b/d this year, and US shale to rise by 170,000 b/d. Thus for OPEC and its allies to really force the market back into balance, their cuts may have to be deeper and last longer. However, the deeper and longer the cuts, the more OPEC and its allies risk losing market share. With high volumes of crude loading from Europe to the Far East in January, other producers seem keen to take advantage of any collective action by OPEC, which may reduce the groups appetite for an extended period of restraint”, Gibson concluded.
East of Suez Product Tanker Market Still Suffering (26/01)
The clean product tanker markets are still reeling under pressure as we are fast approaching the Chinese New Year, which will undoubtedly shift market dynamics once again. In a recent report, shipbroker Intermodal noted that “the market is still not giving us any clear signs of recovery, especially on the East of Suez routes. The Middle East LRs are under considerable pressure, mainly due to the lack of demand. The new 2017 flat rates have created a sort of confusion, which has eventually concluded most of the fixtures on basis PLATTS. However, over the past week, we heard a rumor on TC1 ex MEG to Japan loading min 75,000T at WS 112.5 (about 30WS points down) basis WS 2017. Moreover, distillate deliveries to UK continent traded at $1.9m levels (dropped around $150k) In the meantime, LR1 seems to have bottomed out due to a long tonnage list and a lack of activity which resulted in TC5 WS115 for min 55,000T from MEG to Japan at $1.175m, which translates to $100k less from the previous week for deliveries to UK continent respectively”, said the shipbroker.
According to Mr. George Vastardis, Tanker Chartering Broker – CPP Desk with Intermodal, “on the contrary, MR activity was not as disappointing and remained quite flexible over the week. Cross MEG cargoes were fixed around low $200k levels, whereas MEG routes to East Africa destinations moved up at around WS190. WCI naphtha lifts to Japan rated at WS165 basis 35,000T and the deliveries to UK continent at very low $1.0m, which looks to be quite stable”.
He added that “looking towards the Far East region over the past weeks, we witnessed a softening of the market and a decline in fresh enquires for MR sizes. With S. Korea loading to Singapore destination ending the week at $.385k. Levels (around $15k less than prior weeks). The South Asia market is also getting weaker, which results in tonnage availability becoming more ample and enabling us to comment that the near future does not look bright”.
Vastardis went on to note that “moving on to the West of Suez regions things are not as exciting as expected as, even though activity was decent enough on paper, the ARA/Transatlantic traded at WS165 levels, basis 37,000T (about 30WS points down from previous fixtures), a number of ballasters from US regions sailed to Europe. This allowed charterers to eventually push rates down and ARA lifts basis 37,000T to West Africa rated at WS180 respectively. Oversupply of tonnage put some pressure on Handies as well. Ice conditions eventually offered some premiums, thus fixtures were concluded at WS180 basis 30,000T ex Baltic to UK Continent. In the Black Sea/Med market, owners managed to reach just shy of WS200 levels, mainly due to weather conditions which caused delays and the Cross Med, ended up at WS175 basis 30,000T”.
Meanwhile, “LR owners seem to be getting some much-needed relief, with the recent level of activity keeping the market alive. The LR2 ex ARA to Singapore is at around $2.0m levels and the typical naphtha from Mediterranean to Japan is hovering at about low $2.0m. In the meantime, LR1 is enjoying steady demand coupled with healthy tonnage availability, which has resulted in an increase to ex-UK continent to West Africa at around WS150 basis min 60,000T. ARA to South Asia traded at around $1.65m to $1.70m levels and the usual naphtha has elevated ex Mediterranean ports to Japan at around $1.83m levels respectively, while owners keep asking for higher premiums (about $80k to $100k) due to a poor Asia market. To conclude, our expectations remain fairly low as far the Eastern Market is concerned when comparing it with the Western Market. The distillates arbitrage from Far East to West does not seem to be helping enough and, as we approach the Chinese New Year, the lack of balance between supply and demand signals a further delayed recovery. The year of the Rooster leaves us with no option other than to hold tight and brace ourselves for a truly challenging market”, Intermodal’s analyst concluded.
Tanker Market Ends Year on Positive Momentum: OPEC (21/01)
In its latest monthly report, published this week, OPEC said that in December, the tanker market showed a positive momentum as its spot freight rates rose across both clean and dirty sectors. Dirty tanker rates continued to increase in December, as they had in the past few months. The average freight rates for VLCC, Suezmax and Aframax went up by 18%, 25% and 1%, respectively, from a month before. These higher rates were driven by several factors, but the most important were delays in eastern ports and uncertain discharge programmes. Additionally, increased pre-holidays activities and thinning tonnage supply in some areas also contributed towards the increase in spot freight rates. Similarly, the clean market showed higher monthly freight rates on all reported routes, also reflecting gains from those registered a year ago on both directions of Suez.
In December, OPEC spot fixtures increased by 5.7% from the previous month to average 11.73 mb/d, according to preliminary data. Higher spot fixtures were registered from the Middle East-to-Western destinations, which increased by 0.55 mb/d in December to average 2.9 mb/d. Seasonal winter demand supported the fixture increase in December. Spot fixtures from outside the Middle East registered a gain of 0.49 mb/d, or 18%, in December, compared with one month earlier.
Sailings and arrivals
OPEC sailings increased by 0.06 mb/d, or 0.3%, in December to stand at 24.07 mb/d, accompanied by a rise in Middle East sailings. In December, Middle East sailings gained 0.16 mb/d, or 9%, from the previous month to stand at 17.52 mb/d. Crude oil arrivals increased in December in all areas with the exception of arrivals at Far East, which showed lower arrivals by 0.26 mb/d, or 2.9%, from a month earlier. Arrivals in North America, Europe and West Asia went up by 4.2%, 0.2% and 7.1%, respectively, compared with the previous month.
Spot freight rates
VLCC market activity was mostly steady in the month of December, as chartering activities in both Middle East and West Africa led to a further reduction in the amount of available vessels. Vessel supply was already tightening as a result of increasing delays in Indian and eastern ports due to weather delays and ullage limitations, which together added to the increasing discharge delays. This thus supported the increase in freight rates and resulted in sharp gains in daily earnings. The uncertain situation helped ship owners of secured itinerary vessels, allowing them to have the upper hand in the market, while pushing for higher rates, mainly for Middle East loadings. The third week of December, however, showed a decline in activities, which combined with a downward movement of rates as charterers seemed to be holding their requirements in order to counter the increasing sentiment in rates. In December, VLCC spot freight rates for tankers operating on the Middle East-to-West showed the highest gains among other routes increasing by 26% from the previous month to stand at WS49 points. This was followed by freight rates registered for tankers in the Middle East-to-East routes, which increased by 19% m-o-m.
VLCC spot freight rates for tankers trading on the West Africa-to-East routes increased by WS9 points, or 14%, in December. All rates registered on the reported routes remain 3% to 9% below those of the same month in 2016.
In December, Suezmax spot freight rates registered remarkable gains on a monthly and annual basis. On average, Suezmax spot freight rates climbed by 25% compared with the previous month and by 22% from the same month a year earlier. The West African Suezmax market had a very quiet start at the beginning of the month with a wide supply of vessels. These vessels were initially considered a threat to potential gains in the VLCC sector market, as they could be suitable replacements for VLCCs once the difference in rates justifies a split cargo.
Similarly, Suezmax requirements in the Middle East were thin at that point and its freight rates remained low. The low freight rates also persisted in other regions at the beginning of the month as transactional delays in the Turkish Straits by up to eight days were not enough to support freight rates in the Black Sea. Suezmax rates improved dramatically in the second week of the month, with gains driven by significant improvements in loading requirements across different regions.
This resulted in a notable thinning in vessel supply. Nevertheless, the amount of enhancements varied as they remained moderate in the Mediterranean and the Black Sea, despite continuous transactional delays. In West Africa, freight rates started to rise, as the tonnage list tightened and the replacement requirements occurred with some delays reported. In the Caribbean, the Suezmax market also witnessed higher rates as a result of higher trends created by the Aframax vessels in the region. Accordingly, average spot freight rates for tankers operating on the West Africa-to-US route increased by WS21 points in December to average WS94 points. On the Northwest Europe-to-US route, Suezmax spot freight rates increased by 20% compared with a month earlier, to average WS76 points.
Aframax spot freight rates were no exception in December, showing gains from the previous month though these remain less than those registered by the larger tanker sectors of the market. The Caribbean Aframax market was active and the pre-holiday rush saw the level of transatlantic inquiries grow in combination with increased weather delays, leading to firmer sentiment, allowing ship owners to push for higher rates (mainly for prompt replacements). As a result, spot freight rates for tankers operating on the Caribbean-to-US East Coast (USEC) went up by 9% in December to average WS173 points, WS115 points higher than those in the same month of the previous year.
Aframax freight rates in the East reported an increase as well, with spot freight rates for tankers operating on the Indonesia-to-East route showing an increase of 30% from the previous month to average WS114 points. Following the massive gains in the Mediterranean markets achieved by the Aframax sector in November, freight rates the following month cooled off, showing a decline as more vessels were added to the position list and the situation balanced. The Aframax market in the Mediterranean remained balanced with all pre-holiday requirements covered easily.
Therefore, tankers operating on the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes saw drops in spot freight rates of 14% and 11% during December to stand at WS115 points and WS114 points, respectively. However, those drops remain relative to the increase in rates achieved one month before.
Is the Worst over for MR tankers? (19/01)
The MR tanker market faced severe headwinds in the closing stages of 2016, leading to a nearly 50% yearly drop by the end of it. This came hot on the heels of “a strong 2015 – with earnings at a nine‐year high of ~$24,890/day – MR earnings spent the first ten months of 2016 on a steady directional slide before bottoming during October at a four‐year low of just ~$5,354/day. Despite a modest rebound during November and December, 2016 concluded with a spot earnings average of just ~$12,997/day, a nearly 50% y/y drop”, as per Charles R. Weber latest weekly report.
According to the shipbroker, “during 2014 and 2015, accelerating of global refining output, boosted by a positive impact on refining margins from lower crude prices and stronger demand and the commissioning of new export‐oriented refinery projects, led positive product trade figures that boosted demand and earnings for product tankers. By early 2016, however, global product inventory levels had been massively overbuilt, having overwhelmed demand growth which itself was uneven between different products. Gasoline, for instance, grew during 2016, spurred by fresh intermittent record demand figures in the US, China and India. Diesel, however, likely recorded a modest y/y demand contraction during 2016. With inventories high, trade dynamics became more efficient as arbitrage opportunities requisite to more constructive, geographically diverse trades evaporated. In the USG MR market, for instance, total demand was up by 5%, y/y, but due to demand gains on short‐haul routes and losses on long‐haul routes, the net impact on fundamentals thereof was negative. Voyages from the region on short‐haul routes to Latin America were up by 21% while those to Europe were off by 16% and those to Asia were off by 43%. In Asia, a second‐ consecutive year of surging product export growth and steady import growth failed to make much of an impact as voyage lengths failed to grow meaningfully in tandem. Simultaneously, though, we found it encouraging for the intermediate and long‐term regional supply/demand picture that Pacific triangulated TCE benchmarks bucked their traditional discount to Atlantic triangulated TCE benchmarks a number of times during the year”.
CR Weber added that “for MR earnings during 2017, we are guardedly more optimistic that earnings will prove stronger on the back of constructive expected developments. In the USG market, total export demand growth should follow 2016’s levels in‐line with PADD 3 refining capacity creep – but, more importantly for MR fundamentals, average voyage lengths from the region should rise as well. US product exports to Mexico grew incrementally during 2016 and while further growth could materialize during 2017 on an extending of recent month’s trends, further growth from recent levels could be limited by PEMEX’s state aims to ramp up refinery utilization rates, allowing for growth on longer‐haul routes to ensue. Meanwhile, rising Asian distillate demand growth could reduce flows into Europe, paving the way for US refiners to export more distillate to Europe. IEA data shows that distillate inventories in Europe were moderating from 2Q16 highs at the start of 4Q16, a trend which could be extended if collective inflows from the Middle East and Asia ease up. On the MR supply front, we expect that net fleet growth will decline to a four‐year low of 3.4% as newbuilding deliveries decline for a second‐consecutive year. MR fleet growth peaked during 2015 at 7.6% and stood at 5.3% during 2016”, the shipbroker concluded.
Meanwhile, in the MR product tanker market this past week, CR Weber noted that “chartering activity in the USG MR market rose to a record high this week as export demand was bolstered by intermittent arbitrage opportunities while strong PADD 3 refining runs supported the export length. A total of 62 fixtures were reported, representing a 170% w/w gain. Of these, eight are provisionally bound for points in Europe (+5, w/w, and a three‐month high), 35 were provisionally bound for points in Latin America and the Caribbean (+18, w/w) and the remainder were for voyages to alternative destinations or were yet to be determined. In part, the demand surge represents a correcting of slow demand during the holidays and the first week of the year, as illustrated by the fact that the 4‐week moving average of fixtures stands at 34, which is generally in‐ line with the average number of weekly fixtures observed during 4Q16 (though slightly ahead of the 2016 full‐year average). On this basis, a corresponding positive impact on rates was nominal and largely aided in paring back some of the losses of the past three weeks. Rates on the USG‐UKC route commenced softer before rebounding by the close of the week; whilst observing a softer average on a w/w basis, the route closed with a 12.5‐ point gain from last week’s close. The USG‐CBS route gained $100k to conclude at $500k lump sum”.
The shipbroker added that “factoring into this week’s late rate gains are also the facts that Panama Canal transit delays as high as seven days and weather issues on Mexico’s east coast kept the front‐end of position lists tight. These factors should moderate during the upcoming week which together with a likely correcting of regional demand tempers bullish expectations for rate progression for the upcoming week. Nevertheless, we note that the two‐week forward view of available positions shows 36 units available (including likely ballasts from the USAC), representing a 29% w/w decline and a three‐week low. Given that the front‐end of this list is tighter than the back‐end, rate gains should continue to materialize though the start of the upcoming week. Though the extent of demand observed during the upcoming week will likely dictate the direction of rates thereafter, given historical correlations between weekly demand movements and the subsequent‐week rate progression, we view it as unlikely rates will soften failing a migration to demand levels significantly below average”, it concluded.
Tanker newbuildings’ delays and cancellations reached 25% during 2016 says shipbroker (17/01)
Higher than initially anticipated tanker newbuildings’ slippage during 2016 doesn’t bode well for the freight market’s fortunes during 2017. In its latest weekly report, shipbroker Gibson noted that “newbuilding delays are a common in shipping. Slippage can often be prompted by the owner who wants to delay the entry into a weak market, with depressed earnings. In the recent past, delays initiated by the tanker owner were most visible during the previous industry downturn between 2011 and 2013. Alternatively, shipyards themselves could be behind the delays. Shipbuilders may fail to meet their construction schedule for several reasons: technical, financial, labour or supply related issues. The fact that the shipbuilding industry has been going through a major crisis, with ongoing restructuring, consolidation and cost cutting even at most reputable shipbuilders, only increases the likelihood of delays caused by the yard. The most notable example of that is tonnage ordered at STX Shipbuilding, which filed for a court led restructuring last year”.
According to Gibson, “a few months ago we expressed an opinion that tanker slippage is likely to be substantial in 2016 – at over 15% of tonnage scheduled for delivery within that period. As the year came to an end, the final results show that the slippage was even bigger than initially thought. The actual delays in 2016 are around 25% of what was scheduled for delivery within the year. In percentage terms, delays are the highest in the Suezmax segment – at 33%, with 13 outthe 40 units which were scheduled for delivery in 2016 are yet to hit the water. Panamax/LR1s are next, with slippage at 30%; while delays in the Handy/MR fleet account for 27% of tonnage scheduled for delivery. Finally, delays in the VLCC segment are at 25% and in the Aframax/LR2 size group at 18%”, said the London-based shipbroker.
Gibson added that “although the crude tanker markets benefited from these developments, with TCE returns across all segments remaining at healthy levels for most of the year; slippage failed to prevent the progressive weakness in the clean tanker market. In addition, those tankers that were not delivered in 2016 only make the 2017 delivery profile look higher”.
“Going forward, it does not look like the problems in the shipbuilding industry will go away anytime soon. Ordering in many sectors remains at minimal levels, including the tanker market despite substantial falls in newbuilding prices. On the other hand, demand conditions for tankers are also likely to deteriorate, particularly if OPEC and a number of non-OPEC countries act on their promise to cut crude oil production by nearly 1.8 million b/d. All of this suggests that 2017 could be another year with widespread delays, both owner and shipbuilder led. Yet, the same also means that actual deliveries in 2018 are likely to be notably higher than currently scheduled. In this case, the industry hopes will be for strong increases in trading demand to offset rapid growth in tanker supply”, Gibson concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson noted that it was “busier for VLCCs but the previously hard rate-hit had taken its toll on Owners’ ambition and the market could only modestly rebound to a peak ws 67.5 to the East and low ws 40 level to the West. Full February programmes will soon be in hand and the next phase of the ‘game’ will be dictated by how Charterers handle those… a quick pace could lead to further gain, but a disciplined slow-step would compromise. A continuation of the recent West African activity would also aid Owners’ cause. Suezmaxes showed no real spark through a dull week of fixing. Rates slip just a little below ws 90 to the East and remain flatline at around ws 50 to the West. February Basrah liftings look heavy, however, and Owners will hope for better attention within short. Aframaxes became busier, but rates haven’t yet made a move from 80,000 by ws 110(17) to Singapore. If volumes do maintain for next week then there will be improvement”, the shipbroker concluded.
Tanker Market: VLCCs ended 2016 with a bang, as doubts linger entering 2017 (10/01)
The VLCC market concluded 2016 on a strong note, with average earnings during December surging to a nine‐month high of approximately $62,184/day. Despite a 30% y/y decline, 2016’s average earnings of $46,591/day represented the second‐strongest year since 2009 – and the third strongest year of the past decade, said shipbroker Charles R. Weber in its latest weekly report. According to CR Weber, “progressing into 2017, the market appears set for stronger headwinds, however, with the tenuous specter of a global crude production cuts and ongoing fleet growth presenting a challenge to earnings”.
CR Weber noted that “the VLCC fleet grew by 7.0% during 2016 and though we project a moderating thereof to 5.1% during 2017, we note the potential for a substantial rate of fleet growth in the Suezmax segment of 10.2% to see the smaller class increasingly compete for cargoes in the VLCC space. Offsetting some of the challenge, with 72% of the OPEC/non‐OPEC cuts agreed late last year distributed to the Middle East region, Asian crude buyers could migrate, in part, to the West Africa region where supply could grow on a net basis from recent levels (if Nigeria is able to address its security situation and reduce production under forces majeure). The slow return of production under forces majeure and disappointing current cargo availability there, however, illustrates that this too is quite tenuous.
In the spot market this week, activity remained on the slow pace that characterized the holidays which appears to be building increasing bearishness”.
According to the shipbroker, “the Middle East market observed 26 fresh fixtures, one more than last week while the four‐week moving average thereof dropped to a nine‐week low. In the West Africa market, three fixtures were reported, also one more than last week, while the four‐week moving average dropped to a four‐month low. The latter is of greater concern, given implications for both the near‐term rate progression due to the importance of competition between the Middle East and West Africa markets for tonnage and in the intermediate‐term as the decline suggests that availability levels will rise due to the lower ton‐miles generated in the absence of strong West Africa demand”.
CR Weber added that “to‐date, the January Middle East program has yielded 96 cargoes and a further 35 to 40 are expected. Against this, there are 52 units available. Though uncertain, we expect that draws from the West Africa market will remain low while the market monitors supply levels to interpret adherences to OPEC cuts data for clarity about grade‐specific pricing differentials and the general direction of crude prices. Factoring for this, we estimate that the January program will conclude with around 11 surplus units, which compares with just two at the conclusion of the December program. Our models indicate that on the surplus alone rates are poised to ease, though the timing of demand for the remainder of the January program will likely rate progression ahead of a move into February cargoes, at which point the high surplus would require a strong start to the February program to prevent an accelerating of rate erosion. During the upcoming week, Basrah stems are expected to be released which will provide greater clarity both for near‐term rate progression and compliance amongst parties to production cuts agreement. January’s program was surprisingly high given its coinciding with the cuts’ implantation date, though historically there is a lag of 3‐4 weeks between production changes and supply changes”.
In the Middle East market, CR Weber said that “rates to the Far East dropped 13 points over the course of the week to conclude at ws91.25 (basis 2017 WS) with corresponding TCEs dropping 18% to conclude at ~$48,885/day. Rates to the USG via the Cape observed a loss of 4.6 points this week to conclude at ws59.75 (basis 2017 WS). Triangulated Westbound trade earnings were off by 5% to a closing assessment of ~$62,004/day. We note that a two‐tiered market for AG‐FEAST fixtures has prevailed since late during 2016 with disadvantaged units (units 15+ years old, newbuildings on their first trade and ex‐DD units, among others) trading around a 15 point discount to their more non‐ disadvantaged counterparts”.
Finally, in the Suezmax market, “demand in the West Africa Suezmax market commenced with an extending of the slow pace observed during the prior, holidays‐eclipsed week, leading to a fresh weakening of rates. Rate erosion slowed at mid‐week by an earnest resumption of demand and a subsequent end‐week burst of demand saw rates pare some of the earlier losses. Eleven fixtures were reported over the course of the week, a weekly gain of one fixture. Rates on the WAFR‐ UKC route lost 17 points over the course of the week to conclude at ws111 (basis 2017 flat rates), having earlier dipped into the high ws100s. Given low VLCC coverage of the January West Africa program to‐date, sufficient further demand length for Suezmaxes likely remains to support a modest extending of gains during the upcoming week”, the shipbroker concluded.
Tankers’ ship scrapping in 2016 not one for the history books (09/01)
Tanker scrapping during 2016 won’t go down in history for breaking any records. With most ship owners having relatively young fleets after the investment spending of the past few years and the hope that the market’s slowdown would turn around on the back of increased demand, demolition activity was limited. After all, earnings remained in healthy levels, so there was no actual urgency among ship owners. In its latest weekly report, the first of the new year, shipbroker Gibson said that “without the sale of two VLCCs in the final quarter of last year, “tanker deadweight recycling totals would have been only slightly above the 2015 final figure. In deadweight terms tonnage sold for demolition in 2016 amounted to 2.46 million tonnes, just 33 units (25,000 dwt+). Once again healthy earnings across most tanker sectors did little to encourage scrapping”, said the shipbroker.
According to Gibson, “the extremely young age profile of the tanker fleet also discouraged scrap sales and newbuildings entering the market were initially absorbed with minimal impact until the latter half of the year. In contrast, demolition sales of bulk carriers and the container ships contributed around 350 and 200 units respectively, as poor trading conditions continued to dog these markets. The collapse in scrap prices which started in 2014 continued and by January last year, lightweight prices on offer had fallen to below $300 tonne for tanker tonnage”.
The shipbroker added that “over the final few months of 2016 lightweight prices started to recover, but failed to attract an influx of new tanker candidates despite softer tanker earnings. However, scrap values for India/Pakistan are still considerably below the circa $500/tonne range witnessed in September 2014. Of the 33 tankers sold last year, Pakistan breakers took exactly one third, followed by India with 8. The oldest vessel sold for scrap was the Suezmax LEO (built USA 1978), which had been shuttling crude around the US Eastern seaboard for a couple of years. While the youngest, the VLCC XIN PING YANG (built 2001) just made it into 2016 figures, reportedly bound for Chinese breakers. In October, the tanker PROGRESS (built 1994) had the distinction of being the first “trading” VLCC to be sold for scrap for exactly two years. One interesting point is that 10 of last year’s sales were for disposal of single-hull tonnage, many of which had been lying idle for some time. In addition to the two VLCC sales, one Suezmax and seven Aframax were sold for disposal”.
Gibson noted that “for 2017 we anticipate tanker markets to be more challenging across most all sectors. The production cutbacks announced by OPEC back in November are due to be implemented from this month onwards. In addition, the influence of the 240 newbuildings which entered the fleet over 2016, and those still to be delivered over the coming months will also impact heavily on the tanker market. We also believe that the recent legislation on Ballast Water Treatment for implementation from September this year and the new lower sulphur limits from 2020 will all influence owners decisions whether to scrap although many owners may hold off to see if there will be exemptions or waivers applied. However, the expense of putting a vessel through 3rd special survey, coupled with the high additional costs associated with the new environmental regulations will provide owners with considerable food for thought over the coming months. NB: The VLCC VARADA BLESSING (built 1993) originally sold to Pakistan breakers in July 2014 but since detained under arrest in Hong Kong. The vessel has subsequently been re-sold for demolition in China and has not traded in the market since 2014. She has been excluded from our 2016 sales figures”, Gibson concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “a sharp VLCC dip before Christmas followed by a mid-holiday rebound that now has turned into a dead-cat bounce with rates sliding to as low as ws 60 to the East and low ws 40’s to the West. Owners will be hoping for some late January volume relief, but whether the remaining ammunition will prove sufficient to re-fire the market is open to question. An increase in Far Eastern delays would help. Suezmax interest was dominated by short haul trades, and although there was initially a large amount covered, The ‘quality’ of the trade kept a lid on rates that then began to ease off to 130,000 by ws 90 to the East and little better than ws 50 to the West. Aframaxes moved through a dull period and rates steadily ticked lower to just under ws 90 to Singapore with little early change likely”, the shipbroker concluded.
Tankers to benefit from additional Chinese oil import demand says shipbroker (06/01)
Tanker owners could benefit from a further increase in China’s demand for oil imports says shipbroker Charles R. Weber in a relative feature. According to the shipbroker, for much of 2016, there were concerns that the slowing pace of Chinese economic growth and burgeoning refined product stocks would lead to a softening in China’s appetite to import oil. “However, we estimate that China’s full year imports are set to increase by 9%”, said the shipbroker citing a number of factors which have contributed to the recovery in crude oil imports. These include the decline in Chinese crude oil production, the revival of refinery throughputs and the drive to add to strategic oil reserves.
Decline in Chinese crude oil production
According to CR Weber, “Chinese crude oil production has dropped sharply in 2016 from 4.25million b/d in December 2015 to 3.8million b/d in October, which was a seven‐year low. It recovered to 3.93million b/d in November but we are presently anticipating an estimated number of around 2,437,000 tons of domestic crude exports for China for 2016, down 77% from their 2000 exports. Aging oil fields and a low oil prices were an important factor undermining crude oil production in 2016, but we anticipate the decline to continue – with output set to fall to 3.5million b/d by 2020”.
Revival of refinery throughputs led by teapot refineries
The shipbroker added that the “rise of the independent teapot refinery has been a market‐transforming phenomenon in 2016, emerging as a brand new source of crude oil demand growth. This group of refineries accounts for about 30% of total present Chinese refinery capacity (14.4million b/d). Traditionally teapots were required to purchase crude oil from state petrochemical companies. In September 2015, seven teapot refiners received their own import licenses. More licenses followed pushing total teapot quotas to 1.26million b/d at the end of 2016. Teapots are expected to add between 200‐400,000 b/d to Chinese crude oil import demand growth in 2017, if – as seems likely ‐ quota levels for the next year are maintained at end 2016 levels. Some estimates suggest that Chinese crude oil import demand will increase by 500‐700,000 b/d next year”.
Drive to add to strategic crude oil reserves
CR Weber also noted that “since 2008, when China completed building its first phase strategic crude oil infrastructure, stockpiling has been a very important part of Chinese crude oil import demand growth. However, this source of demand doesn’t always hit the headlines because of uncertainty about the exact size of current Chinese reserve capacity and a market perception that it is close to its maximum ceiling. This uncertainty has generated attention in recent months because of the disparity between government statements about stock levels and increasingly sophisticated independent stock measurements made by market observers using AIS tracking and satellite imagery.
Under the latest five‐year plan 2015‐2020, China’s government is targeting combined government (SPR, 476 million barrels) and commercial reserves (209 million barrels) to reach the equivalent of 90 days (685 million barrels) of emergency cover i.e. cover sufficient to replace its net import requirement”.
“However, there are suggestions from Orbital Insight and others that the storage building program may already even exceed this target, in part because of the identification of possible additional storage sites – including underground caverns by the Yellow Sea and a scattering of islands in the Yangtze River delta. As a result, we think that China’s strategic stockpiling is still not completed and will continue to be an important source of crude oil demand growth – at least while oil prices remain relatively low”, CR Weber concluded.
Asia Tanker Market Outlook Q1: A Rocky Path Ahead (06/01)
Asia’s crude tanker market faces the double whammy of a flood of newbuild deliveries and a cut in OPEC production in Q1 2017. On the supply side, net capacity growth is estimated to be around 5% for VLCCs, 9.6% for Suezmaxes and 7% for the Aframaxes/ LR2 segment in 2017. At least 50% of the newbuild VLCCs and Suezmaxes will be delivered in Q1, worsening the oversupply of tonnage. On the demand side, OPEC’s planned output cut of 1.2 mmb/d starting January will lead to less crude export cargoes with the VLCC segment bearing most of the brunt.
Assuming a compliance rate of 50-60%, the production cut could potentially result in an average fall of 10 VLCC fixtures per month. However, the negative impact may be somewhat offset should Asian buyers turn to Atlantic Basin barrels (such as West Africa, the Caribbean and South America) as a substitute, increasing ton-mile demand. The narrowing Brent premium to Dubai swaps will also incentivize the movement of more barrels from the Atlantic Basin to Asia. Moreover, as China adopts the “National V” emissions standard this year, less sophisticated refiners are likely to favor crudes with lower sulfur content.
With Iran exempted from the OPEC cuts, steady cargo volumes will likely lend some support to the Suezmax market in Q1. Iranian December crude exports are expected to hit 1.88 mmb/d (up by 40% y-o-y), with the potential to ramp up to presanctions levels of 2.2 mmb/d this year. While Nigeria’s production has been plagued by strikes, any subsequent increase may help to boost tanker demand. Libya’s crude production reached 685 kb/d at the end of December (up by 85% y-o-y). Should the country hit its target of 900 kb/d by the end of Q1, this may lead to an incremental increase in demand for Aframaxes.
While the product tanker sector in Asia is expected to see slightly lower net fleet growth compared to 2016, it faces a mixed bag of uncertainty. The LR2 tanker market will see an estimated delivery of 42 vessels this year, with a significant chunk taking place in Q1. However, the impact may be offset as around 6-9 LR2 vessels were taken for gasoil storage on short-term charters ranging from 1 to 3 months in December. Several LR2 tankers have also switched to dirty cargoes on the back of higher earnings in 2016. Around 25-30 LR1 tankers will be delivered in 2017.
Higher Western arb volumes as well as surging regional production are expected to dampen naphtha imports into Asia, which account for the bulk of volumes shipped along the key AG/Japan route. This will add further pressure to the large product tanker segment in Q1.
Around 1.5 mmt of naphtha cargoes are expected to arrive in Asia in January, 20% higher than the 2016 monthly average of 1.2 mmt. The start-up of three new condensate splitters in Asia will lengthen naphtha supply in the region. Hyundai Chemical’s 110 kb/d condensate splitter in South Korea came online in November 2016 while Qatargas’ 146 kb/d Ras Laffan 2 condensate splitter started commercial operations at the end of December. Taiwan’s CPC is expected to start its new 50 kb/d Dalin condensate splitter by the end of Q1 2017. The MR tanker fleet is expected to expand by around 4% in 2017, lower than 6% in 2016. Steady cargo flows from key exporters China and India may support demand for MRs, while winter heating fuel demand as well as weather delays in Q1 remain key factors to watch.
How hard will OPEC’s production cuts hit tanker markets in 2017? (29/12)
The fourth quarter of 2016 is capping what has been a mixed 12 months for the tanker markets. The agreement by OPEC members and non-members alike to cut production in an attempt to reduce oversupply will be a core determinant of conditions in 2017.
The latest MSI Quarterly Tanker Market analysis* finds that despite the cuts having a limited negative near-term impact, there are reasons to be positive on prospects for the longer-term.
Despite some seasonal upside in the final period of the year, 2016 has overall undoubtedly been a year of negative dynamics across the tanker industry. This has been the case both in terms of the annual change in freight rates, which has been universally negative against 2015, and asset prices, on which the twin gravitational forces of lower newbuild prices and lower earnings have acted forcefully.
Compared to other shipping sectors, the last couple of years in the tanker market have seen a distinct lack of trend. Markets have move up rapidly and then retreated at almost the same speed. Volatility and uncertainty over the shifting landscape of the oil market have been reflected and amplified in the tanker freight market.
“Oversupply of productive capacity in the oil market has been mirrored by excess tonnage capacity in the tanker market. Both are now rebalancing and although fleet growth is expected to remain high in 2017, low earnings and the ratification of ballast water treatment regulations support MSI’s expectations that tanker scrapping will move sharply higher in 2017,” says MSI Senior Analyst Tim Smith.
“This will helping construct a market recovery in 2018 and beyond, built on much lower fleet growth rates than being seen currently, both in the large crude and product tanker sectors.”
Relative restraint in Middle East crude production during 2017 has been and remains an implicit element of the MSI Base Case. OPEC’s decision to cut output remains fraught with uncertainty on how the group will manage to maintain discipline and encourage non-OPEC participants to join in. Moreover, the cut is not especially big.
Despite the negative ramifications of such action, MSI cautions on becoming too bearish, given the relatively light cut by OPEC, prospects for crude coming out of the US and potential improvement in the refining sector, should the oil glut be alleviated.
“This latter process has been protracted and downside risks of net fleet growth, a relapse in Chinese demand and broader macroeconomic malaise resulting from protectionist measures are still present, and could still push 2017 substantially lower than the MSI Base Case, adds Smith.
“The tanker market, like the oil market, is in a clearing phase, removing over-supply and rebalancing. That process could take another year or so before returning to a position where sustained gains can be made, but we remain positive on the long-term outlook.”
2016 will be remembered among tanker owners as the year of OPEC’s decision to curb oil output says shipbroker (27/12)
For tanker owners 2016 will be remembered as the year during which OPEC decided to limit oil production, as a step to boost prices. This news was shortly followed by another announcement that several non-OPEC members will also cut production, taking the total level of expected production cuts to nearly 1.8 million b/d. In its annual review, London-based shipbroker Gibson said that “the oil markets began 2016 in turbulent waters, with fears over how low oil prices would go. Brent prices hit their lows in January of sub $30/bbl; this coincided with average VLCC earnings of over $70,000/day. Oil demand growth remained robust, but slowed to 1.4 million b/d from 1.8 million b/d in the previous year according to the IEA. With demand insufficient to absorb the surplus, OPEC finally conceded that production cuts would be needed to rebalance the market, pushing crude prices back above $55/bbl”.
As mentioned, “the crude tanker market started the year strongly, carrying on from 2015 levels. However, rates and earnings gradually traded down throughout the year before picking back up in Q4. Crude tanker demand was impacted by noticeable supply disruption in Nigeria witnessed earlier in the year. In addition, as slower growth in global oil demand was observed, oil markets have become more balanced, leading to a decline in tanker operational and forced storage. Furthermore, a heavy refinery maintenance season – reduced and/or postponed last year due to high refining margins – had a negative effect on crude demand and tanker rates. Fleet growth was high on the back of a rising number of deliveries whilst demolition has been almost non-existent. As a result, the market is now digesting the deliveries from the ordering spree over the previous few years, although in 2016 new orders across the board have been highly limited. This has added further downward pressure on the shipbuilding industry which is already going through a major crisis. Tanker newbuild prices have come down to or close to their lowest level since 2004 and it remains to be seen if asset values will fall further in 2017”, said Gibson.
According to the shipbroker, “2016 also saw the ratification of new industry standards, which will impact on several aspects of the shipping market in the coming years. The ballast water treatment convention will enter into force in September 2017. Although not impacting markets directly this year, the full effects will be evident in future years. In a similar vein, an agreement was reached to lower Global Sulphur Limits from 3.5% to 0.5% by 2020. Both are likely to have significant ramifications”.
Gibson added that the “build-up of significant product inventories around the world have limited trading and arbitrage opportunities for clean tankers. In addition, there has been a noticeable slowdown in new export orientated refining capacity additions in the Middle East. Spot fixture volumes are showing signs of being on par with 2015 levels, while the growth in product tanker supply has accelerated notably. There also has been a noticeable drop in trading volumes for larger product carriers loading West of Suez largely due to a lack of naphtha arbitrage to the East and limited trade to West Africa. All of these factors combined have translated into a dramatic decline in clean tanker earnings this year. MRs in Asia have been generally able to outperform those in the Middle East and West of Suez, due in part to increasing product imports and exports levels from China”, said the shipbroker.
In its concluding remark Gibson said that “2016 has been packed full of surprises, with opportunities and challenges evolving around various aspects of the shipping industry. The year may well be finishing on a high across most markets however 2017 is likely present a renewed set of challenges which may trump 2016 from both a supply and demand perspective”.
Fleet growth squeezes crude oil tanker market (27/12)
From January 2014 – October 2016 the crude oil tanker segment composing of VLCC, suexmax and aframax ships, had a net-fleet growth of 7.3%, which is equal to 24.3 million (m) DWT. The VLCC segment, with 20.7m DWT or a net fleet growth rate of 11% took the lion’s share, followed by the suezmax segment with 4.4m DWT or 5.5%. Whereas the aframax segment decreased by -0.8m DWT or 1%, in relation to the fleet size of the specific ship segment. This analysis explains the recent history, updates you on the current state and displays future changes for crude oil tankers.
BIMCO’s Chief Shipping Analyst Peter Sand says: “The recent crude oil tanker fleet growth becomes increasingly troubling, and worsen the balance between supply and demand strongly, if demolition does not pick up. In the past two years, specifically, less than 2.3m DWT of crude oil tanker capacity has been demolished, which in comparison to the 358m DWT of the current crude oil tanker fleet is a vanishingly small proportion. But there may be changes just around the corner. The demolition of the 1994-built VLCC “Progress” with 297,237 DWT by mid-October indicates a resumption of demolition activity for the crude oil tanker segment. In October 2016, this ship was the first trading VLCC since the 1995-built “Hebei Mountain” in October 2014 with 307,050 DWT was scrapped.”
Per GMS reports in-between these two years only two other VLCC’s were demolished. However, either these have already stopped trading or have been converted for other use. Most recently in November 2016, another VLCC with 281,434 DWT was demolished, thus indicating a new trend in demolition activity.
Newbuilt deliveries in the crude oil tanker segment doubled from 0.9m DWT in January 2014 to 1.8m DWT in October 2016. Accumulating in the reference period to a total of 35m DWT. In this period, 25.7m DWT or 73.4% were VLCCs, 6.1m DWT or 17.3% were suezmaxes and 3.2m DWT or 9.3% of gross delivered capacity was aframaxes.
At the same time, ship demolition ceased to exist between January 2014 – October 2016 as the freight markets improved significantly, bringing profitability back to the industry. Just 7.3m DWT of crude oil tanker capacity was demolished. The VLCC and aframax segment accounted for 85% or 6.2m DWT of the total crude oil tanker demolition, while the suezmax segment saw demolition of 1.1m DWT or 15% of total crude oil tanker scrapping.
Future demolition candidates
Between January 2014 – October 2016 crude oil tanker demolition only affected ships older than 15 years. The current crude oil tanker fleet holds 59.3m DWT or 18% of ships aged more than 15 years, which are the most likely candidates to be sold for demolition. The VLCC fleet contains 32.5m DWT or 15% of the current VLCC fleet older than 15 years, while the suezmax fleet has 12.9m DWT or 21% and the aframax fleet 13.9m DWT or 22% of these older ships.
Demolition influencing factors
The key factor influencing the low demolition levels was solid earnings throughout the year in 2015. The decrease of the BIMCO dirty tanker earnings by -51% from January 2016 – October 2016 however, might have a reverse effect on future demolition activity. Moreover, low bunker prices, which decreased from January 2014 – October 2016 by -53% or USD 301 per tonne, eased the pressure on fuel efficiency for the older ships.
Furthermore, the ship demolition price decreased from Q1 2014 – Q3 2016 on a compounded quarterly rate for VLCCs by -4.0%, suezmaxes by -3.7% and aframaxes by -4.1%. For a VLCC, the price dropped from 19.4m USD to 12.3m USD for an average ship of 42,000 ldt. In correlation, current fleet age profiles, earnings, bunker prices and ship demolition value – are influencing demolition activity in the crude oil tanker segment.
Steady increasing orderbook
The orderbook-to-fleet ratio of 16% in Q3 2016 provides evidence for future fleet growth. However, if the fleet in future expands by more than the growing need, it will contribute to an imbalance between supply and demand, therefore resulting in decreased earnings. This should trigger higher demolition activity in the crude oil tanker segment.
Peter Sand adds, “Decreased earnings of crude oil tankers since the start of 2016 is a clear sign of the mismatch between demand and supply. Something which is not fundamentally changed by the seasonal upswing in Q4-2016 as seen for VLCCs. In addition to freight market uncertainties, the enforcement of the ratified ballast water treatment legislation and the IMO global sulphur cap at 0.5% in 2020, will be a stimulus for demolition of inefficient ships and therefore could serve as a catalyst for an improving freight market”. Showing leadership to the global shipping industry, in 2017 BIMCO will continue its unique series of analysis on the “Road to Recovery” for the crude oil tanker market, following the analysis published in 2016 on what is needed for the dry bulk sector to recover.
Product Tanker Increased Newbuilding Deliveries For 2017 Could Keep Pressuring Freight Rates, As Demand Is Still Uncertain Says Shipbroker (20/12)
Newbuilding deliveries are bound to exert more pressure to the product tanker market freight rates says Gibson in its latest weekly report. At the same time, demand is difficult to predict at this stage. According to Gibson, “it’s safe to say 2016 has been a challenging year for product tanker owners. 2015 benefited from new refineries firing up in the Middle East, strong margins boosting refinery runs and exports, frequent arbitrage opportunities, manageable fleet growth, and at times, the added volatility from refinery outages and weather delays. 2016 saw a substantial turnaround. Fleet growth accelerated, new export orientated capacity additions almost ground to a halt, demand growth eased back, and refiners implemented heavy maintenance programmes (many deferred from 2015)”, the shipbroker noted.
Gibson also said that “not least, global product stocks have remained a barrier to trade. With all regions high on stocks, pricing differentials, and hence arbitrage opportunities have been limited; even with some major infrastructure issues in the US. Newbuild crude tankers have regularly ‘eaten into’ product tanker market share by loading clean barrels on their maiden voyages. Additionally, higher exports from China have competed with seaborne barrels from the Middle East and the West, supporting smaller tankers in the region disproportionately to the global picture”.
According to the shipbroker, “with 2016 effectively behind us, the focus now shifts to what we can expect for 2017. With some certainty we know deliveries across the tanker market will remain at elevated levels. In terms of scheduled deliveries, we expect 76 vessels in the LR2/Aframax class, 28 in the LR1 class and 75 in the MR/Handy sector. It’s also important not to ignore the 69 Suezmaxes, which could compete for gasoil barrels, perhaps even the odd VLCC out of the 51 to be delivered next year. Some delays will of course take place, however, with such a large orderbook deliveries will remain substantial, even with some slippage”.
Gibson also noted that “whilst fleet expansion may seem relatively clear cut, it is the demand side where the degree of uncertainty is much higher. Whilst we know that there will be limited support from expanding export refining capacity in 2017, the main issue to resolve in the short term is the stock levels. Overall, product inventories appear to be falling, however the picture is not clear cut. In the US, clean product stocks, particularly in the key Atlantic Coast region have generally trended upwards following the restart of the Colonial pipeline and sit close to record highs. Stocks in Europe have trended downwards following heavy maintenance and lower seaborne imports, notably from the US and Middle East; yet we could see this trend reverse as refiners exit maintenance and flows from the East pick up. In Asia, stocks in Singapore have come off their summer highs but could once again edge higher following stronger flows from the West and Middle East. Nevertheless, stock levels should start to ease over the course of 2017 as rising demand, slower growth in refining capacity and weaker margins lead to draw downs. However much of this ‘rebalancing’ depends on the action of OPEC and its allies. If meaningful cuts are made and sustained for long enough, oil and product prices could move into backwardation, supporting drawdowns, whilst rising crude prices could weaken refining margins, prompting run cuts in some of the less competitive regions, principally Europe. Initially drawing down stocks might be painful for owners if these barrels compete with imports. However, such action is a necessary evil that must be completed for the market to find a sustainable footing once again, where global product imbalances drive tonne mile demand forward”.
Gibson concluded its analysis by noting that “we do however have to be mindful that many analysts expected the market to rebalance over 2016, which proved premature. Could the collective action by OPEC and its allies fall apart? Would this prompt a renewed fight for market share, higher refining margins, higher runs, a stronger contango and rising stocks? It remains to be seen but the risk has to be factored into any decision”, the shipbroker noted.
Meanwhile, in the crude tanker market this past week, in the Middle East, Gibson said that it was “a more cautious week from VLCC Charterers as December needs became closed out and January confirmations awaited. Despite that, Owners maintained, and slightly built upon, their previously solid position so that rates held at up to ws 87.5 to the East and into the low ws 50’s now to the West. Upcoming holidays will compact the next fixing window into a shorter time-frame, and busier times are forecast. Owners will be alert to securing another step higher if Charterers do indeed come shopping in concentrated numbers. Suezmaxes started slowly, but once West Africa sparked, ballasting away became attractive and a finer balance then moved rates higher to close to ws 100 East, and ws 60 to the West with big premiums still payable for Iran liftings”.
Tanker market sentiment improved prior to OPEC cuts (17/12)
In November, tanker spot freight rates for dirty vessels showed a noteworthy rise, as average spot freight rates continued to increase for the third month in a row, showing a gain of 24% on average from the previous month. Freight rates for all classes in the dirty segment of the market increased on almost all reported routes, though the amount of gains varied. Rates for VLCC fixtures in November continued to rise as seen in the previous month, supported by steady tonnage demand in major trading areas where different routes reflected higher freight rates. The Suezmax class also benefited from a firming market, though its increase in rates remained marginal. Aframax freight rates showed the highest increase in dirty class vessels, mainly as demand and rates in the Mediterranean surged, in combination with increased delays at Turkish straits, which reduced the supply of vessels and raised freight rates significantly in a monthly and on an annual basis.
In November, OPEC spot fixtures were down by 1% from the previous month to average 11.10 mb/d, according to preliminary data. The drop came at the same time as lesser spot fixtures from the Middle East-to-West and outside Middle East fixtures declined – by 5.9% and 19.6%, respectively – from a month before. Meanwhile, fixtures from the Middle East-to-East rose by 0.7 mb/d in November to average 6 mb/d.
Sailings and arrivals
OPEC sailings increased by 0.25 mb/d, or 1.1%, in November to stand at 24.01 mb/d, This was supported by an increase in Middle East sailings, which rose by 0.23 mb/d, or 1.3%, over the previous month to average 17.35 mb/d. Crude oil arrivals were higher in most regions in November. Arrivals at North American, Far Eastern and European ports rose by 1.9%, 7.5% and 1.7%%, respectively, compared with the previous month. Arrivals in West Asian ports were the only exception, as they dropped by 9.5%.
Spot freight rates
In the dirty market, VLCC spot freight rates continued to climb as seen in the previous month. In November, VLCC average spot freight rates increased by 11% from one month before. The tonnage market was mostly balanced in November, despite activity fluctuating, which led to a slower pace of activities, mainly as November requirements were covered. On average, VLCC spot freight rates stood at WS59 points, up by 3% from those registered in the same month a year earlier. VLCC Middle East-to-East spot freight rates went up by 14% in November to stand at WS69 points, followed by freight rates registered for tankers trading on the Middle East-to-West route, which rose by 10% to average WS39 points. As for the tanker market in West Africa, the VLCC spot freight rate on the West Africa-to-US Gulf Coast route showed fewer gains than other routes, though it remains up by 9% m-o-m to average WS73 points.
Average Suezmax spot freight rates also showed gains in the dirty market, though at a lower level than in the VLCC sector, rising by only 2% on average in November, compared with the previous month, to average WS68 points. The month started with a quiet market in several areas with limited fixtures, while vessel supply remained sufficient and rates stayed weak. Later on, an increased flow of fixtures in the Caribbean, USGC and Europe supported Suezmax demand in many areas, reducing tonnage availability and thus boosting the tonnage sentiment. Suezmax freight rates in November were also supported by rising rates of Aframax and delays in the Turkish Straits, which partially drove the rates in the Black Sea higher. Consequently, spot freight rates for tankers operating on the West Africa-to-US route increased by 9% in November to stand at WS73 points, while rates on the Northwest Europe(NWE)-to-US route showed a decline by 4% to stand at WS64 points.
Average Aframax spot freight rates showed the highest gains in dirty tanker sector, as increases were seen in all reported routes. Average Aframax spot freight rates showed remarkable gains in November, averaging WS119 points. In the Baltics and North Sea, Aframax rates experienced a sudden increase at the beginning of the month as the tonnage list tightened notably. The rising sentiment for this class spread to the neighboring areas of the Mediterranean and Black Sea tonnage market. A high level of fixtures and inquiries kept freight rates up despite a high level of volatility in different markets. The surge in rates seen in different markets was also supported by tonnage demand for Mediterranean loadings, which, coupled with increasing delays at the Turkish Straits and a prolonged total transit time, supported the massive increase in spot freight rates. On the other hand, the announcement of the Primorsk loading programme in December was another factor which maintained higher rates for 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 increase. Both routes reflected higher rates by 89% and 88%, respectively, from the previous month to stand at WS134 points and WS127 points. This reflects an increase of 19% and 18% from the same month in 2015. Spot freight rates for Aframax operating on the Caribbean-to-US route registered relatively lower increases, rising by 30% from last month to recover to WS126 points. Meanwhile, spot freight rates for tankers trading on the Indonesia-to-East routes showed a relatively lower gain, rising by 7% to stand at WS88 points.
Middle East demand pulls up VLCC rates as demand is seen strong (13/12)
Demand for VLCC crude cargoes has triggered an increase in freight rates over the course of the past week, while the trend is seen higher over the next few days as well. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates were stronger this week on relatively steady elevated demand in the Middle East market and a fresh demand gain in the West Africa market. Compounding the impact of strong demand, the earlier high availability of disadvantaged units was largely cleared out by the start of the week, taking away the discounted options which charterers had been focused on to keep rates from advancing. A total of 37 fixtures materialized in the Middle East market (‐2, w/w) and 7 materialized in the West Africa market (+1, w/w).
Meanwhile, as CR Weber pointed out “sentiment remains bullish given a very balanced forward supply/demand fundamental in the Middle East where, subject to the extent of remaining cargoes and draws on remaining vessels to service West Africa demand, the month appears to have a high potential to conclude with no surplus units. If this occurs, it would mark the first time in nine months that no surplus units remain – and only the second such occurrence since 2008. Factors which could place the end‐month surplus above this level include a deviation from what we believe is a conservative estimate of West Africa draws (four units through the remainder of the December Middle East program), given that two of this week’s West Africa demand was sourced on units ballasting from the USG – and the fact that charterers have recently reached forward to end‐December dates which could imply that remaining Middle East cargoes could be lower than our target of 134 cargoes. To date, 123 cargoes have materialized. Additionally, hidden units and potential charterer relets could expand available units. Our high case of surplus units, however, is five – which would remain the lowest surplus count since March. In either the base or high case of supply, the fundamentals are tight and rates are poised to post strong during the upcoming week”, said the shipbroker.
According to CR Weber’s report, in the Middle East, “rates to the Far East gained 10 points to conclude at ws82.5 with corresponding TCEs rising by 20% to ~$61,039/day. Rates to the USG via the Cape gained 2 points to conclude at ws43. Triangulated Westbound trade earnings rose 14% to $57,907/day. Similarly, in the Atlantic Basin market, “the West Africa market followed the Middle East with rates on the WAFR‐FEAST route adding 7.5 points to conclude at ws77.5. TCEs on the route rose by 14% to conclude at ~$57,250/day. The Caribbean market remained quiet this week but as the economics for units freeing on the USG started to favor ballasting to West Africa as opposed to the Caribbean, regional rates improved. The CBS‐SPORE route jumped $300k to a seven‐month high of $4.80m lump sum (representing the strongest weekly gain in over two months)”, said CR Weber.
Additionally, “the West Africa Suezmax market was busy this week as charterers progressed more aggressively into the December program. This tightened regional availability, leading to a rebound of regional rates, which began the week with an extending of last week’s decline. A total of 15 fixtures were reported, representing a 50% w/w gain. Contributing to the narrower supply/demand position is a sustaining of elevated Suezmax demand in the Middle East market, which has reduced ballasts into the West Africa market, and recent Aframax rate strength in European markets where Suezmaxes can compete. Rates on the WAFR‐UKC route gained 5 points from last week’s closing assessment to ws92.5, having dipped earlier during the week to a low of ws70. Remaining cargo volumes from the West Africa market appear limited given both high VLCC and Suezmax coverage to‐date while availability for late‐ December dates appears slightly looser than earlier date ranges; this could imply that further rate upside is limited, though the timing of inquiry for remaining December cargoes and progression into early January dates will likely guide the upcoming week’s rate direction”, concluded CR Weber.
Tanker demand could be supported thanks to new routes (12/12)
The latest tanker market trends are shifting constantly thanks to new developments altering supply routes. In its latest weekly report, shipbroker Gibson said that “with the dust starting to settle following last week’s OPEC deal, all eyes now focus on two key issues, compliance, and rising non OPEC supply, in particular shale production in the USA. In our tanker market report back in August, we noted a rising rig count and discussed the potential for this trend to continue. Since then the rig count has risen every week bar one and now stands at 477, up 96 rigs since our August count. And with prices firmly above the $50/bbl level those gains look set to increase”.
The shipbroker said that “according to Rystad Energy, the average breakeven price across the Permian, Niobrara, Eagle Ford and Bakken fields stood at $67/boe in 2014, today average costs across those regions are said to have nearly halved to $35/boe. With many plays now in a profitable zone, it is little surprise to see US crude production bottoming out, with some marginal upside now being observed. Data from the EIA shows US crude production as reaching a floor in July, trading sideways until mid-October where production has since risen by 200,000 b/d. Such increases may well be small, but if it is the start of a sustainable trend, US crude production could be rising sooner than anticipated”.
According to Gibson, “so far export growth appears to have been limited at 475,000 b/d, broadly in line with 2015 levels. However, a clear shift in terms of export destinations is taking shape. In 2015, 92% of US crude exports went to Canada, with little or no benefit to the tanker market. This year, just 62% of exports have made their way to Canada, creating an increase in seaborne exports, even if outright volumes remain largely unchanged. Unsurprisingly US exports are finding a home in Europe, where the medium haul nature of the trade makes it suitable for Suezmax and Aframax tonnage, which can load in US ports. However, seaborne exports are making their way to longer haul destinations. In September Singapore received 3 million barrels of US crude, part of which was provided by VLCCs loaded via STS in the US Gulf. So what are the prospects for seaborne exports going forwards? The US Energy Information Administration remain pessimistic for crude production in 2017, projecting output of 8.8 million b/d, only 100,000 b/d above its latest historical supply estimates. However, the administration acknowledges that its latest forecast is based on a brent price of $52/bbl, and suggests that last weeks OPEC deal could provide further upside in terms of prices and shale production. If, this happens, the exports look set to rise, supporting tanker demand at a time of potentially declining exports from Middle East OPEC producers, and supporting long haul trade to the Far East”, the shipbroker noted.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that it was “yet another busy week for VLCCs, but one in which yet again a large slice of the action was concluded very much under the covers. Those deals regularly came to light, but the information flow was erratic enough to prevent what could have been a more significant spike. As it is, rates have moved into a higher bracket with low ws 80’s to the East and mid ws 40’s to the West the current marks. Onward progress will now depend upon whether Charterers decide to chase ahead into January before full programmes are in hand from late next week. Suezmaxes kept a steady profile at up to ws 90 to the East and ws 50 to the West, but an upward u-turn in West Africa may tempt ballasters away and start to open more opportunity for gains over the next phase. Aframaxes bubbled and rates heated up to 80,000 by ws 125 to Singapore accordingly. The near term outlook is for things to remain positive for owners”, the shipbroker concluded.
Tanker earnings to be affected by OPEC cuts: A sector-by-sector breakdown (06/12)
Any decision which affects crude oil supply, let alone the first by OPEC after more than eight years is bound to have an effect on tanker earnings. But the hows, whens and which tanker segments will be the most affected is still up for question. In its latest weekly report, shipbroker Charles R. Weber noted that “the cuts are based on OPEC’s October production figures (based on secondary sources) and distributes cuts proportionally, calling for most members to trim their output by 4.6%, though Nigeria and Libya are exempted due to domestic security issues and Iran is permitted to increase its production by 2%. Indonesia, a net oil importer, suspended its membership. The deal also hinges on cuts from non‐OPEC producers of 600,000 b/d with half of that figure to come from Russia and the remainder yet to be disclosed. We note that OPEC quota compliance rates, historically low to begin with, had been falling before being targets were scrapped. Moreover, just days prior to OPEC’s meeting, Russia had been averse to imposing a cut on its production, favoring a freeze instead which, it said, represented a cut relative to its plans for 2017”, said CR Weber.
“Given that 78% of the cuts are distributed to the Middle East region, the implications are notionally negative for the VLCC workhorses of that region’s exports, though this could actually prove beneficial to VLCC demand by prompting greater purchases of West African crude by Asian buyers. Angola’s 50,000 b/d cut is relatively small compared to offline Nigerian production poised to come back on stream during 2017. During October, Nigeria’s production rate was 157,000 b/d below 1Q16 and 237,000 b/d below 2015 (using the same OPEC production data as that applicable to the OPEC deal). If Asian buyers source just nine additional VLCC cargoes per month from West Africa as a result (representing a replacement of just 64% of volumes lost in the Middle East), due to longer voyage durations, total round‐trip VLCC employment days associated with Asia‐bound trades could rise by around 8.7%. Elsewhere, we note that Venezuela’s cuts (which were likely to occur on the basis of directional production declines) are unlikely to alter crude flows to China as part of normal trades and oil repayments for development loans, relative to our prior base expectation. Floating storage could also come into play, provided that market participants are able to observe cuts being adhered to, raising a short‐term contango structure for the remainder of the six‐month term of the current OPEC agreement”, said the shipbroker.
According to CR Weber, “oil price support corresponding to the OPEC agreement could set the stage for a modest rebound in domestic US production, contributing to expected regulatory support for E&P from the upcoming Trump administration. Moreover, since the deal was announced, Brent prices have experienced greater gains than WTI prices; assuming such a structure holds, this could increase incentives for US refiners to increase their sourcing of US crude and reducing the modest increase of imports from West Africa observed in recent months. This would suggest a negative for Suezmax demand on the trans‐Atlantic route. More importantly, while refining margins have experienced some immediate‐term support from the deal – largely due to refiners benefiting from inventories built at pre‐deal prices – the same headwinds for refiners are likely to remain during the coming months, potentially some of the much‐awaited refining capacity rationalization in Europe to come to fruition, which would detract from Suezmax demand on routes from West Africa to Europe. Meanwhile, production losses in the Middle East market could hit regional Suezmax demand harder than VLCC demand by trimming voyages to Asia and to Europe (the latter of which having experience a 77% YTD, y/y increase), with little potential for a geographic reorientation of trade routes to benefit ton‐miles similarly to VLCCs”.
The shipbroker added that “supply cuts in Latin America, North Africa and Russia (across its Baltic, Black Sea and Asia export areas) are likely to impact Aframax‐favorable demand, though Panamaxes are likely to feel the brunt of Ecuador’s estimated 25,000 b/d cut. However, Libya is targeting a 2017 production increase which exceeds the sum of production cuts in the three aforementioned regions, relative to its October production rate – which itself marked a 168,000 b/d gain from September – following a recent agreement between the state‐run National Oil Corp. (NOC) and the armed forces controlling the country’s key oil ports of Ras Lanuf and Es Sider. If this agreement holds, enabling oil exports as per NOC’s plans, it should go some way in offsetting the impact on Aframax demand. Additionally, the potential for US crude exports to post further gains could also contribute a measure of replacement Aframax demand”.
In terms of tanker earnings, CR Weber notes that “with projected 2017 fleet growth levels already set to exceed our base demand growth case, adherence to the OPEC agreement presents an additional challenge to fundamentals. Our Suezmax and Aframax fleet net growth projections for 2017 stand at 10.6% and 7.5%, respectively, up from projected 2016 net growth of 5.5% and 4.3%. Meanwhile, VLCC net fleet growth is projected to decline from 2016’s rate of 6.9% to 5.3%. Moreover, across the three classes, 2017 deliveries heavily centered to Q1, implying a quick hit to earnings from early during the year on a supply basis – and the disadvantaged nature of newbuildings on their first trades weigh even more heavily on rates than fleet numbers suggest by offering charterers with more competitively‐priced units. Though we view Suezmax fundamentals as the most vulnerable, given the class’ ability to compete with both Aframaxes and VLCCs, negative earnings pressures are likely to be more evenly distributed”.
Tanker Market: OPEC’s agreement could alter trade flows, as Asian buyers could be forced to buy more Western grades says shipbroker (05/12)
OPEC’s mid-week decision to limit oil output, the first in seven years, is still under the microscope, regarding its application, as well as its effectiveness in the mid to long-term. In the meantime, according to shipbroker Gibson, floating storage plays, one of the tanker market’s pillars these past few months could be negated, while the deal could lead to more trade flows from Western markets towards Asian ones.
In its latest weekly report, shipbroker Gibson said that OPEC has surprised the markets yet again. Just as oil was falling earlier in the week on speculation a deal might not be reached, oil rallied on Wednesday as speculation swung the other way. “Officially OPEC has agreed to reduce production by approximately 1.2 million b/d to a ceiling of 32.5 million b/d, effective from the 1st of January for a six-month period. Once again the Saudi’s will bear the brunt of the cuts”.
Gibson noted that “according to OPEC, Saudi Arabia will cut 0.486 million b/d and its Gulf allies Kuwait, the UAE and Qatar will contribute 0.3 million b/d. Iraq, which had stood firm in its need to maintain production to help the fight against ISIS finally conceded, agreeing to slice 0.21 million b/d. Iran, which has been one of the most contentious issues, has been allowed to increase output by nearly 0.1 million b/d. Other OPEC members Angola, Gabon, Ecuador and Algeria have pledged 0.163 million b/d collectively. Venezuela, who have perhaps been hardest hit by the collapse in oil prices surprisingly agreed to shave nearly 0.1 million b/d from their own production”.
However, “minor declines may have been inevitable anyway, considering the countries struggles to maintain output in the wake of an economic crisis. Indonesia, who only rejoined OPEC 12 months ago, has had its membership suspended after failing to participate in such an agreement. Significantly, Nigeria and Libya have been granted exemptions paving the way for higher production if stability in both countries allows potentially undermining the effectiveness of OPECs deal. Outside the cartel, Russia has stated it will ease production by 0.3 million b/d in support of collective action. Reports suggest that another 0.3 million b/d may be turned off by non OPEC producers including Oman, Mexico, Azerbaijan and Kazakhstan. However, with new production coming online from the Kashagan field, there may be limited scope for a Kazakh cut”, said Gibson.
In any case, according to the shipbroker, “non OPEC production could grow by 0.5 million b/d next year supported by increased flows from Brazil, Canada and as mentioned, Kazakhstan before even accounting for the US. The latest data shows US crude production stopped declining in July and has risen marginally since, whilst the rig count also continues a slow rise. With oil prices moving into a $50- $60/bbl range, there is a growing incentive to increase non OPEC supply, counteracting OPEC reductions. Should production outside the group begins to rise rapidly, OPEC may be forced back into defending its market share via higher output”, said Gibson.
According to Gibson, “for the crude tanker market, any cut in OPEC production is negative. Just how negative depends on a number of factors. The first key issue is compliance; will the agreement actually be followed and if so how long will it last? Interestingly Saudi Arabia typically boosts domestic production in the summer before cutting back towards the year end. Whilst Saudi boosted its production this summer, it had not yet completed its seasonal cut which will now be counted as part of the OPEC deal. Secondly, how much of the cut will be offset by rising non OPEC supply? If higher prices boost production from outside the group, and Libya and Nigeria see sustainable increases, the impact could be offset, whilst also forcing Asian buyers to source more western grades. The deal could however lead to faster backwardation reducing floating storage opportunities and thus removing one pillar of support from the market. Higher prices could also dent demand in consuming nations whilst supporting demand in producer nations, in essence higher domestic demand, slower growth in overseas demand, altering cargo flows. In any case the key remains compliance and the longevity of the deal”, Gibson concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that it was “another active week for VLCCs, though a good deal of the activity was conducted covertly and the ‘feel’ of the market was quieter than of late. Rates broadly maintained the very wide range of last week with lows to the East in the low ws 60’s and highs towards ws 75. Eventually a more definite direction will develop and at the moment North is the favourite. Suezmaxes built on last weeks firm footing at rates pushed up to ws 95 East and low ws 50’s West. All eyes were focused on Iran Loading and those Owners who can benefit from loading there capitalised spectacularly with rates peaking at ws 117.5 to Europe. Aframaxes saw a rise in rates to 80,000 by ws 107.5, mainly on the back of a busier Far East market and general tightening of tonnage. Whether this is a pre-Christmas surge or a temporary blip is yet to be seen and the Aframax market remains fragile and is lagging a long way behind the Atlantic markets”, the shipbroker concluded.
New trade policies could affect tanker shipping in various ways (03/12)
The tanker market is about to find out whether OPEC’s latest decision will have any sort of impact, at least in the short term, as the long term effects are still unknown and dependent on the future course of the oil prices. However, tankers could also be affected by the surge of new policies which could lead to a profound change on international trade. In its latest weekly note, shipbroker Intermodal said that “a potential shift of US towards domestic protectionism through international trade restrictions comes at a time when the global trade is forecast to grow by just 1.7% this year, the slowest pace since the 2008 financial crisis. While there are many views of how these policies will impact the industry, it is widely believed that such barriers hurt global and economic growth, which as we see it comes down to fewer ships moving around the world”.
According to Intermodal’s Mr. Stelios Kollintzas, Tanker Chartering – Specialized Products Desk, “the past month has been fairly eventful, with many people travelling in Europe for the Eisbein in Hamburg or the FOSFA conference in London. While this is a valid reason to blame for poor market activity, it is fair to say that it did little to the already humbling edible oil markets. The only factor that caused a short-lived boost of freight rates ex-South America for veg oil cargoes was the explosion of the colonial pipeline in the US, which eventually did not last long. On the eastern hemisphere, the palm oil market has been showing more activity after mid-November. The increase is basically attributed to the regional market that witnessed greater demand from India and China”.
Kollintzas noted that “the long-haul palm oil market has remained depressed over the course of the month due to less volumes and the very poor MR CPP market in the Far East. The going rate for MR TC Trips to MED-Europe-Continent is about 14,500$/pd for tonnages with edible cargo history. Although an increase in cargo volume is expected towards the end of the year, it will hardly balances against the long tonnage lists”.
On another note, “the regional palm oil market has seen a significant recovery in rates for both China and India. It looks like the momentum caused by the Diwali festivities has kept import volumes on healthy levels, while China continues to stock up cargo towards the Chinese New Year at the end of January 2017. An indicative rate for 18,000 tons of palms for Straits/WCI run is about high 20s $/pmt”, said Intermodal’s analyst.
He added that “the most interesting development in the West hemisphere was the colonial pipeline burst in Alabama, which had a great impact on transatlantic CPP rates. The effect had a direct impact on the veg oil market ex S. America, since Owners were asking a premium to look into a veg oil cargo on the back of a firm CPP market. However, few of them managed to materialize a bargain since veg oil activity was little at the time. In any case, this was only a short-lived boost on rates, with no impact on exported volumes. As such, rates settled in previous levels after a relatively quick repair of the pipeline”.
Meanwhile, “during the last two weeks of November, ship owners have experienced a slight increase on demand for tonnage ex-S. America, which mainly comes from India. The going market rate to India for 40,000mtons of cargo bss 2 load / 2 discharge ports is mid- 30s $/pmt. On the lookout for positive signs, the seasonal drop-off of CPP imports from Argentina is likely to reduce the number of available vessels ending up in S. America, where severe delays of vessels discharging cargoes in Brazil will likely force charterers looking for replacements. Looking into the Black Sea export market, the upcoming end of the harvest season has pushed flows of sunflower oil exports upwards last month and while China has had a big stake of these exports, mainly from Ukraine and Russia, India still remains the biggest importer with Iran showing a strong appetite as well”, Kollintzas concluded.
Oversupply could be looming for the tanker market if scrapping numbers aren’t increased (28/11)
With an orderbook reaching up to 19% in the case of Suezmaxes, it’s only natural that some tankers are starting to feel pressured over the course of the market during the next couple of years. In a recent note, shipbroker Poten said that over the next couple of years, the tanker orderbook ranges from 5% in the case of Handies and up to 19% for Suezmaxes, which begs the question, if scrapping activity, which has been non existent this year, should soon start to pick up.
According to Poten, if overcapacity makes a return, then rates are bound to fall, which will then prompt more owners to scrap their older vessels. As things stand right now though, the majority of analysts seem to agree that in the coming years, supply growth will increase considerably, when, at the same time, demand growth is projected to increase mildly. To evaluate the potential of demolition activity, Poten attempted to evaluate what is the number of vessels which could be considered scrapping candidates.
Poten said that “in recent years, tanker sales for scrap have been few and far between and the average age of tankers that are sold for demolition is well above 20 years. The most recent tanker that was sent to the breakers (in October), the VLCC MT Progress, was built in 1994. Before that, – in September – the 45,000 dwt MR product carrier MT Zeta was sold to buyers in Pakistan. This vessel was 28 years old (built in 1988)”. The shipbroker added that “for the purpose of this analysis, we will look at how many vessels would be scrapped over the next two years (through the end of 2018) if we used a fixed scrapping age of 20 years and how these numbers compare with the current orderbook for delivery in the same period. For most segments – the orderbook well exceeds scrapping under this scenario. The segments that appear the most worrisome are the VLCCs and Suezmaxes”, said Poten.
It’s worth noting that even under this relatively aggressive scrapping scenario (most tankers trade well beyond 20 years old), the scheduled deliveries in these segments are almost double the demolition numbers. “The numbers for the large product tankers (LR1 and LR2) don’t look encouraging either, but here we have to note that we need to review these segments in combination with their sister vessels in the crude trade (Aframax and Panamax)”, said the shipbroker. Poten estimates that the Aframax crude tanker fleet will likely stop growing in the next few years, while the “dirty” Panamax segment is already shrinking as owners opt to build coated vessels to give themselves more trading flexibility and take advantage of the growth in long haul product movements.
Meanwhile, “for MR and Handysize product tankers, the numbers look more encouraging, although it should be noted that a 20 year scrapping age is quite optimistic for these vessels. Smaller product carriers typically trade well beyond 25 years of age. How about the employment patterns of the older tonnage? Many of the older vessels are underutilized, have trading restrictions and/or are being used for floating storage. A freshly delivered newbuilding will be significantly more productive than the old vessel it replaces. There is also demand growth that we need to consider. While we don’t know what tanker demand growth will be in 2017 and 2018, we can take a look at developments in 2016 to date as an indication”, said Poten.
“Our analysis of the crude oil and dirty product trade shows ton mile demand growth of 4.2% year to date, a number that (if continued) will help defray the impact of the significant fleet growth. While we don’t have the same data for the growth in all product sectors, expansion in ton mile demand for the LR1 and LR2 product carriers has been around 1.5-2% so far this year, well below the expected fleet expansion. The outlook for MR and Handysize product tankers appears brighter. The limited fleet growth in these segments will sow the seeds of a recovery in the coming years. So, the expected fleet growth may not be as disastrous for the market as it appears at first glance, if we continue to experience healthy growth in tanker ton mile demand, and if scrapping will pick up in the next few years. These are obviously ‘Big Ifs’. We will continue to follow the market closely to see whether these conditions are met”, Poten concluded.
Crude tanker ship owners will see increased demand from Indonesia says shipbroker (26/11)
A interesting crude tanker market play could be emerging in Southeast Asia, as Indonesia looks set to enter the foray. In its latest weekly report, shipbroker Gibson noted that “the upgrading of Indonesia’s refining industry has been one of the government’s top priorities for nearly two years. The largest population in South Asia is heavily dependent on imported fuel to meet domestic demand. Estimates suggest that about half of Indonesia’s fuel consumption is processed by domestic refineries. Furthermore, data highlights oil demand could reach close to 2.3 million b/d by 2025. Without sufficient advances in domestic refineries, Indonesia could be on track to become one of the world’s largest product importers. The scale of upgrade required by the refining industry is further highlighted as total refinery capacity is roughly the same today as 15 years ago, with the last new refinery being built in 1994”.
According to Gibson, “state owned Pertamina has been tasked with finding partners for refining projects throughout the country. Numerous refineries have been earmarked as candidates for investment and upgrade; Cilacap (348,000 b/d), Balikapapan (260,000 b/d), Balongan (125,000 b/d) and Dumai (125,000 b/d). In addition to these existing refineries, the government also aims to begin construction of the Bontang refinery in East Kalimantan (235,000 b/d) and Tuban refinery in East Java (300,000 b/d). Several countries and corporations have been approached over these projects and new government regulations have enabled private companies to build and operate domestic refineries. The Bontang refinery has been offered to Iran after the country showed a willingness to invest $8.4 billion, however, with costs expected to be closer to $14-15 billion, a completion date is not confirmed. Russia’s Rosneft has agreed to develop the Tuban refinery through a $13.8 billion deal, the refinery should be operational by 2022.
Furthermore, as the shipbroker noted, “Saudi Aramco has committed to invest in the Cilacap refinery to the tune of $5.5 billion, aiming to modernize the plant, while increasing refining capacity to 370,000 b/d, with a completion date in 2022. Pertamina has signaled it would be prepared to solely revamp the Balikpapan refinery, after initial investors JX dropped out, boosting capacity to 360,000 b/d by 2019. Indonesia’s refineries offer an exciting prospect to foreign investors as shown by the scale of investment already committed. Despite a notorious record of failed planning projects, the likelihood of these projects materialising has increased, in part due to the incentives offered by the government. Besides this, one of the most enticing propositions for investment is finding a secured destination for crude output”, Gibson said.
As such, “it would appear Saudi Arabia, Iran and Russia are making big plays to secure a foothold in the Indonesian domestic fuel market. This should prove beneficial to dirty tanker owners as more crude will be moved into Indonesian refineries. However, the possible negative effects for product tanker owners in the future counter balance those gains. Despite this, in the short-term product imports will grow ahead of capacity additions as any upgrades or new refineries will take time to build and become operational. Nevertheless, investment in Indonesia’s refining industry will be to meet domestic demand and will naturally impact on import demand in the future”, Gibson concluded.
Meanwhile, in the crude tanker markets this week, in the Middle East, “it was a solidly active week for VLCCs with enough early momentum created to push the top end of the market higher even as the U.S. Holiday allowed some excuse for a slower end to the week. Interestingly, the rate range to the East widened to as much as 15 ws points depending on the promptness of laydays and ‘special’ needs. That degree of spread is rare and leads to some speculation, at least, that once normal service resumes next week, things could get a degree hotter. Currently rates average low ws 70’s to the East and low ws 40’s to the West. Suezmaxes upped the tempo and increased premium paying Iranian interest added extra froth. Rates moved to ws 90 East and towards ws 50 to the West, but much bigger numbers were payable for Iran loadings. Strangely perhaps, Aframaxes didn’t find much reflected glory from the larger sizes and merely ticked over at around 80,000 by ws 90 to Singapore – some even call it lower for next week”, Gibson concluded.
Tanker slippages expect to reach 15% of planned deliveries says shipbroker (21/11)
Fewer tanker deliveries as well as newbuilding orders has been the norm so far in the wet market. In its latest weekly report, London-based shipbroker concludes that 2016 will see a slippage of 15% of the planned tanker deliveries, although at least a part of this will just be “spilled over” onto 2017. According to Gibson, “there is always some slippage either forced by shipbuilders’ failure to meet their contracted obligations or possibly a negotiated delay requested by an owner for more commercial reasons. An example of the latter would be Euronav’s agreement with Hyundai Heavy Ind. to defer the delivery of two ex-yard resale VLCCs into early next year. In January this year, our data showed that scheduled VLCC deliveries would be around 61 units, our latest forecast is now for 10 fewer:.
Similarly, Gibson said that “Suezmax slippage has fallen by seven over the same period. In terms of failed contractual deliveries the most spectacular example is the collapse of the STX Offshore & Shipbuilding Company which went into receivership back in May. STX was at one time the fourth biggest Korean shipbuilder by revenue and still has 23 tankers equivalent to 2.2 million/dwt on their orderbook. This includes Suezmax, LR2 and LR1 tonnage and clients eagerly await news as to when or if they are to take ownership of all these assets. Our records also show a number tankers presently listed for “Builders Account”. This includes 2 Suezmaxes ordered by Frontline back in June 2010 from Rongsheng Heavy Ind., both of which were originally scheduled for 2013 delivery. These tankers remain listed for sale by the distressed shipyard, with their delivery date being constantly pushed forward”, said the shipbroker.
According to the analysts, “we would still expect to see further slippage from the current 2016 delivery numbers, although this will only push higher next year’s profile. Final slippage figures for tanker this year will exceed 15%. It may be an understatement to say 2016 has been a challenging year for shipbuilders. Despite record low newbuilding prices, shipyards have found it difficult to fill their depleted forward orderbook. Samsung shipbuilders had to wait until October to be awarded its first tanker order and then got six (4 Suezmaxes and 2 Aframaxes). The orderbook so far this year includes 13 VLCCs and 10 Suezmaxes and 4 LR3s. Euronav and Nordic American Tankers (NAT) both took the unusual step of placing fresh orders instead of adopting their usual policy, in the recent past, of opting for yard re-sales or second-hand purchases”, said Gibson.
The shipbroker added that “perhaps both owners were attracted by the low prices on offer or in the case of NAT a requirement to replace older units in their current fleet. Euronav’s requirement to source Ice Class tonnage for contractual obligations might have been difficult to source from second-hand purchases. Towards the end of last year, a tranche of orders were placed to get around the impending Tier III regulations, introduced by the US. The implications of more recent legislation imposed on shipowners as a whole will also impact on shipbuilding demand, providing the Asian shipyards with a glimmer of optimism. For many shipbuilders this optimism will be too late as consolidation, closures and lay-offs continue to be the only order on the table”, Gibson concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “with Dubai parties in full swing the VLCC market has been in hibernation. Cargoes requiring discharge options have paid ws 70 East and ws 40 West. The real test comes next week once normality resumes. The Suezmax market has remained flat this week with Owners willing to conclude fixtures at 140,000 x ws 37.5 to Europe. We have seen some Owners ballast to West Africa, but tonnage is sufficient to keep rates unchanged”.
Tankers: Floating Storage in Iran Poised to Fall (18/11)
In what could release further VLCC tonnage in the market, Iran’s floating storage play could be nearing its end. In its latest weekly report, shipbroker Gibson noted that “when Iranian nuclear sanctions were lifted in January many industry participants were of the opinion that the country would struggle to bring its crude production quickly back to pre-sanction levels, not least due to years of underinvestment in aging infrastructure. Defying these expectations, Iranian output surged from 2.9 million b/d in December 2015 to 3.6 million b/d in May 2016, registering an impressive 0.7 million b/d gain. Since then, however, the growth in production has slowed down notably. Monthly gains have been marginal, ranging between 10,000 to 30,000 b/d per month between May and October, with the latest assessment for total crude output at 3.72 million b/d (Source: IEA). Overall, increases in Iranian crude exports provided a major boost to crude tanker demand, particularly for larger crude tankers. In terms of export markets, Iran was largely successful in re-establishing trade links. China and India are the two largest buyers of Iranian crude, accounting for more than 50% of total exports”, said the shipbroker.
Gibson added that “between August and October, China imports averaged around 0.67 million b/d and India around 0.62 million b/d of Iranian crude. In fact, in terms of absolute volumes, crude trade to these countries is now higher than prior to sanctions. Crude shipments to South Korea are back to similar levels seen in 2008, while trade to Japan remain depressed, averaging close to 0.2 million b/d in three months to October, less than half the level back in 2008. Similarly, at 0.6 million b/d, trade to Europe and Turkey is strong but still 0.2 million b/d short of volumes seen before sanctions. Interestingly, westbound shipments are largely carried on Suezmaxes, while VLCCs are routed via Cape of Good Hope”.
It’s worth noting that “when sanctions were lifted, a major concern in the industry was the potential release of VLCC tonnage engaged in Iranian floating storage back into the international tanker market. At the time, we were of the opinion that the majority of these units would remain in storage for an extended period of time. This proved to be the case. In fact, the number of VLCCs storing Iranian crude/condensate actually increased between January and March 2016 from 24 to 28 units and only more recently it has started to slip. At the end of October, 24 VLCCs were involved in storage of Iranian crude and condensate, ironically this number is the same as in the beginning of the year. However, going forward floating storage is expected to continue to decline. It is widely believed that the majority of Iranian storage consists of condensate. The demand for condensate is firm in Asia and this could lead to a gradual drawdown of condensate stocks. Furthermore, Iranian media reports that the first phase of Persian Gulf Condensate Refinery is expected to come on stream by March 2017 and this is likely to support stronger domestic demand for condensate”, said Gibson.
“Finally, it will be interesting to see what role Iran plays in the proposed OPEC production cut. The country’s officials have consistently stated that Iran will not discuss limiting its output until the presanctions production level of 4 million b/d is reached. The latest estimates of Iranian production are 0.3 million b/d below that level. Longer term, prospects are strong for large increases in Iranian output and exports. However, for that to happen, Iran will need investment and the expertise of international oil companies, something that to date has largely failed to materialize. Mr Trump election also creates a new level of uncertainty, following the future president’s criticism of the West’s nuclear deal with Iran”, the shipbroker concluded.
Tanker ships’ values have dropped sharply since the start of 2016 (15/11)
Tanker ships’ prices have been on the decline in the S&P market this year, following strong performance during 2014 and 2015. Current valuations are testing lows last seen late during 2013. In its latest weekly report, shipbroker Charles R. Weber noted that “the decline comes following softer y/y earnings since Q2 amid a geographical redistribution of trade routes, mounting global crude inventories, declining refining capacity growth and significant forces majeure in Nigeria for much of the year. It also accompanies surging newbuilding deliveries and an absence of meaningful phase‐outs. The average net growth of crude tanker fleets for 2016 is projected at 5.8%, versus 2.5% during 2015 and ‐0.1% during 2014; during 2017, the number is expected to rise further still, to 7.8%. While forward fleet growth woes are most pronounced in the Suezmax class, due to their ability to compete in both VLCC and Suezmax markets their impact is not likely to be disproportionately isolated. Adding to negative pressure on asset values are looming regulatory compliance costs”.
According to CR Weber, “the greatest hit has been to existing units between 5 and 15 years of age, as these face the combination of exposure to forward earnings headwinds and eventual regulatory compliance costs. Newer units have either been built to higher specifications, which partly cushions the regulatory compliance cost hit – and their longer remaining useful life allows their owners better prospects of capturing future cyclical highs. Meanwhile, for the oldest constituents of the tanker fleets, value erosion has been least hit as the likelihood of phase‐outs ahead of forward regulatory compliance had be largely priced in”.
The shipbroker added that “though geographical trade distribution should improve during 2017 (to the detriment of fleet efficiency and benefit of earnings) the directional decline of earnings is likely to prevail due to the supply‐side headwinds. While we expect this will continue to weigh on asset values, we see some signs that the pace of decline should ease. Firstly, asset values are now near their 2013 lows, implying that the expected forward earnings headwinds have already been priced in, at least in large part. Secondly, newbuilding costs have likely bottomed and could well rise going forward. We base this view on the fact that competitive yards have been aggressively marketing their services following the collapse of newbuilding orders across all maritime segments, with little positive impact on their overall order books and without benefit to their financial health. On this basis, these yards are likely to move towards a restructuring of their business models to those which prevailed before newbuilding orders surged from the early/mid‐2000s by returning to a focus on margins, rather than volume. Any rise in replacement (newbuilding) costs should provide support to newer units in the longer‐term, while helping to stem the pace of value erosion thereof in the nearer‐term, once it prevails”, said CR Weber.
Meanwhile, in the crude tanker market this past week, in the VLCC segment, CR Weber said that “VLCC rates came under negative pressure this week as charterers had fewer cargoes to work in both the Middle East and West Africa regions. In the former, a surge in demand last week left a limited number of remaining November cargoes. A total of 19 fixtures were reported in the Middle East, representing a 61% w/w decline while four were reported in the West Africa market, off by one from last week. The Middle East letup, coming amid the fresh appearance of previously hidden units weakened owners’ resolve to maintain rates at last week’s highs and saw fresh erosion prevail”.
According to the shipbroker, “the Middle East market has yielded 133 November fixtures to‐date, leaving an estimated seven cargoes uncovered. Against this, there are 18 units available while West Africa draws will only likely draw away three of these, implying an end‐month surplus of eight units. This compares with an earlier estimate of 0‐5 units but remains low relative to the average of 20 observed during Q3. Ultimately, however, rate sentiment remains heavily dictated by the immediate demand profile as owners compete for cargoes when the market is slow, as illustrated by the upwards of seven offers S‐Oil received for an AG‐ROK requirement. Given the supply/demand balance, we believe rates will trend higher with our model suggesting an AG‐FEAST TCE around $54,000/day, as compared with ~$46,412/day at present. However, as recent monthly cargo programs have been considerably back‐heavy between the three decade ranges, rate upside accompanying a progression into the December Middle East program could be moderate, but thereafter with availability unlikely to expand significantly – and potentially subject to decline, given recent West Africa demand strength and the corresponding lengthening of voyage turnaround time – rates could be poised for more aggressive upside once charterers move into second‐decade December dates. Furthering the upside potential are the hiking of Saudi and other Middle East OSPs for Asian buyers, which should maintain strong VLCC demand in the West Africa market and thus contribute to rate sentiment on competition for units among and between the two markets. Tempering this, however, we note that attacks on Nigeria’s Forcados pipeline have ramped up over the past week while an Escravos Pipeline station was shut this week due to protests; if the situation in Nigeria translated to a return to high forces majeure, then the extent of Asian interest in West African crude grades could wane”, CR Weber concluded.
Tanker market sees gains over the past month says OPEC (12/11)
OPEC said in its latest monthly report that the tanker market witnessed improved activity over the course of the past month.
In October, tanker spot freight rates for dirty and clean vessels saw gains across all classes trading on various routes. Although the size of the gains varied, VLCC rates achieved the strongest growth among all reported routes. Both crude and product spot freight rates registered gains in October on most reported routes compared with the previous month, though remaining mostly below the levels of the previous year. In the dirty segment, VLCC, Suezmax and Aframax spot freight rates increased by 52%, 6%, and 1%, respectively, over the previous month. These improvements were mostly driven by higher vessel demand and seasonal requirements. Clean tanker freight rates were mixed in October, with those for West of Suez increasing by 8%, while East of Suez rates remained weak, down from one month ago by 4%. Winter requirements supported freight rates in western destinations.
In October, OPEC spot fixtures increased by 15.2% from the previous month to average 11.22 mb/d, according to preliminary data. The increase came on the back of higher spot fixtures on both the Middle East-to-East and Middle East-to-West routes, rising by 0.19 mb/d and 0.03 mb/d, respectively, in October to average 5.3 mb/d and 2.53 mb/d. In addition, fixtures outside the Middle East were up by 1.27 mb/d in October, averaging 3.4 mb/d.
Sailings and arrivals OPEC sailings increased by 0.12 mb/d, or 0.5%, in October to stand at 23.75 mb/d. Middle East sailings increased, rising by 0.02 mb/d over the previous month to average 17.12 mb/d. Crude oil arrivals increased in October at North American and west Asian ports, up by 1.6% and 6.2% respectively, over the previous month, while arrivals in European and Far eastern ports showed a drop of 0.6% and 3.1%, respectively, from the previous month.
Spot freight rates
VLCC freight rates showed remarkable gains in October across all reported routes following months of gradual decline. Rates surged on all major trading routes from a month before, though remaining below those of the previous year. October tonnage availability tightened and market activities experienced their usual seasonal uptick. Active markets in West Africa initially drove freight rate gains up as high tonnage demand affected vessel availability in different regions. Freight rates did correct downwards towards the end of the month simultaneously with tonnage build, mainly in the Middle East, while a decline in West Africa took place to a lesser degree.
VLCC Middle East-to-East spot freight rates showed the strongest gain, up by 71% in October to stand at WS60 points, followed by freight rates registered for tankers trading on the Middle East-to-West route, which increased by WS12 points to average WS36 points in October. VLCC spot freight rates on the West Africa-to-East route also rose by 48% to average WS67 points. October gains were only seen on a monthly basis, as rates were were down compared with the same period a year earlier.
Suezmax spot freight rates continued strengthening, showing further gains from one month earlier, despite a downward correction in rates, mainly in West Africa, at the beginning of the month as replacement requirements were totally covered. The Suezmax market experienced occasional softer sentiment when activities waned. Average Suezmax freight rates remained healthy, supported by higher rates registered for tankers trading on the Northwest Europe-to-US route, which gained 13% to stand at WS67 points. Similarly, an increase of 13% was seen over rates for the same month in 2015. Meanwhile, Suezmax spot freight rates for tankers operating on the West Africato-US route remained flat from a month before to stand at WS67 points, below those of the same month a year before by 14%
Spot freight rates in the Aframax market varied on different routes. Average Aframax spot freight rates rose slightly in October, increasing by only WS1 point from a month earlier. This minor increase came as a result of mixed movement seen on different trading routes. Aframax spot freight rates were high at the beginning of the month due to active loading in the Baltics before rates came under pressure due to increased number of ballasters and strong competition between ship owners, as loading requirements in the market were limited. Spot freight rates dropped in the Mediterranean – even when activity levels increased, rates did not follow suit – declining despite delays at the Black Sea and Trieste ports. Spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes dropped by 19% and 9%, respectively, from the previous month to stand at WS71 and WS68 points. The Aframax market was also affected by reduced delays at the Turkish Straits, which were kept at a minimum. On the other hand, a positive trend impacted freight rates on the Indonesia-to-East route, edging up on average by 29% from a month before to stand at WS82 points. Transatlantic fixtures also turned positive as the market benefitted from anticipated weather delays ahead of an approaching hurricane in combination with a tightening positions list. In the Caribbean, spot freight rates for Aframax operating on the Caribbean-to-US route registered an increase of 6% in October to stand at WS97 points.
Tanker newbuilding orders pick up (09/11)
Ship owners around the world seem to have made up their minds, that the only viable option for placing a newbuilding order these days has to be in the tanker segment. In its latest weekly report, shipbroker Allied Shipbroking noted that “the flow of new orders in the tanker sector shows good signs of continuing at its current pace, though things can’t be said to have an equally positive note for all other sectors. Sentiment amongst potential buyers of newbuildings has surely reached an all time low for most ship types, especially as the average trading life expectancy has dropped for all ship types and earnings continue to remain close to bottom in sectors such as that of Dry Bulkers and Containerships. Competition amongst shipbuilders for the few interest circulating on the tanker front has intensified considerably, with much effort being put on the availability of financial support even if it is not in the traditional mortgage based sense, while many have also offered a lot of extras at no extra charge. Being that few orders are available to take, most are looking for the higher spec/higher priced units, putting more focus on the larger product tankers (LR2s & LR1s) rather then crude carriers which leave comparably lower margins per unit”, said Allied Shipbroking.
Meanwhile, in a separate newbuilding report, Clarkson Platou Hellas noted that “in Tankers, it came to light previous week that Sungdong have won an order for one firm plus one optional 115,000 DWT Aframax Tankers from Vision Tankers. The firm vessel is set for delivery within 1Q 2018 and the optional vessel will deliver within 2Q 2018, if declared. Odfjell ASA have announced an order from Hudong Zhonghua for four firm plus four optional 49,000 DWT Stainless Steel Chemical Tankers with 33 tanks. The first vessel will be delivered in June 2019 and the rest of the vessels will follow with 3 month intervals. In other sectors, Crystal Cruises Inc have extended their order at MV Werften Stralsund by ordering two firm 20,000 GT Cruise Ships for delivery in 2020 and 2021. These will be the 2nd and 3rd vessels in the series and will be able to carry 200 passengers. Finally, Azerbaijan Caspian Shipping Company have announced signing a contract with Baku Shipyard for two 5,540 DWT RoRo Freight/Passenger vessels. Being delivered within 2019, the duo will be able to carry 100 passengers, 56 rail carriages and 50 trucks”, concluded Clarkson Platou Hellas.
In the S&P markets, shipping valuations’ expert VesselsValue noted that “VLCC Values have firmed across both modern and older tonnage. The VK Eddie (305,300 DWT, 2005, Daewoo) sold to Euronav from Sincere Navigation Corp for USD 39 mil vs VV value of USD 32.5 mil. The Front Century (311,200 DWT,1998, Hyundai Heavy Ind) sold to Kunlun Shipping from Ship Finance International for USD 18.7 mil vs VV value of USD 15.24 mil. All other Tanker sectors remain stable”, said VV.
In the dry bulk market, VV noted that “Capesize values across all ages have softened this week and modern Panamax values have firmed. The Gran Trader (180,000 DWT,2012, Sungdong) was sold by Nisshin Shipping to Capital Maritime Trading for USD 22.5 mil vs a VV value of USD 25 mil. The Hyundai Princess (81,800 DWT,2016, Jiangsu New Yangzijiang) and the Hyundai Grande (81,800 DWT,2017, Jiangsu New Yangzijiang) were sold by H Line Shipping to Chartworld Shipping for USD 18.9 mil and USD 20.1 mil respectively vs a VV value USD 17.23 mil and USD 18.26 mil. All other bulker sectors remain stable. Containers have softened across all sectors and ages”, VV concluded.
According to Allied meanwhile, “on the dry bulk side, activity softened slightly this week, though with minimal shift in terms of buyer’s size segment interest. We are still seeing a fair flow of Panamaxes and Supramaxes changing hand every week, though given the most recent transactions noted it doesn’t seem as though there is not much interest right now for any price hikes, while most of the sales have focused around the relatively lower priced older units. On the tanker side, the market came to life, with activity increasing considerably compared to what we had been seeing over the past couple of months. We started to see a considerable number of crude oil carriers changing hands after a fair market pause. While things in the product tankers range seemed to continue as we have been used to with prices also holding their levels a lot better then in the larger crude oil carriers”, said the shipbroker.
Product tanker market could see increased support from US exports (01/11)
A significant boost for product tanker owners could be in the cards, as a result of increased exports of US refined products. According to the latest weekly report from shipbroker Charles R. Weber, during the second quarter of 2016, the relative cargoes were up by 5.6% on the year. “Our estimate for full year growth has been revised up to 5.4% from 2.7% last quarter. This is broadly in line with rates of growth observed during 2014 and 2015, although the double‐digit growth returned in the early years of the shale revolution are now firmly in the past”, said the shipbroker.
According to CR Weber, “at the start of the year, falling domestic production triggered by low oil prices coupled with high stock levels seemed to threaten the continued healthy expansion of the US product export trade. As of July, OECD product stocks were around 150MnBbls higher than the average for 2011‐15. However, this headline number gives a misleading impression because most of the exceptional stock build belongs to the “other products” category composed mostly of gas liquids, and chiefly US propane. The build in refined liquid products, namely gasoline, gasoil/diesel and fuel oil was actually reported to be just half the seasonal norm in July”.
The shipbroker added that “US exporters face significant downside risk from the global economic outlook. Although the market response to Brexit has been orderly to date, it remains an unfolding event. The IMF felt confident enough to leave its forecast for global economic growth unchanged from its July estimate at 3.1% in 2016 and 3.4% in 2017. However, negotiations to formalize the UK’s separation from the EU will take two years, which presages a two‐year period of global economic uncertainty. Gasoline remains the star performing export commodity, although the dominant gasoil/diesel market also performed reasonably in 1H16. The other principle seaborne export commodities have all gone backwards this year. We have observed significant retrenchment in established regional markets ‐ namely South America and Europe, which now account for 92% of US exports up from 90% in 2015. There is little evidence that US exporters are able to build traction in more distant markets. Even in its traditional markets, performance has been very mixed. In Europe, the Netherlands has provided the bulwark for demand. In South America, Brazil has developed as an important resurgent market”, CR Weber concluded.
Meanwhile, in the VLCC tanker market, CR Weber noted that “following two consecutive weeks of sluggish demand, charterers in the Middle East market sought to take advantage of the corresponding erosion of owners’ confidence by holding back on fresh cargoes this week. Though the weekly fixture tally in the Middle East rose 33% w/w to 20 fixtures, the tally was 20% below the 52‐ week average – and far below the stronger demand levels participants had expected to accompany further progression into the November program. Charterers’ strategy succeeded and aided by the presence of a number of disadvantaged units competing aggressively, allowed rates to observe stronger downside. The AG‐FEAST route fell to as low as ws50 from last week’s closing assessment of ws65. However, with many of the disadvantaged units having been fixed, managers of more competitive units were showing stronger resistance at the close of the week, allowing a paring of the earlier losses with a closing assessment of ws59”.
Elsewhere, CR Weber added that “the West Africa market was busier, having pared last week’s six‐month low tally to return to exceed the 52‐week average with six fixtures. The rebounding demand in the region contributed to the end‐week resistance being shown by owners and a sustaining thereof should prove useful to owners next week when charterers have little choice but to accelerate their pace of November Middle East cargo coverage. Overall, the near‐term structure of the VLCC market appears healthy – and, in fact, fundamentals have improved. In the Middle East, 54 November cargoes have been covered thus far, leaving an expected 28 cargoes likely uncovered through the second‐decade of the month. Against this, there are 37 units available and once accounting for likely West Africa draws, the estimated surplus at the conclusion of the month’s second decade is just four units. This compares with 14 surplus units at the conclusion of the month’s first decade and is comparable to the 1Q16 average end‐month surplus of 7 units, when VLCC earnings averaged ~$62,060/day. Average earnings presently stand 36% lower at ~$39,974/day.
Though overall fundamentals have narrowed markedly since Q3, rates have been more vulnerable to downside in recent weeks due to an uneven distribution of Middle East cargoes between each month’s three decades. November is showing a similar distribution to October, characterized by a light first‐decade and progressively longer second‐ and third‐decades. Moreover, coming on the back of the 3Q16’s strong headwinds, owners’ confidence has been heavily eroded leading to more aggressive vying for cargoes during the lighter 1st decade periods – which also delays rate upside thereafter. Nevertheless, we expect that rate upside will accompany next week’s stronger demand and, thereafter, when charterers progress concertedly into the month’s final decade, tighter fundamentals will be plainly evident and lead to a stronger pace of rate upside to bring earnings back towards levels dictated by the overall supply/demand positioning. Given earlier West Africa demand strength, Middle East position replenishment will be lower once charterers move into December dates, which should end the pattern of headwinds accompanying each month’s first decade, assuming no significant pull‐back to overall crude supply” the shipbroker concluded.
Diesel cargoes are shifting dynamics for the product tanker market in the Asia-Pacific region (31/10)
Tidal changes are emerging in the product tanker trades in the Asia-Pacific region as refineries in China have been steadily increasing their crude oil intake in recent years, aided in part by the granting of import licenses to teapot refiners and the creation of the “China Petroleum Purchase Federation of Independent Refiners”. In its latest weekly report, shipbroker Gibson said that “data for January to August 2016 shows that refinery crude throughput has increased by approximately 600,000 b/d over the same period in 2015 (source: JODI). These developments are not only impacting on the crude tanker market but also changing the dynamics of the Asia-Pacific refined products market”.
According to Gibson, “traditionally China has been seen as one of the main regional importers of diesel; however, the market has seen a fundamental change with the country recently becoming a net exporter of diesel and increasingly an exporter of gasoline. Chinese internal product demand has changed drastically over recent years as the economy has attempted to gradually shift away from heavy manufacturing and laboring to commercial services, resulting in softer diesel demand used mainly in heavy industries, whilst demand for gasoline and jet fuel has remained strong. Reforms to the refining sector allowing independent teapot refineries to compete against larger state-owed refineries has increased competition to sell internally and has resulted in refineries looking abroad to place barrels”.
The shipbroker said that “it is important to note that in general most Chinese refineries are geared up to maximize diesel production. In order to meet internal demand for gasoline and jet fuel, diesel production will naturally increase, resulting in a surplus supply and more barrels for export. However, with more refineries running at high levels, supply of all products will improve, with increasing export volumes. When looking at the export figures so far this year, the impact of changes to China’s product demand paints an interesting picture. Diesel exports for Jan-Sept 2016 on average are closer to 180,000 b/d higher than 2015 levels, with gasoline exports also faring well with an increase of roughly 80,000 b/d. September proved to be a record month for exports of diesel. Most intriguingly, however, diesel and gasoline imports have increased throughout 2016 despite the large export volumes”, said Gibson.
What has this meant for shipping? Gibson says that “sadly the increase in Chinese exports has not resulted in any significant upturn in rates. With the majority of barrels being sold to traders, it would appear most have been heading south into Singapore, with further exports required to really push freight rates higher. What has emerged though is a growing base trade of barrels out of China, which has not just provided an incremental stream of cargoes but also offered owners additional opportunities to achieve higher than 50% utilization during the voyage”, the shipbroker noted.
It concluded by noting that “the Chinese economy is facing significant challenges moving forward, and the refining sector is not immune to these challenges. Along with other major industries such as steel and coal struggling with over-capacity, data suggests that Chinese refining capacity stands at around 14 million b/d, with an estimated 3 million b/d in excess capacity at current intake levels. It would appear that the government is beginning to crack down on any grey areas of taxation in gasoline production and sales, which could hit smaller refiners already hampered by higher logistical costs when exporting. Despite this, slowing industrial output and struggling internal demand will most likely lead to refiners being left with few options but to look further afield to place product. This should result in sustained export demand from Chinese refineries and a steady flow of cargoes for product tanker owners at least in the short term”.
Meanwhile, in the crude tanker market this week, Gibson said that “VLCC Charterers initially concentrated upon the more accommodating older units to successfully drag the market down to ws 50 to the East. Once that had been achieved, sights swung onto more reticent modern vessels that, after token resistance, also moved lower and into the high ws 50’s with runs to the West easing to the ws 35 level. By the week’s end however, a little more interest circulated and Owners dug in to defend the bottom markers with some hopes for increased momentum into next week. Suezmaxes made a slow start, but from midweek became noticeably busier to allow Owners to drive rates up towards ws 75 to the East and close to ws 40 to the West though short hauls to India are likely to be temporarily compromised by the Diwali Holiday. Aframaxes failed to build upon last week’s platform and ended upon the defensive at 80,000 by ws 95 to Singapore with lower levels threatening for next week”, the shipbroker concluded.
India could act as a “white knight” for the tanker market, or not? (25/10)
A “China Effect” in terms of its impact in the global shipping industry and more specifically in the tanker market, is brewing up in India. As the Asian behemoth keeps growing, so will its energy needs, spurring a torrential demand for crude oil. In its latest weekly report, shipbroker Gibson noted that “India’s energy policy is largely defined by its ever expanding energy deficit which places an even greater dependency on a diverse mixture of fuel resources. Industrial development and population growth has led to a surge in energy demand which continues to be a major headache for the Modi government. The government also needs to find a compromise between the surge in demand for fossil fuels to feed its growing requirement, but at the same time keep a watchful eye on environmental pressures. In terms of energy consumption in 2015, India has overtaken Russia to become the third biggest consumer after China and the USA with around 5.2% (BP Statistics) of the global share. While the nation pursues ambitious targets for renewable energy use such as solar and wind power and increasingly LNG demand, India still remains very reliant on coal and oil imports. The International Energy Agency reported that India will account for 25% of global crude oil growth and will be the fastest-growing crude oil consumer through to 2040”.
Gibson said that “in September, India’s petroleum minister announced a plan to raise its oil storage capacity to take advantage of low oil prices. The first phase to set up a strategic petroleum reserve (SPR) is already at an advanced stage in three locations, Visakhapatnam, Mangalore and Padur, with a combined capacity of 5.3 million tonnes (38.7 million barrels). Storage at these three sites has already commenced filling and is expected to complete later this year. However, the minister also stated that the ministry had finalised plans to set up two new larger SPRs, each with a 5 million tonne capacity, one in the eastern State of Odisha with the second in the western State of Rajasthan. Participation to set up new storage facilities would be open to both private and foreign participation, with a plan to take overall storage capacity to more than 15 million tonnes over the next five years”.
According to the London-based shipbroker, “last month, India imported 17.216 million tonnes (4.5 million b/d) of crude oil as refiners stepped up purchases to meet record domestic fuel consumption. Bloomberg estimates India imports more than 80% of its crude oil requirements and demand continues to grow through increased use of trucks, cars and motorbikes. Indian motorbike sales are forecast to reach 19 million in 2018. Domestic refineries have been struggling to keep up with gasoline and diesel demand despite additional capacity being added. According to the latest government statistics, India’s product demand grew 8.5% year on year in 2015 to 3.81 million b/d. Figures covering January-August this year show product demand was up by 10% to 4.13 million b/d. Indian refiners continue to add capacity, spending billions of dollars in an attempt to keep up with domestic consumption. However, an even stronger growth in internal demand has at times necessitated product importation”.
Gibson concluded that “at a time of concern over the prospects for the tanker market going forward, India remains a Jewel on the Crown for tanker owners. This week, the announcement of a Rosneft controlled consortium to take a 98% interest in Essar Oil is likely to stimulate more longer haul barrels from Venezuela to Vadinar. Venezuela already accounts for around 12% of India’s total crude imports. Growing oil demand for both domestic requirements and to fill the SPR will continue to support short haul imports from the Middle East and from further afield with cargoes from the Atlantic Basin”.
Meanwhile, in the crude tanker markets this week, in the Middle East, Gibson said that it was “a relatively quiet week for VLCC’s as Charterers do their utmost to deflate any sentiment that has been building with Owners. A market enquiry today saw the number of offers into double figures highlighting that some cracks are beginning to appear and as a result a fixture of 270,000mt x ws 58.5 to Taiwan was recorded on a new building. Last done levels on a modern vessel from the Middle East to China was 270,000mt x ws 67.5 and 280,000 x ws 38 for US Gulf via Suez. For non-Iranian business Suezmaxes remain flat at 140,000 x ws 37.5 for Western destinations and 140,000 x ws 60 for the East off the back of supply outweighing demand. After a long period spent in the shadows Aframax Owners exploded into the sunlight this week as the perfect storm of a glut of enquiry, coupled with a starved tonnage list, led to Owners commanding rates that would have been perceived as inconceivable a week or so ago. With the usual less approved suspects occupied with inter-ag and Pakistani business one or two prompt replacements fetched numbers into the worldscale 90’s and as more cargoes entered the market the amount of available tonnage soon whittled down, leading to Owners pushing for triple figures. Expect Owners ideas to remain bullish until tonnage availability eases into first decade next month. Last done though is AG/East 80,000mt x ws 95-100 level”, the shipbroker concluded.
Tanker market still on a high, as VLCC rates are on the up (24/10)
Tanker rates are on the up over the past few weeks, as the market is finding more and more support from different locations. VLCC rates remained firm through the first half of the week, said shipbroker Charles R. Weber, “on owners’ resistance and following a recent surge of West Africa fixtures which drew on Middle East positions and led to a tighter supply/demand profile. “Extremely light demand this week, however, weakened sentiment by the close of the week and led rates to erase the week’s earlier gains. The Middle East market extended last week’s demand slump; a total of 15 fixtures were reported, representing a weekly gain of one fixture but just 58% of the 52‐week average. In the West Africa market, just one fixture was reported, off by seven from last week’s tally and representing the lowest count in six months. The latter likely factored more heavily into the eroding of earlier sentiment given that participants are more accustomed to the Middle East market’s volatile weekly activity and mindful of the relative stability of monthly cargo programs”, said CR Weber.
According to the shipbroker, “by contrast, the West Africa market observes less consistent monthly programs which can oscillate between favoring Suezmax and VLCC tonnage; as such, demand fluctuations have been key drivers of both Middle East and West Africa rates in recent years. The influence exerted by West Africa demand swings is two‐fold with demand swings impacting rates on a near‐term basis, by reducing Middle East availability levels, and a forward basis, by contributing ton‐miles and thus reducing forward availability as performing units take longer to ballast to West Africa and longer to delivery covered cargoes to their destinations, relative to eastbound voyages from the Middle East. In the case of this week’s performance, the former is the case while the latter will follow the earlier West Africa demand surge to support rates later during the quarter”, said CR Weber.
It added that “in the interim, we expect that rates will continue to observe modest downside ahead of a start to the second decade of the November Middle East program, likely by late next week, at which point the supply/demand balance should narrow, leading to stronger rates. We note that with 25 first decade cargoes covered thus far, a further 10‐15 remain likely uncovered. Against this, there are 30 units available. Draws to service West Africa demand should rise from this week’s light level and consume some of the Middle East positions, though the extent is difficult to ascertain with Saudi OSPs favoring Asian buyers with an eastbound OSP discount of $0.45/bbl but Nigeria also more aggressively pricing its crude to attract buyers, having announced this week an OSP discount of at least $1/bbl for all buyers. Balancing the two, we estimate that four to five West Africa draws will materialize leaving a Middle East surplus of between 10 and 16 at the close of November’s first decade. The spread is wide and the actual balance will likely heavily influence rates accordingly. Nevertheless, once charterers move in the incrementally more active second and third decades, the stronger demand against lower position replenishments due to the earlier West Africa surge should prove highly supportive of rates. The Caribbean market was quieter this week which, together with building regional availability and easing sentiment elsewhere in the Atlantic basin, saw rates move into negative territory”, the shipbroker noted.
According to CR Weber, in the Suezmax market “after observing modest downside at the start of the week on higher availability following the weekend and amid souring sentiment due to strong earlier VLCC coverage in the region, rates stabilized from midweek as participants became cognizant of a likely imminent demand boost. Rates on the WAFR‐UKC route concluded with a 7.5 A total of 12 fixtures were reported for the week, representing a gain of one on last week’s tally. Meanwhile, VLCC fixture activity in the region was at its lowest pace in six months. Together with returning Qua Iboe cargoes from earlier force majeure and expectations that November’s Nigerian supply rate will exceed 2.0 Mnb/d for the first time since January, this implies stronger forward Suezmax demand. VLCC coverage of regional cargoes has declined markedly in the November program; to‐date, VLCC charters for cargoes loading during the first two decades stand 62% below the same period during October. As charterers progress further into November Suezmax stems, the greater cargo availability should help to narrow the supply/demand positioning and support fresh rate gains”.
Meanwhile, in the Aframax market, “demand in the Caribbean Aframax market eased 25% w/w to 12 fixtures and while the four‐week moving average remains unchanged at 13 for the third consecutive week, the supply/demand balance loosened on rising availability, allowing charterers to capitalize on the weekly pullback. The CBS‐USG route shed 17.5 points to conclude at ws92.5. Given the likelihood of further availability builds over the weekend, rates could post further losses at the start of the upcoming week. Thereafter, we expect that any cargoes opportunistically delayed until softer rates prevail will materialize and, in contributing to normal demand, should help to stabilize rates” CR Weber concluded.
Tanker ordering picks up slightly in otherwise mild newbuilding activity (19/10)
While newbuilding activity remains subdued overall, shipbrokers have started noticing some mild activity in the tanker department. In its latest weekly report, shipbroker Allied Shipbroking noted that “there was another small trickle of tanker orders emerging this week, with most notable the order secured by S. Korea’s Samsung for two separate high spec orders by Norway’s Viken Shipping. Though hopeful for those shipbuilders that manage to secure orders like this, the lack of volume means that this is by no means enough to real push for any improvement. Things will continue to remain tough and despite the increased competition that has amassed amongst shipbuilders the fact that prices haven’t followed in line with this trend means that we are still facing at least a temporary flour due mainly to construction costs, which although have been squeezed it seems to be ever more difficult to squeeze each and every single penny beyond this point at least for now. We will have to wait to see if things change on this front as further restructuring takes place amongst most of the major shipbuilders, while it will be interesting to see if and to what extent governments might start to step in in order to provide flexibility to be able to accommodate orders at subsidized levels in an effort to keep operations alive until the market is able to improve”.
Meanwhile, in the far more active S&P market, ship valuations’ specialist VesselsValue commented that “the bulker sector this week has seen a firming in Panamax and Supramax values while Capesizes have softened across all ages. The Ocean Crescent (174,200 DWT,2007, Shanghai Waigaoqiao Shipbuilding) was offloaded by NYK line to New Shipping Ltd for USD 12.1 mil vs VV value of USD 12.81 mil. The United Serenity (81,600 DWT,2009, Oshima) was sold by United Ocean Group for USD 12.35 mil vs VV value of USD 11.9 mil. The Atlantic Mazatlan (50,300 DWT,2000, Mitsui Tamano) was sold by Pacific Carriers to Symphony for USD 4.65 mil vs VV value of USD 4.14 million”.
VV also noted that “within the Tanker sector values remain stable with the exception of Mrs. Jacques Jacob an LR1 tanker (71,300 DWT, 2000, 3 Maj Brodogradiliste) was sold by Ernst Jacob KG for USD 7.25 mil vs VV value USD 7.96 mil. Two VLCC resales, The Crude Med and Crude Progress (308,000 DWT, 2017, Hyundai Heavy Ind) were bought by Kyklades Maritime from Metrostar Management Corp for USD 83 mil vs VV value of USD 83.02 mil. No sales reported this week in the container sector”, the ship valuations expert concluded.
In a separate note on the S&P market, Allied Shipbroking said that “on the dry bulk side, activity keeps at firm levels, though with prices for the majority of age groups still holding stable. The only upward trends that we have noted thus far is for the older aged vessel groups, likely supported by the combination of improved scrap prices and the increased buying interest from owners that typically focus in these market segments. Modern vessels seem to now be the ones which are seeing mixed messages, with firm buying interest having stepped down slightly from its high levels of a couple of months ago. On the tanker side, we have seen both activity and interest start to increase rapidly for the Very Large Crude Carriers. We have seen a couple of resales changing hands this week, while there seem to be a plethora of buyers for units within the 10 to 15 years age groups, likely spurred by the recent drop in price ideas being noted by current sellers in the market”, Allied concluded.
Product tanker owners likely to experience another quarter of pain during Q4 says shipbroker (18/10)
Ship owners of product tanker could be facing a challenging period at least until the end of the year, as shipbroker Charles R. Weber, doesn’t any tangible chances of recovery during the course of the fourth quarter. According to the shipbroker, “product tankers continue to experience low earnings as the global downstream sector struggles to adapt to swollen global product inventories. After a relatively promising start to the year, directionally softer earnings prevailed in each of the product tanker segments successively. This development is largely attributable to overbuilt product inventories globally which have weighed on ton‐miles and expanded vessel availability levels amid increased fleet trading efficiencies, to the detriment of earnings”.
CR Weber notes that “the loss of arbitrage opportunities during 2016 significantly impinged trade dynamics by leading to fewer long‐haul voyages and more short‐haul voyages. In part, this situation was created by low refinery maintenance during Spring ’16 due to strong refining margins in 2015 which saw refiners reduce their maintenance plans to capitalize on an anticipated sustaining of margins strength. This came despite growing global refinery capacity levels as new projects came on stream. The resulting global product oversupply (which, in the Atlantic basin, saw PADD1B gasoline inventories flirt with max capacity and boosted NW Europe middle distillate stocks by around a quarter) has harmed refining margins – much as they have product tanker earnings. As a result, Autumn ’16 refinery maintenance levels are widely tipped to exceed normal levels, which should support the start of a destocking cycle. Key among these, in our view, are plans by Middle East refineries – some of which are new distillate‐intensive and export‐oriented refineries, which have factored heavily into high European inventories”.
The shipbroker went on to say that “depending on the extent of inventory draws in Europe, MRs could start to experience some upside late during Q4 as trans‐Atlantic arbitrage opportunities reappear. However, as earnings presently stand at just ~$4,157/day with little upside likely in the interim, we estimate that the quarter will see earnings decline by 55% on a year‐on‐year basis to $9,780/day. For LRs, while the past week has seen earnings bounce from earlier lows, we expect refinery maintenance scheduled for later during the quarter will erode any upside which prevails in the interim and lead earnings to year‐on‐year losses similar to those expected in the MR segment. LR2s are presently earning ~$12,170/day (having stood at just ~$7,546/day a week ago) and we project that the quarter will observe a 50% y/y decline to ~$13,500/day. LR1s are presently earning ~$8,389/day and we project that the quarter will observe a 50% y/y decline to $10,000/day”.
Meanwhile, in the crude tanker markets this week, in the VLCC segment, CR Weber noted that “rates in the VLCC market continued to observe strong upside early during the week but leveled off after participants’ positive sentiment was eroded by slower demand in the Middle East market. There, just 12 fixtures materialized, representing the slowest week in four months and a 70% drop from last week’s hectic pace. The slowing, however, was not unexpected as charterers had covered a significant portion of the October program, leaving few cargoes to work this week ahead of a progression in earnest into November dates next week – and this belies what are otherwise strong fundamentals for near‐term rate developments. Indeed, with a total of 142 October Middle East cargoes covered, the month was the most active in nearly three years and compares with a monthly average of 128 during the first nine months of 2016. Perhaps more importantly, recent demand gains in the West Africa market have simultaneously helped in reducing surplus Middle East tonnage by drawing several Eastern ballasters into the Atlantic basin and sets the market up well for reduced availability in the near‐term as these units will take longer to reappear on position lists, being oriented largely to long‐haul voyages to Asia. Demand this week in the West Africa market inched up by one fixture from last week’s tally to seven, which keeps the four‐week moving average above seven for the fourth consecutive week; this is the first time this has occurred in 18 months”, the shipbroker said.
CR Weber added that “Middle East demand expectations for the November program remain high, particularly given the maintaining of Iraq’s lofty supply rate from Basrah and an unchanged m/m view of VLCC cargoes for loading at the terminal (once likely Suezmax cargo merges onto VLCC tonnage are accounted for). Meanwhile, Saudi Arabia’s November supply rate is unlikely to post a monthly decline, particularly if prospects for OPEC to reach a conclusive agreement to curb its collective supply during its meeting at the end of November remain. Meanwhile, the West Africa market should remain active, even as relatively‐modest Saudi OSP cuts for November Asian buyers draws some interest back to the Middle East from West Africa, as the overall Nigeria supply appears to be moderating from August’s decades‐low rate. In translating these factors into further rate strength, we note that this could be delayed in the very near‐term on the immediate supply/demand picture. The number of surplus Middle East units uncovered at the conclusion of the October program stands at nine and while this is a marked reduction from the 20 observed, on average, during Q3, it could prove a modest challenge during November’s first decade as Basrah VLCC cargoes are unevenly distributed and back‐heavy: 8 during the first decade, 13 during the second decade and 17 during the final decade. Coming on the back of this week’s Middle East breather, sentiment could potentially weaken early during the upcoming week before stabilizing ahead of gains coinciding with a progression by charterers into the second half of the month’s program”, the shipbroker concluded.
Tanker market sees boost from Russian oil exports, but OPEC agreement could see production curbed in the long term (17/10)
The tanker market has seen a significant boost over the past few months, thanks – in part – to the booming Russian oil export market. While this trend is likely to keep offering support to the market, in the short term, over the course of next year, the tanker market could face headwinds after the recent agreement between Russia and OPEC, under which the former will have to limit its oil production, in a bid to boost prices.
In its latest weekly report, shipbroker Gibson said that “Russia’s oil exports are an important demand generator for the tanker industry. However, for quite some time now many in the industry have been expecting a decline in Russia’s crude production on the back of Western sanctions, following the events in Ukraine and a collapse in oil prices. Yet, so far Russia has defied the expectations. Crude and condensate production averaged over 10.5 million b/d in 2015, up by around 150,000 b/d compared to the corresponding period in the previous year”.
In fact according to the shipbroker, “further gains have been seen in 2016. Most notably, in September output surged to a post-Soviet high of 11.1 million b/d, according to the preliminary government data. The growth in production has been supported by investments made prior to the collapse in oil prices, while the rouble’s dramatic depreciation has cushioned the profitability of oil companies. In addition, Rosneft, which is by far the largest Russian oil producer, is intensifying its drilling effort and expenditure to maximize production at Soviet-era brownfields, where output is in decline. The company is also increasing its use of advance recovery methods, such as hydraulic fracturing and horizontal drilling. In a way, the seriousness of Rosneft’s intentions is evidenced in the recently announced acquisition of India’s Essar Oil, which will secure the company’s market share in one of the world’s fastest growing economies”.
Gibson noted that “ongoing gains in crude production coupled with a decline in refiners’ crude throughput this year have supported rising exports, almost entirely seaborne. Russian crude shipments out of the Baltic and Northern ports averaged some 250,000 b/d higher between January and August 2016 compared to the corresponding period last year; while in the East, combined exports from the Kozmino terminal, Sakhalin and De Kastri edged up by 60,000 b/d. In the Mediterranean, there also has been a modest gain in crude exports from other Former Soviet Union members: BTC volumes were up by 70,000 b/d year-on-year during the 1st eight months of 2016. In the short term, crude exports out of the Baltic and Northern ports are expected to remain at robust levels, aiding the tanker market during the upcoming winter season”.
However, these plans could be under threat, following the recent announcement made by the Russian President to participate in the OPEC output cap, despite the refusal by Rosneft’s CEO for his company to engage. Gibson said that “in the Black Sea, exports of Caspian crude are forecast to increase, following the start-up of Kashagan and Filanovskoe oil fields in the 4th quarter of this year. The prospects are for a further major growth in Kazakh crude exports in 2017 and beyond, although these developments are largely linked to the successful launch and ramp up of production at the Kashagan, with initial flows expected to begin at 75,000 b/d and then increase to 370,000 b/d towards the end of next year. The picture is more uncertain when it comes to Russia. Many do not see continued growth in production. However, if the efforts currently being implemented by Rosneft to reverse the decline in its brownfield fields are successful, this could be the case. Certainly, growing production and exports will add incremental support to the tanker market, most notably in the West as the capacity on the main infrastructure link to the East – the ESPO pipeline – is already operating close to its current capacity. However, going forward the capacity of the ESPO link is expected to increase to 1.6 million b/d by 2020 from 1 million b/d currently, with around 0.7 million b/d shipped from Kozmino and another 0.3 million b/d via a pipeline spur directly into China. This is good news for the tanker market in the East, with the anticipated increase in Kozmino exports by around 0.3 million b/d. Yet, if there is no major increase in Russian crude production in the medium term and/or there is a notable increase in refinery crude intake, higher crude exports to the East will threaten seaborne exports to Western customers”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “October has proved the busiest month for VLCCs on record and given the volume, and recent momentum in concluding that volume, it is no surprise that rates propelled from around ws 30 to the East to as high as a peak ws 69 over the period. That said, rates are now only little better than they were in the early summer, and near equal cargo thrusts in the past have yielded far more spectacular results. Owners mustn’t grumble but the underperformance is a reflection of the much larger fleet size than in those times, and it will take almost repeat performances to ensure longer term earning averages feel the benefit. Owners will, however, be hoping for a lively kick-off to the new November program next week to keep up the good work. Suezmaxes saw no such fun and remained largely flat line through the week on limited interest, and ongoing good availability. Rates sagged to ws 35 West and to ws 55 to the East accordingly. Aframaxes leveraged up their previous gains to 80,000 by ws 87.5 to Singapore upon improved activity, and thinner availability, and Owners are once again raising their rate sights for next week’s campaign”, the shipbroker concluded.
Tanker market improves in September according to OPEC sailings’ data (15/10)
Average spot freight rates in the tanker market increased in September from the previous month by 23% said OPEC in its latest monthly report. The average increase was driven mainly by gains registered for the Suezmax class, which benefited from higher activity in the Atlantic and cargo loading requirements in West Africa, in addition to the replacement vessel requirements. Similarly, Aframax freight rates exhibited some gains in September, though to a lesser extent than Suezmax. Aframax enhanced sentiment was detected in several markets, including the Mediterranean and North Sea, while VLCC was the exception, as its average rates dropped mostly in September, despite positive earnings on the West Africa-toEast routes, which were mainly supported by higher Suezmax rates achieved on the same route. Generally, the dirty tanker market suffered from excess availability of tankers, which prevented rates from registering worthwhile gains. Product tanker spot freight rates continued on the same downward trend as seen in recent months, with no clear signs of recovery, declining by 10% and 12%, respectively, on the East and West directions of Suez.
Chartering activity rose during September on most routes with total spot fixtures increasing by 1.1% m-o-m and estimated OPEC spot fixtures rising by 3%, compared with the last month, to average 9.92 mb/d. A decline in fixtures was seen only for Outside Middle East fixtures, which dropped by 0.46 mb/d in September, while those for the Middle East-to-West and Middle East-to-West were higher by 14.1% and 4.2%, respectively, from the previous month, to average 5.27 mb/d and 2.5 mb/d.
Sailings and arrivals
OPEC sailings dropped by 0.02 mb/d in September from the previous month to stand at 23.66 mb/d. On the contrary, sailings from the Middle East were higher by 0.24 mb/d. As for port arrivals, arrivals in Far Eastern ports increased in September by 0.27 mb/d, while arrivals at all other ports, including North America, Europe and West Asia, were down from a month before by 0.18 mb/d, 0.11 mb/d and 0.27 mb/d, respectively.
Spot freight rates
VLCC freight rates saw gains and losses on different routes in September. VLCC activities remained mostly steady with positive volumes of fixtures, leading to a gradual enhancement in freight rates from the previous month, however, the increase in activity and the amount of fixtures during the month were met with plentiful vessel supply as was the case in recent months due to new tonnage deliveries in the current year. Therefore, spot freight rates for tankers operating on the Middle East-to-East route showed a further drop from the previous month, down by 7%, to stand at WS 35 points. Middle East-to-West spot freight rates were flat in September from the previous month, to average WS 24 points, while VLCC freight rates in West Africa edged up as the firmer Suezmax market underpinned the VLCC market and encouraged VLCC owners to push towards higher freight rates. Tankers trading on the West Africa-to-East route stood at WS 42 points in September, higher by 3% from the previous month, though still 25% lower than the same month a year earlier.
Suezmax freight rates showed remarkable enhancements in September from one month before. Despite a very quiet beginning early in September, the Suezmax market and rates picked up afterwards as activity in the Atlantic increased, combined with prompt loading requirements as replacements for late running ships. Freight rates showed great increases, mainly for first decade October loadings, where tonnage lists appeared to be relatively shorter. Cargo loading requirements in West Africa also supported freight rates. On average, Suezmax spot freight rates on the West Africa-to USGC route increased by WS 31 points from the previous month to average 67 points. Freight rates registered for tankers operating on the Northwest Europe (NWE)-to-USGC route showed an increase of WS 18 points from the month before, to stand at WS 59 points. Suezmax freight rates on both routes showed an increase from last year.
Tanker market to be only marginally affected from OPEC’s decision to limit oil output (11/10)
With so many variables into play for the tanker market, one of the most important ones, the recent decision from OPEC to limit oil production, could perhaps have the most negative impact for ship owners. However, as shipbroker Gibson points out, in the end impact is expected to be minimal.
In its latest weekly report, the shipbroker said that “last week’s announcement that OPEC has reached a provisional agreement to cut production came as a surprise to many oil market participants. Whilst we had known for some time that an informal OPEC meeting would take place on the sidelines of the International Energy Forum in Algeria, few expected any meaningful news to emerge. Yet we now know that there is an intention within OPEC to limit output within a 32.5 to 33 million b/d range, down some 0.5 to 1 million b/d from nearly 33.5 million b/d produced by OPEC in August. Yet despite this intention, the details still need to be ironed out with OPEC needing to agree, who and how much to cut. Firstly, Iran is likely to remain exempt from any deal until its production is restored to 4 million b/d, up from approx. 3.6 million b/d at present. Whilst Nigeria, which has been supportive of such an arrangement is likely to be unwilling to cap production much below 2 million b/d, from recent levels as low as 1.46 million b/d”.
Gibson noted that “equally other OPEC producers will claim their production is in recovery mode. Production in Libya is rising but well below the 1.39 million b/d produced in 2011. Venezuelan production has also been in decline, meaning they may also be unwilling to adhere to any reduction in production levels. These factors mean the emphasis is likely to be placed again on Middle East producers, with Saudi Arabia in particular focus. Saudi crude production hit 10.6 million b/d in August, following seasonal trends which typically see production increase over the summer months to meet domestic energy demand. One could therefore argue that production was always going to fall towards the end of the year as peak electricity demand faded closer to the cooler winter months. Thus a cut of 0.4 million b/d which has been muted by some analysts, may have a limited impact”.
Meanwhile, according to the shipbroker, “other Gulf states including Kuwait, the UAE and Qatar also boosted production over the summer, and may follow similar seasonal patterns. In any case, even if some OPEC member’s trim production, rising production from both within and beyond OPEC could offset any declines. Increases from Iran and Nigeria seem likely, whilst any artificial support to the oil price will stimulate non OPEC supply and could be the catalyst needed to reinvigorate the US shale industry. Shale producers have been forced into becoming far more efficient in order to survive lower prices, meaning break evens across the industry have fallen. 109 rigs have been added since May, and production may be starting to stabilize, all of this in a $40- 50/bbl price range. If oil prices are to firm further, then US drilling activity is likely to intensify”.
“Additionally, production is rising in Brazil, whilst crude flows from the Kashagan field are starting to materialize. Equally, Russia is sending out mixed signals. Russian production is at or near record levels, and whilst Russia has signaled it may be willing to freeze output, a cut could be a step to far for now. Overall, whilst such action from OPEC is typically negative for the tanker market, it may not be a disaster with the impact being marginal, offset by rising supplies elsewhere. Equally, much of the cut backs could be a reflection of lower seasonal domestic demand amongst crude producers, and thus have a limited impact on seaborne exports”, Gibson concluded.
Meanwhile, in the Middle East crude tanker market this week, Gibson said that “rampant volumes for a second week running heaved VLCCs into new, higher, Rate territory but the wealth of availability meant that although rates moved noticeably to an average ws 55 to the East and to ws 30 to the West, There remains a feeling of slight underperformance on what will prove to be the busiest month of the year. Owners are now consolidating the gain, and will look for further upward opportunity if Charterers maintain momentum into next week, and into the November program – if Suezmaxes merely drifted sideways, however, upon only modest enquiry, and easy looking tonnage. Rates remained at no better than ws 37.5 to the West for ‘standard’ movements, Though loadings from Iran commanded large premiums. Levels to the East also hardly broke above the previous ws 60 mark. Aframaxes became a little busier and that proved sufficient to drag rates off their bottom markers to end at 80,000 by ws 67.5 to Singapore – modest, but progress nonetheless”, the shipbroker concluded.
VLCC market on “rebound” mode (10/10)
Tanker demand has returned to higher ground, with the latest positive trend being evidenced over the course of the past week as well. In its latest weekly report, shipbroker Charles R. Weber noted that “VLCC demand in the Middle East remained strong for a second‐consecutive week while demand in the West Africa market rebounded, narrowing supply/demand fundamentals in leading rates across all global routes to accelerate the pace of a rally which began last week. The Middle East market observed 40 fixtures for the week, one more than last week’s strong pace and 55% more than the 52‐week average. Meanwhile, the West Africa market observed six fixtures, representing a 50% w/w gain and boosting the region’s four‐week moving average of fixtures to a ten‐month high)”.
The shipbroker noted that “the demand strength has helped to absorb surplus tonnage and sets the market up well to observe strong Q4 upside. We note that there are currently 25 units remaining available for Middle East loading during October, against which a likely 12 additional cargoes will materialize. Once factoring for West Africa draws, which could draw six of the uncovered units (at least three cargoes are outstanding at writing), the likely‐end October surplus is seven units. This compares with a Q3 average of 20 surplus units and is more closely aligned with the 8 monthly surplus units observed during H1, when AG‐FEAST TCEs averaged ~$54,748/day”.
C.R. Weber expects “that the low surplus facing charterers as they progress into November Middle East dates will allow rates to extend gains. Thereafter, rates should remain elevated given the likelihood of sustained elevation of West Africa and Middle East demand – with the latter potentially expanding from strong regional refinery maintenance towards the end of 2016 which will leave more cargo available for export. Meanwhile, Venezuelan exports have improved recently and the recent delivery of a light crude diluent cargo which had previously been among a group of tankers waiting to discharge at Puerto La Cruz amid a payments row suggests that blending operations could translate to further export length”.
Meanwhile, in the Middle East, the shipbroker said that “rates to the Far East added 16 points over the course of the week to conclude at ws55. Corresponding TCEs surged 88% to conclude at ~$33,782/day (basis China). Rates on the AG‐USG c/c route observed a gain of 8.5 points. Triangulated Westbound trade earnings, benefitting from the stronger AG‐USG route and a modest hike in CBS‐SPORE rates, jumped 24% to conclude at ~$42,882/day”.
In the Atlantic basin “the market remained tight amid the fresh surge in West African demand and after Caribbean supply/demand fundamentals narrowed on earlier regional demand strength and fewer voyages into the region. Rates on the WAFR‐FEAST route added 15 points to conclude at ws65 with corresponding TCEs rising 70% to ~$53,882/day. Rates in the Caribbean market were stronger as a spate of fixtures for voyages from Brazil and Uruguay allowed owners to command gains. The CBS‐SPORE route added $350k to conclude at $4.20m lump sum”.
In the Suezmax market, “rates in the West Africa Suezmax market remained under negative pressure this week as low cargo availability saw, demand levels decline. Rates on the WAFR‐UKC route shed 5 points to conclude at ws82.5. The recent decline in Suezmax rates comes, ironically, in spite of rebounding Nigerian crude supply as the corresponding narrowing of pricing differentials between West African grades and alternatives narrowed and Saudi OSPs disfavorable to Asian buyers pushed a portion of their interest into the West Africa market. These factors enabled the VLCC share of the October program to double from the September share. As such, less cargo has been available for Suezmaxes and the October Suezmax program has observed 40% fewer cargoes than the September program thus far. However, with VLCCs having progressed into November dates, we note that the situation appears to be shifting with VLCC coverage of October’s final decade having been low (likely to do with lingering uncertainties regarding the security situation in the Niger Delta region where oil infrastructure is vulnerable to militant attacks)”, said C.R. Weber.
The shipbroker noted that “whereas 15 VLCCs were fixed for cargoes loading during October’s second decade, just six were fixed for third‐decade loading. Thus, stronger Suezmax demand during the upcoming week is likely and should limit further losses and potentially allow owners to command fresh gains. Further forward, whilst regional VLCC demand is likely to remain elevated from the low levels observed during August and September, it should moderate as Saudi OSPs for November offer discounts to Asian buyers. This implies a more balanced distribution of West African cargoes between VLCC and Suezmax which, together with seasonal factors and progression from European refinery turnarounds, should allow Suezmaxes to observe directional strength during the remainder of Q4”.
China emerges as leader in VLCC fleet tonnage, as plan to control its imports of raw materials takes shape (03/10)
Back in June, two of China’s biggest shipping companies merged to establish COSCO Shipping Energy Transportation (CSET). The new company presently controls 36 VLCCs, with a further 12 newbuilds to be delivered by the 4th quarter 2018. Following the merger in June, CSET (in total) owned or managed 105 tankers, with a total dwt capacity of 16.8 million tonnes with another 25 vessels on order across most tanker sectors. In terms of ranking, their VLCC fleet is currently placed 4th in numbers (excluding vessels under construction). However their compatriot, China VLCC, also the result of an amalgamation in 2014, is presently the world’s leading owner of VLCC tonnage, with 37 units operating and a further 16 VLCCs on order.
According to Gibson, “back in 2011, China held an ambition to have more control over both their imports of raw materials and exports of finished goods across all shipping sectors. For crude oil imports, the planned target was 50% on owned or controlled tankers. As a consequence, a program of newbuilding commenced – not least to support China’s burgeoning shipbuilding ambitions. Many of these orders were placed during a period of depressed earnings, AG-Japan (TD3) averaging around $17,250/day at market speed. A new wave of orders caused some dismay at the time. Today, China’s VLCC fleet is owned by a handful of players, with 13% of the world’s existing fleet and a staggering 35% of the orderbook. Compare these statistics with a nation which just 15 years ago, owned just 8 VLCCs (less than 2% of the total fleet). The nation’s insatiable thirst for crude over the past few years has put these vessels to good use, supplying not only China’s daily needs, but also filling the country’s Strategic Petroleum Reserve (SPR)”, said the shipbroker.
Gibson added that “since the beginning of 2011, China has added another 76.8 million barrels capacity to the SPR in four new sites, with a fifth facility scheduled to add another of 18.8 million barrels before the end of this year. Two further facilities are planned to open in 2017, which will add a further 50 million barrels capacity to the SPR, which will need to be filled. The government’s ultimate aim is to achieve 90 days coverage. At present it is estimated that if you include barrels held in commercial storage locations, China’s SPR has reached about 36 days coverage. The government sanctioned the use of more commercial storage to speed up their SPR goal. After 2017, the only other SPR site currently under construction is at Zhanjiang (31 million barrels) scheduled to commence operation in 2019. The government has further SPR facilities planned stretching out to 2024, so China will manage keep their burgeoning VLCC fleet employed and we should see no slowdown in their crude imports”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson noted that it was “a much busier week for VLCCs as the market played catch-up from the previous holiday slowdown in the Middle East, and then benefited from additional volumes provoked by the upcoming holidays in China. Given the activity, rate increases have not impressed, but levels have now risen solidly off their recent lows to now stand at around ws 40 to the East, and into the higher ws 20s to the West, via Cape. Momentum will now slow, however, and further gains will be harder to engineer over the coming period, at least. Suezmaxes saw no discernible change but a flush of Iranian cargoes met limited interested supply, and large premiums were recorded for those movements over the more ‘standard’ ws 37.5 West and ws 60 level to the East. Aframaxes found very little to shout about and the market remained stuck at below 80,000 by ws 65 with no catalyst for positive change on the immediate horizon”, the shipbroker concluded.
Tanker markets are improving as more cargoes are coming into the market (26/09)
The tanker market is steadily moving towards better days, as August “blues” are gradually moving away. In its latest weekly report, shipbroker Gibson said that “Suezmaxes trading out of West Africa are leading the way. In early September Shell lifted force majeure on Bonny Light exports, with loading scheduled to reach 220,000 b/d in October. The Qua Iboe exports, the biggest Nigerian crude stream (estimated at over 300,000 b/d before the force majeure) are also expected to re-start as early as late September. Finally, shipments of Forcados crude are anticipated to resume soon, with a preliminary October loading program reported at 230,000 b/d”.
According to the London-based shipbroker, “more crude from Nigeria has led to an impressive rebound in Suezmax rates in the region, with the TCE earnings for West Africa – UK Continent up from just under $5,000/day in mid-August to around $35,000/day currently. There is possibility of more barrels loading in the Mediterranean. Libya’s National Oil Company is in the process of re-opening Zueitina, Ras Lanuf and El Sider oil terminals and the company hopes to triple domestic crude output by the end of this year. So far the success has been mixed. The government officials stated that one Aframax tanker successfully loaded and departed Ras Lanuf, but loading operations have been temporarily halted due to military clashes”.
Meanwhile, as Gibson pointed out, “more evidence supports the view that crude exports out of the Black Sea will increase. CPC exports are scheduled to increase in October, with further gains planned towards the end of this year and throughout 2017 amid rising offshore and onshore production in the Caspian region. The biggest gains are expected on the back of the re-start of the giant Kashagan field and the start-up of the Filanovsky field in the Caspian Sea. The combination of higher volumes out of the Black Sea, coupled with positive sentiment, have offered further support to the tanker market. Despite firming rates and earnings in a number of regional trades in the West, the VLCC AG market remains weak, with spot earnings for Middle East – Japan barely covering fixed operating expenses. It will be interesting to see whether the latest increases in West Africa and the Mediterranean/Black Sea will have a positive effect on the VLCC market”, the shipbroker noted.
On a more fundamental level, “there is a growing opinion between oil industry practitioners that oil markets are likely to remain oversupplied well into 2017. There are a number of reasons for that, including growing prospects for Nigerian, Caspian and Libyan crude production. The resilience of the US shale industry has prompted a number of leading oil consultancies to revise up their expectations for US crude oil production. The IEA has also voiced concerns of slowing demand growth in key markets, which together with anticipated increases in crude output, points to a sizable excess in supply over demand at least through the 1st half of 2017. If these forecasts are correct, the impact on the tanker market will largely be positive, at least in the short term. Tanker demand will benefit from incremental growth in crude exports, while oversupplied oil markets increase the likelihood of continued operational and forced tanker storage. Yet, as is always the case with forecasts, there are uncertainties. One of the most immediate risks is a possible crude oil production freeze deal between a number of crude exporters, with a decision expected in less than a week. The question here is whether the countries like Nigeria, Kazakhstan and Libya, where the near term prospects for production gains are the strongest, agree to participate”, Gibson concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCCs saw more as the week progressed, but failed to shake off the holiday lethargy that had set solidly in last week. That said, a steady/busy Atlantic scene, and a widespread improvement in Suezmax fortunes, has started to harden sentiment, and perhaps a busier pre Chinese holiday week to come will start to shift the rate needle upwards somewhat over the coming period. Rates, for now, remain in the low ws 30s East, and low ws 20s West. Suezmaxes did make some upward progress to around ws 60 to the East and ws 40 West but noticeably underperformed against their peers in West Africa, and the Med. Ballasting from the region is already underway, and a finer balance may eventually work to Owners’ advantage. Aframaxes held their recent bottom line – 80,000 by ws 60 to Singapore, and Owners are seeking small premiums now for the privilege of fixing upon more forward dates…baby steps”.
Tanker market under pressure according to OPEC (17/09)
Dirty tanker spot freight rates were under pressure again in August, reflecting decreases among all classes, occasionally reporting the lowest levels seen so far this year. VLCC rates were down by 12% on average compared with the previous month, while Suezmax spot freight rates reflected an even larger drop, decreasing by 30% from a month ago. The decline in rates was mainly driven by excess tonnage supply as new deliveries continued to join the fleet, along with reduced delays in different ports in addition to limited cargo-loading opportunities. Aframax freight rates were no exception, falling by 14% on average from a month earlier, as excess vessels created an imbalanced market, leading to a drop in freight rates in different regions, with the only exception being the Aframax market in the Caribbean, which remained stable. Clean tanker spot freight rates strengthened in East of Suez as a result of balanced trading conditions, while the quiet West of Suez market saw a drop in rates as the position list kept growing.
Global fixtures dropped by 16.6% in August, compared with the previous month. OPEC spot fixtures declined by 1.74 mb/d, or 15.2%, averaging 9.73 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 were lower, as were fixtures outside of the Middle East, which averaged 2.65 mb/d in August, down by 0.46 mb/d from one month ago. Compared with the same period a year earlier, all fixtures were lower in August by between 28% and 12% from the previous year.
Sailings and arrivals
Preliminary data showed that OPEC sailings declined by 2.2% in August, averaging 23.55 mb/d, remaining 0.57 mb/d, or 2.4%, higher than the same month a year before. Arrivals in Europe and West Asia were up from the previous month, while Far Eastern and North American arrivals declined by 0.2 mb/d and 1 mb/d, respectively, to average 4.89 mb/d and 9.62 mb/d.
Spot freight rates
In August, VLCC freight rates dropped further as a bearish trend continued. Rates were under pressure on all selected routes, influenced mostly by a high number of idle ships, lack of delays and slow movement in the market. Freight rates dropped despite a tolerable amount of fixtures in August, as total tonnage supply remained above the demand level. The imbalance was also caused by the continuation of newly built deliveries to the market. Lower freight rates were 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 West Africa-to-East route, where earnings declined by 16% to stand at WS41 points. Levels for West Africa were weak as the market suffered from slow activity and competition from smaller Suezmax vessels, the rates for which fell dramatically, making them a viable option on a split cargo basis. Middle East-to-East and Middle East-to-West spot freight rates decreased by 12% and 6%, respectively, from the previous month. VLCC freight rates showed some firming tendency towards the end of August as September chartering requirements came into the market. However, any enhancement in rates remained only relative, mainly as charterers held back their orders, allowing tonnage buildup to grow.
As seen in the VLCC market, Suezmax freight rates came under pressure in August, though showing higher drops on both a monthly and an annual basis. Suezmax average rates dropped by 30% compared with the previous month. The biggest rate drop was seen for Suezmax vessels operating on the West Africa-toUS route where they fell by 37%, to average WS35 points, while rates for Northwest Europe-to-US routes decreased by 23% to average WS41 points. The freight rate drop for Suezmax came partially on the back of low loadings from main exporters, combined with an over-populated tonnage list, largely influencing the balance of the tonnage market. An occasional pickup in activities and tonnage demand was seen towards the end of the month, but remained insufficient to balance excess tonnage supply in the market. Suezmax rates reached lows not seen in years despite a rush of inquiries for September loading and partial cargo opportunities.
Aframax spot freight rates followed other classes in the dirty tanker segment in August, falling on average by 14% on reported routes. Aframax rates on all routes dropped without exception from the year before. Vessel availability in the spot market was ample and many markets were lacking activity. North Sea and Black Sea markets were mostly quiet as fuel oil loading requirements were limited. Additionally, some loading opportunities were lost as a result of maintenance work at the Primorsk port terminal. Spot freight rates for the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes declined by 20% and 19% to stand at WS66 points and WS62 points, respectively. Aframax freight rates in the East were no exception. They dropped on the Indonesia-toEast route by 19% to average WS72 points. The Aframax market in the Caribbean also suffered from ample tonnage supply, which came together with a limited volume of cargoes. However, freight rates were occasionally supported by some replacements by late-running ships and the opening of September deals at the end of August, leading to nearly flat rates from the previous month on the Caribbean-to-US route, where they averaged WS180 points.
Tanker owners are looking for clues of future demand as freight rates could move to higher ground sooner than later (16/09)
Amid a growing tanker fleet and few demolition candidates, tanker owners can’t find relief in the supply side of the market, thus looking for potential silver linings in the supply side of things and more importantly future oil demand. OPEC provided a stark warning though in its recent forecasts of continued oil supply glut in 2017 as new fields are brought online and the U.S. shale oil producers prove to be more adaptable than originally presumed to the new cheaper oil environment.
According to Allied Shipbroking’s, George Lazaridis, Head of Market Research & Asset Valuations “at the same time we are seeing an unprecedented drop in U.S. crude oil inventories as a consequence of the disruptions brought about by hurricane Hermine, something that sent prices on the speculative rise again towards the end of last week. This combination at first sight could be seen as a fairly good start in the autumn season, with inquiries for U.S. imports growing in number over the next couple of days and helping drive a healthy upward trend in freight rates once more. The ideal circumstances to battle the slight excess in tonnage supply is ample increases in both crude oil production and consumption, so as to drive trend onto a good growth path”.
Things aren’t so rosy however for the longer term and beyond the final quarter of 2016 said Lazaridis. “OPEC, along with its assessment of production levels for next year, issued forecasts for lower global demand figures, averaging at 32.48 million barrels per day in 2017 (its previous month’s forecast was at 33.01 million barrels per day). What’s more is that based on these forecasts there is all the more fear that during OPEC members meeting in Algiers this month an agreement will finally be reached for each of the members to each place an output cap. This will likely lead to a more restrictive production growth scenario materialising for 2017, while it may also lead to slight price hikes above the average level we have seen the past two years. The plus side is that this comes at a time when we have seen the average number of large new projects per year decline to their lowest figure to date, with only six projects having been signed compared to an average of 40 that was seen between 2007 and 2013”, said Allied’s analyst.
He added that “a further factor that needs to be taken under consideration is the slower stockpiling undertaken by China during the first half of 2016 as construction delays hit most of the upcoming sites that were expected to come online and existing sites were already filled. Independent refineries have been picking up some of the slack and they have been gaining from these delays and having seen their buying power increase considerably during these past couple of months. With several new sites now expected to come online later in 2016 and early 2017, Chinese demand growth is expected to get a significant boost. With independent refineries expected to continue to move on their own following the pace of internal consumption of oil products in China and with the Chinese government likely to make a move to fill up on the cheap supplies, especially in the case whereby crude oil by OPEC members do receive some cap and fears of further hikes in crude oil prices grip the overall market”.
As such, “with 150 million barrels storage capacity expected to come online within the next 6 months or so, this is a considerable boost on the demand side of the market and will surely help prop up freight rates for the large crude oil carriers if all else remains as is. For the moment we will just have to make do with the hopefully better performance expected to be seen in the final quarter of 2016, as for what’s to come after, what needs to definitely be taken, from the side of ship owners, is a touch of continued caution”, Lazaridis concluded.
Tanker market’s ‘new normal’ drives downbeat summer sentiment (23/08)
Maritime Strategies International (MSI), a leading independent research and consultancy firm has forecast challenging conditions across the tanker market with technical and structural factors impacting earnings.In its latest Tanker Freight Forecaster* MSI dismisses claims that current conditions in the bellwether VLCC freight market are entirely due to seasonality. Instead, MSI says dynamics reflect lower rates of crude import growth across the year combined with reduced waiting times and, in particular, much higher deliveries.
The impact of much higher fleet growth this year is being amplified by the slowing demand environment. Importantly the market has also ‘returned to normal’ with respect to congestion with little support from port delays compared to earlier in the year. MSI expects the supply-side to be the dominant theme for the large crude sector well into 2017 and its forecast view for earnings remains under pressure.MSI Senior Analyst Tim Smith says a combination of factors will continue to impact the crude market this year.“Firstly we are seeing a step change in delivery volumes this year, concentrated in the larger crude and products segments. Notably we have yet to see any increase in scrapping activity to counteract this, but we do expect this to pick up in H2 and 2017. Secondly the market is now operating under ‘normal’ conditions with regard to congestion and bottlenecks which were prevalent and constructive feature for freight rates earlier in 2016.”
The Suezmax market has been subject to supply disruptions, principally in Nigeria, where three grades of production were under force majeure in early August. In addition, Russian July crude exports fell 3.2% mom to 5.3 Mn b/d, muting activity in the Black Sea and failing to support rates against the depression in West Africa.MSI’s spot forecast for the Suezmax segment pales in comparison to the previous two years’ winter markets. While some uplift is expected, gains are muted and if H2 refinery throughput in Europe disappoints, the pressure from the supply-side is going to become more severe in a market which is already seeing extremely low spot rates.Atlantic markets haven’t been the only ones to feel the pain. In the Far East, Aframax spot earnings also hit multi-year lows in early August. Refinery maintenance has been responsible for this with high competition for cargoes in Southeast Asia.MSI forecasts Aframax spot earnings to track their larger peers with limited upside seen in a market which is expected to remain under pressure from low crude intake in Europe,US crude import growth which has shifted away from Latin American supplies and a lacklustre near-term picture in East Asia.Lower levels of supply-side pressure on the uncoated Aframax segment could alleviate weaker demand conditions but ultimately MSI expects the segment’s freight market to continue to broadly track its larger peers.
Cross Mediterranean Aframax market looking in vain for Libyan oil production comeback, as negotiations still ongoing (23/08)
Ship owners looking to take advantage of the Mediterranean market for Aframaxes, mainly through the return of the Libyan oil to the market, will have to be more patient. In its latest weekly report, shipbroker Gibson said that “it remains to be seen whether on-going negotiations taking place in Libya about reopening two of the country’s largest oil export terminals will amount to anything other than a continued stalemate. Last month, Libya’s UN backed Tripoli government was reported to have signed a deal with armed factions controlling the major Ras Lanuf and Es Sider oil ports in an attempt to end the export blockade which has been in place since December 2014. These two ports have a combined export capacity of around 600,000 b/d which could significantly elevate Libya’s crude production from the mere 300,000 b/d in July. Two other major oil export terminals, Zawiya and Zuetina also remain closed”.
According to Gibson’s analysis, “five years ago, before the ousting of the Gaddafi regime, Libya was producing 1.6 million b/d, which provided steady support for the cross Mediterranean Aframax market. The deal to reopen Ras Lanuf and Es Sider was reported to have been signed in early July between the National Oil Corporation (NOC) and the Petroleum Facilities Guard (PFG), set up by the rival Eastern Government. According to NOC, the plan is to quadruple (from what level?) the country’s oil exports by the end of the year, although so far there has been no sign of any increased liftings at any of these ports. Details of the actual deal are very sketchy, but the UN backed Government of National Accord are reported have said that the deal included an “unspecified amount for PFG salaries” and the NOC Chairman Mustafa Sanalla has complained about rewarding groups that have the ability to shut down these ports. According to Sanalla in a telephone interview with Reuters, the NOC must work within the framework of Libyan law, particularly when related to the payments. He was also reported to have complained that the NOC lacked funds for its own operating budget”.
Gibson added that “clearly there remains a lack of trust of the PFG. Sanalla cited previous broken promises and facilitation payments which have failed to improve oil exports. The Eastern Government has been accused several times about selling oil outside of the official structure. In April a cargo of approx. 650,000 barrels of crude was loaded at the east Libyan port of Marsa el-Hariga but deemed illegal by NOC calling for international forces to seize the cargo. The tanker was subsequently forced to return to Zawiya to discharge its cargo. Sanalla is also reported to have said that Libya’s crude oil production was now around 200,000 b/d (August) of which about half is sent to the local refineries. NOC was also said to be holding talks with local groups and national oil companies to restart other closed oilfields, such as El Sharara and El Feel, which combined could add another 450,000 b/d. In February the international community welcomed the creation of the Libyan National Accord Government which was expected to stabilize the country’s security situation as well as rejuvenate the nation’s ailing economy which is so reliant on oil revenues. The new government has still to receive a vote of confidence from all the Libyan factions, including the Eastern Government. So clearly, despite all the attempts to unify the different factions, the nation appears to be as divided as ever and we are unlikely see any substantial increase in crude exports anytime soon”, Gibson concluded.
Meanwhile, in the crude tanker markets this week, in the Middle East, Gibson noted that it was “a measured start to the September program for VLCCs which was just sufficient to allow the top end of the rate range to be slightly raised into the low ws 40’s East, but majority fixing remained at an average ws 37.5 with little better than ws 25 payable to the West. With availability remaining easily adequate, Owners will be looking towards momentum to engineer any further gain, but Charterers will have to be harder persuaded to comply. Suezmaxes had better numbers in their sights due to a heavier Basrah schedule though overall failed to make any noticeable upward move but rates did gain a little to ws 47.5 to the East and into the low ws 30’s West. Aframaxes only managed to hold at last week’s lows of 80,000 by ws 75 to Singapore on only slim cargo opportunities, and easy tonnage lists and it’s hard to see any fundamental change for next week”, the shipbroker concluded.
VLCC cargoes from the US could be on the rise (22/08)
In a clear indication of the current lackluster picture of the VLCC freight market, cargoes booked from the US, not the most commercially inticing, could soon be on the rise. In a recent note, shipbroker Alibra Shipping noted that “VLCCs fixed to carry crude from the US are few and far between – not least because the government only permitted the commercial export of American crude in December. Then, of course, there’s the US’s lack of load ports able to handle VLCCs. Nevertheless, this year has seen a regular sort of trade developing, with a VLCC from the VL8 Pool fixed in the spot market around once every two months for the US Gulf to Singapore run. Interestingly, this month alone has seen two such VLCC fixtures! This past week, Gener8 Maritime’s VLCC GenMar Zeus (318,300 dwt, built 2010) has been reported fixed on subs in the spot market for a voyage from the US Gulf to Singapore for ST Shipping, laycan Sept 8-10. The rate was not reported. On August 9, Navios Maritime Acquisition’s Nave Electron (305,200 dwt, built 2002) was reported fully fixed to ST Shipping for a voyage from the US Gulf to Singapore for a lump sum rate of $2.75m, laycan August 27-31. Previous to these fixtures, the last time any VLCC was fixed ex-US Gulf was IN June for ST Shipping (again), which fixed Gener8 Success (320,000 dwt, built 2010) for a voyage to Singapore, loading July 25-30. The lump sum was reportedly $3.75m”, said Alibra.
According to Alibra, “cheap freight rates and a generally weak VLCC market are a big factor in these notable fixtures from the US. The lump sum paid for Nave Electron this month pales in comparison to a failed deal reported in early March, for which $4.85m had been mooted for the US Gulf-Singapore voyage. VLCC voyages from West Africa haven’t been quite as numerous as they have been in previous months, so it looks as though the US is stepping into the breach – especially while the arbitrage with Brent stays open. Consultancy firm Energy Aspects expects exports of US crude to increase in coming weeks, as outages in West Africa squeeze supply and props up demand. Over 10m bbl of oil is rumoured to be “leaving the US over the course of the next month or so – most of which is pointed towards the Med and Northwest Europe,” according to research by Energy Aspects. Two Suezmaxes have been reported fixed this week for a US Gulf-UK/Med trip. The price differential between Brent and WTI crude has also widened this week, and traders are seizing arbitrage opportunities. WTI is currently trading at $48.21/bbl, while Brent is trading 5.45% higher at $50.81/bbl. On Tuesday, the differential was as wide as $2.50/bbl over US crude futures, the most since late February”, the shipbroker concluded.
Meanwhile, in the VLCC market this week, shipbroker Charles R. Weber said that “the Middle East VLCC market observed modest gains this week with the AG‐CHINA route adding 7.5 points through Wednesday to a high of ws42.5 before paring back gains late in the week to conclude at ws40. The gains came despite a slowing of demand; the week observed 20 Middle East fixtures, representing a 29% w/w decline. Elsewhere, the West Africa market was also slower, with a 33% w/w decline to four fixtures. In isolation, the South America/Caribbean/USG market was markedly more active with fixtures jumping to nine from just two last week. The activity there, however, came after CBS‐SPORE rates posted fresh losses, dropping $200k to a seven‐year low of just $2.60m on a widening regional supply/demand imbalance with participants noting last week’s US‐bound fixture tally at an 11‐month high”.
CR Weber added that “despite the widely‐noted ton‐miles generated by stronger recent AG‐USG demand (which has jumped 35% y/y as US crude production declines and liberalized exports have narrowed differentials between US and international crude grades), ton‐miles have remained pressurized by losses from the West Africa market. That region has seen voyages to points in the East drop 12% y/y. Neither development is productive for rate and earnings development, in our view, against the new paradigm of VLCC supply/demand fundamentals which have prevailed in recent years. The market today is heavily driven by the geographic distribution of voyage origination – with the West Africa market competing for the same Asian return ballasters as the Middle East and AG‐USG voyages trading, largely, on the basis of triangulated economics rather than the implied round‐trip TCE of agreed rates. During 2015, the geographic distribution continued widening while the number of AG‐USG voyages were balanced (or often below) those for onward trades from Americas to the Asia. As the number of USG arrivals has now exceeded demand for onward regional voyages, we have observed units ballasting to West Africa, where demand has been hit by forces majeures and compounding reduced West Africa draws on Middle East positions, creating higher availability there. Evidencing this, we note that YTD ton‐mile demand generation is off by just 1.1%, fleet growth has clocked in at 7% since the start of 2015 but earnings are off by 22% YTD y/y (with August poised to observe a 46% y/y earnings decline. As we have noted in the past, ton‐miles adjusted to account for geographical distribution of voyage origination are a better way of analyzing the market’s demand position and our proprietary model shows that on this basis demand declined by 9% y/y during Q2 (the adjusted demand figure was 14% greater than traditional ton‐miles, which compares with adjusted ton‐miles during 2Q15 standing 19% above traditional ton‐miles). During 2013, adjusted ton‐ miles were actually below traditional ton‐miles, largely due to the efficiency of triangulated trades which represented a larger portion of the overall market”.
The shipbroker remained optimistic that Nigeria’s security situation owe to teething problems associated with the start of President Buhari’s term in 2015 (which ended eleven years of executive control by the country’s PDP party) and as such will resolve in the coming months given the urgency of resolution (at least sufficiently to strongly reduce the volume of exports under force majeure). Though VLCC loadings in the region are more heavily associated with Angolan cargoes, the impact of Nigeria’s output losses have reduced interest in West African grades by boosting their price against Brent and Dubai benchmarks.
According to CR Weber, “in the near‐term, some supportive prospects are evident in the September Basrah program, which shows a 9% m/m increase in VLCC cargoes (once likely co‐loads are accounted for) with the bulk of cargoes centered on the month’s final decade. Additionally, recent comments by Saudi Arabia’s oil minister pointing to strong demand for Saudi crude and JODI data showing record production during July of 10.67 Mnb/d imply a likely sustaining of export strength through at least the near‐ term. Corresponding rate strength could materialize once charterers progress into October dates when the stronger end‐September program – and the potential for strong draws to service West Africa cargoes to simultaneously rise – could yield a tighter supply/demand position that that which presently prevails. Twenty September fixtures have been covered to date, leaving a further 23 likely uncovered for loading through September 10th. Against this, there are 40 units available for loading during the same space of time, implying a surplus of 15 units, which compares with 20 surplus units observed at the close of the of the August program”, the shipbroker concluded.
Falling oil prices don’t bode well for tanker owners this time around says shipbroker (29/07)
The tanker market is once again at a crossroad, as the latest surge of oil supply, seems to be taking its toll. In its latest weekly report, shipbroker Allied Shipbroking noted that “a shock was noted in the oil markets this week as the price of crude oil hit a near two month low. The increasing fears from the over swollen stockpiles that have amassed over the past one and half years and the boosted operations from U.S. producers with continued increases in drilling operations has made for a sour sentiment to hit global traders. At the same time many are now fearing the ease in demand levels that is expected to be seen over the next couple of weeks as refineries in the U.S. take on their seasonal maintenance schedules”.
According to Mr. George Lazaridis Head of Market Research & Asset Valuations with Allie Shipbroking, “this has also been widely reflected in the crude oil tanker freight rates over recent weeks, with inquiries keeping at a comparably low rate and leaving tonnage lists to amass in most of the main trading regions. We are looking to be on the edge of another downturn in the price of crude oil as supply glut hits the market once more, though unlike the last supply glut which hit the market, dropped prices and boosted trade, things are now looking to be a bit more bleak”.
According to Allied’s analyst, “demand is not in a state to drive further consumption even under the boost of price cuts. Several refined products are currently trading at fairly unfavorable terms, with margins for main products such as crude having been marginalized even in growth areas such as the Far East. This means that not only are we expecting to see a drop in refiners’ thirst for crude oil during the next one-two months, but we are also unable to see any further boost from further strategic stockpiling as we are already looking to be maxed out globally in this regard”.
Lazaridis added that “it doesn’t seem as though OPEC has made any significant cuts in production levels either, with June showing an increase of around 0.7% a day. Taking this in combination with further production increases expected to be noted out of Iran and Russian output now looking to climb considerably in the medium-term, it seems as though the supply glut will remain. As things stand now, it looks as though we will be seeing an average price of crude fairly below the expectations that many had set in the start of the year. This last point is not necessarily something bad for those transporting crude around the world, as the lower prices should in theory keep demand levels buoyant”.
Allied went on to mention that “there is however a greater issue brewing under the surface, as the difficulties faced by refineries could likely lead to further hampering of demand and consumption in the short-term. Demand from consumers seems to have also reached a peak and it looks ever more difficult that we will see a considerable rise in demand for every dollar drop in price that is noted in the price of crude oil. This means that we have reached a barrier in demand levels that will be difficult to break through. The only way around this in the short-term will be for crude oil producers to cut back levels, but even in such a case this should do little to bolster transported volumes and will more likely go towards serving their earnings. It seems as though we have started to face the underlining issues in terms of market fundamentals for the tanker market. As things stand now demand growth is pegged at a steady rate and it looks as though it is refusing to nudge to any higher rate. This has been something that has been wildly expected over the past years, as the energy efficiencies that have been achieved in the past are now hampering the elasticity of demand amongst consumers globally”, Lazaridis concluded.
Global oil glut to shape tanker demand in the coming months (28/07)
Everything seems to revolve around the glut in the oil market, when it comes to shaping future tanker demand. In its latest note, Cotzias Intermodal Shipping said that global oil supply is expected to remain higher than global consumption in 2016, keeping oil prices at relatively low levels this summer compared with previous years. According to the shipbroker, “oversupply and growing economic headwinds are weighing down heavily on oil worldwide. According to the U.S. Energy Information Administration (EIA), Brent crude oil prices are forecast to average $35/b in summer 2016, $21/b lower than last summer. The monthly average spot price of Brent crude oil increased by $2/b in June to $48/b, which was actually the highest monthly average for Brent since October 2015. This was the fifth consecutive increase in the monthly average Brent price, the longest such stretch since May through September 2013”, said Cotzias Intermodal Shipping Inc.
Meanwhile, in the US, the shipbroker said that “commercial crude oil weekly inventories have increased by more than 71 million barrels (15%) since the end of September 2015, pushing crude oil storage capacity utilization to a near record high according to EIA. The large increase in crude oil storage capacity in the States between September 2015 and March 2016 was prompted by increased demand for crude oil storage as global supply has outpaced global demand for most of the past two years”.
According to Christopher Whitty, Commercial Manager – Towage & Port Agency with Cotzias Intermodal Shipping Inc., “in S.E. Asia, predominantly Singapore and Malaysia, the volumes of oil stored at sea also appear to have increased significantly. There is still a large fleet of VLCCs off Singapore anchored in nearby areas for storage use. There is a major concern that there is still a considerable quantity of physical crude oil stored in the area especially during the last few months. This is actually the fourth time during the last three decades, that we have a major crash in oil prices. OPEC countries today, refuse to actually cut back or agree to limit production in order to boost prices. In the past, that tactic was a good solution but today OPEC is facing its own challenges. For Saudi Arabia and the remaining Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar and United Arab Emirates), which together account for around 40% of the world’s oil reserves and the lion’s share of OPEC’s collective output, their future oil strategy should be an exclusively GCC affair, away from the stress and dysfunction of OPEC. We see huge developments and the continued existence of OPEC being in peril”.
The shipbroker noted that “the conflict within the OPEC group over a coordinated cut in output has led to intense international pressure on Saudi Arabia. The meeting of oil producers in Doha in April basically led to more claims of Saudi Arabia’s intolerance, despite the fact that Saudi Arabia has the largest excess oil capacity in the world by an enormous degree. We have, in fact, passed the point where OPEC’s key member Saudi Arabia can any longer dictate oil prices. Saudi Arabia might have hinged on the respect it received from OPEC members, which gave it control over OPEC outputs and de-facto control of 40% of world oil output, way more than its share. That status quo guaranteed a steady oil supply which, in turn, fueled economic exchanges and progress during the last half-century with an unprecedented increase in prosperity worldwide. We are now transitioning to a time where open trading on world markets has more impact on oil prices than the attempts of OPEC to establish artificial restricted supply”, Mr. Whitty concluded.
Tanker Market: Edible oil freight market remains under pressure (21/07)
The freight market for edible oils hasn’t been able to replicate the success of 2015 so far. In its latest weekly report, shipbroker Intermodal said that “the edible oil markets across the globe remain under pressure on the back of lackluster demand. Some of the main factors causing the low activity are seasonality, increased stocks and wet and dry weather conditions in the west and east respectively. While S. America activity has already been ‘’hit’’ by the summer seasonal cool-off, effects of El Nino are still evident on the palm oil exports from SE Asia. Needless to say that the impact of this has resulted in long lists of ships available and has pushed freight rates down to new lows. In the meantime, the CPP market in both the Atlantic and the Pacific has not provided support to Owners looking to escape the dull palm and vegetable oil market and has further extended their feeling of uncertainty”.
According to Intermodal’s Stelios Kollintzas, Tanker Chartering – Specialized Products Desk, “against owners’ expectations, the traditional increase of demand before and after the Ramadan has failed to materialize this year. India and Pakistan, the main demand sources, have been very slow, while Europe and China have also been weak. However, the Middle East and Red Sea markets have experienced healthier activity, still not enough to absorb the ample tonnage around though. Palm oil shipments have been 8.5% lower in June compared to May, forcing a number of owners to heavily compete for each cargo that becomes available in the market. Hire rates during the past month for the usual long haul MR TC Trip to Med-Continent-USA bss delivery at charterer’s preferred load port, have dropped from $16,500 to $15,000 per day at the time of writing, the lowest fixing levels in a long time. As far as the regional SE Asia market is concerned, there has been a slight increase of cargoes quoted as charterers look to replenish their stocks, but overall the market is still far from achieving a balance”, Kollintzas said.
Intermodal’s analyst added that “after many months of a rather firm market, freight rates on the edible trade lanes from S. America have softened. Having been the strong leg on the triangulation trade for the dedicated on the edible oil market Owners, it has finally followed the rest of the routes on the downside. This is mainly the result of a sharp decrease in Indian demand, which has been traditionally the main destination of vegetable oils from S. America. However, the recent boost of CPP imports into Argentina has led many ships in the area, building as a result a long tonnage list and causing great supply/demand imbalance. On the other hand, there are serious delays on discharging those ships, which causes increased concern to Owners and Charterers that aim to get ships with firm itineraries. With ample tonnage available we do not expect MR veg oil freight rates to firm over the next few weeks. In fact, it is possible that they will soften further. At the moment, the rate for 40k mtons of cargo to India is about USD 36-38 pmt bss 2/2”, he noted.
Kollintzas went on to note that “the outlook for the Black Sea/Med market is not very different compared to the previous months. Once again, activity is low and it is mostly small parcels that move around. However, there is better luck for FOSFA accepted vessels which are still in demand and able to negotiate better numbers. Despite the slow market, rates have been stable with the usual route to India on 12,000 tons fixing around $ mid/high 50s pmt bss 1/2. As the summer months roll on, signs of recovery to 2015 levels remain scarce. More likely, palm oil exports/freight rates to India will remain slow until the next festive season of Diwali in October, as for rates ex-S. America things are more complicated, with Atlantic basket CPP fundamentals most likely being the key factor behind the performance of the market there”, he concluded.
Newbuilding ordering spree a thing of the past, as Greek owner places VLCC order (20/07)
In the not so distant past, the news that a Greek owner placed an order for a couple of VLCCs would hardly make the news headlines, at least in high visibility places, as these orders were reported, almost on a daily basis. These days though, it’s a rare incidence, which makes it even more newsworthy. As such, in yet another scarce week in terms of newbuilding activity, the most prominent news was that of Greece’s Almi Maritime, which placed an order for 2 VLCCs at Hyundai Heavy Industries, at a price around $85.5 million each, with delivery scheduled towards the end of 2017.
In its latest weekly report, Allied Shipbroking said that “although the order is of note, the limited volume of new orders being placed is not what one would have imagined given the considerable decrease in prices over the past 2-3 months. Shipbuilders are still pulling on their efforts to squeeze what they can from the current market, though to date very little of this seems to have generated the desired effect. Having said that, things might slowly be moving into their favor, as the recent hikes in Dry Bulk secondhand assets might be shifting the balance and could eventually help close the gap to the extent were a newbuilding order could make sense once more. This however is quite hopeful thinking from the side of shipbuilders as there will still be the poor market sentiment for market prospects in the medium term which should keep things under pressure for some time”, said the shipbroker.
Meanwhile, in another newbuilding report, Clarkson Platou Hellas said that it was “a quiet week in the Newbuilding market with only one order to report. In the container market, Nippon Yusen Kaisha (NYK) Line are reported to have placed an order at compatriot shipyard Japan Maritime United Corporation (JMU) by declaring an option for five 14,000 TEU Container Carriers. It is understood that the deliveries for these five vessels are set throughout 2018 and 2019 from JMU’s Kure facilities. The Japanese liner company already had ten vessels on order at Kure, with two already having been delivered earlier this year”.
In a separate note on the S&P market this week, ships’ valuations company VesselsValue noted that “as the shipping market rolls into summer, activity across all sectors has started to slow down. Tanker sales are down, as are rates meaning there has been little movement in values. Great Eastern have acquired a NYK MR2, the Challenge Prospect (48,700 DWT, 2005 Blt, Iwagi Zosen) bought for USD 13.5m. Also sold in the tanker sector is the small chemical tanker, MTM Westport (20,000 DWT, 2000 BLT, Shin Kurushima Hashihama). The MT Maritime vessel was done at USD 13.8 million”.
It added that “bulker rates continue to rally this week; values, however, are predominantly stable. Capesize values have experienced an uptick in mid-2000 built tonnage due to positive market sentiment. KC Maritime has sold two resale ultramaxes, the Darya Rani and the Darya Maya (64,000 DWT, 2016 BLT, Huangpu) for USD 16.9m each. Another Ultramax resale (64,000 DWT, 2017 BLT, Yangfan Zhoushan) was also done this week by D’Amico at USD 16.5m. Malaysian Bulk Carriers have sold their oldest Supramax, the Alam Murni (53,600 DWT 2003 BLT, Iwagi Zosen) for USD 4.9m. The second supramax done this week was the Maple Grove (53,500 DWT, 2006 BLT, Imabari). Shoei Kisen sold the ship to United Shipping Lines for USD 7.8m with the special survey due later this year. Daiichi Chuo have offloaded the 2012 Handy, Ocean Crystal (37,200 DWT, Saiki) in an internal deal priced at USD 13m. Also confirmed sold is the CS Salina (32,400 DWT, 2004 BLT, Kanda). Campbell shipping sold the vessel for USD 4.85m. The vessel was the oldest in the Campbell fleet and its departure significantly lowers their age profile. Container values are stable this week with very little movement in rates and no sales to report”, VV concluded.
On a separate note, Allied Shipbroking said that “on the dry bulk side, there was a considerable increase on the Supramax/Ultramax size range this past week with a large enbloc deal having been made by Tufton Oceanic, while there was also a series of Ultramaxes changing hands at relatively competitive levels. Despite being a fairly firm week in terms of activity, there may well be a sense that price hikes may have stalled, something that would be reflecting the sentiment amongst most buyers in the market that prices may have outpaced what the market can support at this given time. On the tanker side, activity was slightly slower then the average being noted in the year so far and keeping with this slower pace prices are still under further pressure. This could mean that we are still expecting further price discounts to be seen over the coming weeks especially given the fact that there is still minimal support from rates”.
Meanwhile, in the demolition market this week, Allied said that “despite in theory the Bangladesh and Pakistan markets having been brought back into action now, limited of this was to be seen in the real market, with minimal activity having been reported again this month. There were rumors that prices were on the rise, however little evidence of this was to be seen in actual transactions concluded. It seems as though things have been on a slow start for the time being from the side of end buyers, with many seemingly waiting to get some sense of clear market direction before making any haste moves. Things should start to get back on track over the next couple of days and with minimal demo candidates being thrown into the market right now (especially for dry bulk tonnage) it seems as though the market could find a fair footing from which to keep things buoyant in terms of offered prices. On the other hand, appetite amongst breakers seems to still be lacking and as such it might take a little bit longer before we see the market take a positive upward direction”, Allied concluded.
Ship owners of LR1 dirty tankers could soon make the switch to clean trading (19/07)
New trading partners are always emerging in the shifting world of the tanker market these days. Yet another one seems to have emerged over the course of the past few months, as more and more owners of dirty LR1 product tankers, could be making the move to clean products, sooner rather than later. In its latest weekly report, shipbroker Charles R. Weber said that “until recently, LR1 tankers had counted on a positive future in the product tanker markets they were constructed to serve – even if the prevailing earnings differential between Panamax and LR1 markets had seen a significant share of the LR1 fleet trading dirty cargoes. The starting up of a number of large, export‐oriented refineries in the Middle East – with Europe’s then‐coveted diesel market in their sights and building upon demand gains accompanying the earlier surge in product exports from India – was poised to offer significant fresh product tanker demand to make product trades decidedly more lucrative”, the shipbroker said.
According to CR Weber, “for a time, it seemed that all was going according to plan with each new Middle East refinery start accompanied by a substantial boosting of LR1 earnings. However, during 4Q15, LR1 earnings dipped while Panamax earnings surged – and since the start of the year both markets have been in a similar directional decline. Amid the uncertainty of both markets, the distribution of preexisting LR1 tonnage between clean and dirty markets has remained the same since a year ago. Though some units switched from dirty to clean trades and vice versa, the number in each instance was the same – and small: a total of six units cleaned up to trade in clean markets and six units trading clean dirtied up. During the preceding year, switches to dirty outweighed those to clean by seven to five, in line with stronger Panamax earnings. Presently, 38% of LR1s are trading in the dirty market, which compares with 39% a year ago.
Of the eleven newly built LR1 units which have delivered over the past year, however, ten have traded in the clean market while the remaining unit is believed to be shuttling crude between Brazil’s offshore Campos basin fields and shore”.
The shipbroker added that “in addition to trading fuel oil and other dirty refined petroleum products, Panamaxes benefit from a small number of isolated crude markets where port restrictions and production volumes favor the class’ relatively small size. However, with such crude flows fairly steady and largely opaque, Panamax earnings are heavily influenced by fuel oil trades. And as with most refined product markets, fuel oil inventories have been overbuilt by both a global surplus of refining capacity and excessive runs due to elevated margins during 2015. Thus, the same absence of clear arbitrage opportunities which have adversely impacted product tanker markets this year has also gripped the fuel oil market – and softer tanker rates have thus extended to both the clean and dirty spaces. Panamax earnings have taken a particular blow in the Atlantic basin with TCEs in the Caribbean market now in negative territory. However, with LR1s presently earnings nearly double those of Panamaxes, an increasing number of owners of dirty LR1s appear to be considering now an ideal time to make the switch to clean”, CR Weber concluded.
Meanwhile, in the crude tanker markets this week, the shipbroker noted that “VLCC rates were mostly unchanged this week with positive pressure resulting from recent demand gains in the Middle East and West Africa markets countered by surplus July positions at a two‐year high and a slowing of chartering activity coinciding with the progression from into August dates. Moreover, recent West Africa demand strength, while positive for ton‐mile development, is having less of an immediate impact given that units sourced for the region’s cargoes are less concertedly from the Middle East than is normally the case. Instead, a number of West Africa cargoes have been fixed on units ballasting from the Caribbean market, where a slowing of cargoes from Venezuela has created a wide supply/demand imbalance (three of this week’s seven regional fixtures were on Atlantic basin positions, rather than Middle East positions)”.
CR Weber added that “we note that 22 Middle East positions were uncovered at the conclusion of the July program – the most since September 2014 and seven more than the conclusion of the June program. As the market progresses into August dates, the surplus looks set to ease, but not likely by a sufficient number to support rates. We count 51 units available through the end of August’s first decade, while 12 fixtures have materialized thus far leaving a likely 28 remaining. Once factoring for likely West Africa draws, the implied surplus is 18 units. This week’s IEA report noted that refinery utilization rates were lower during Q2 than previously expected but will likely surge during Q3. Against recent ton‐mile gains in‐line with stronger WAF‐FEAST flows, this could set the market for fresh upside later during the quarter but in the interim rates will likely stagnate. The market is presently observing the development of two tiers comprised of 69 competitive/modern units and disadvantaged/older ones”, the shipbroker concluded.
Tanker segment attracting newbuilding orders (13/07)
Activity in the newbuilding market for tankers has started to pick up over the course of the past week. According to shipbrokers’ reports, low prices are attracting some owners into contracting more vessels. In its latest weekly market report, shipbroker Allied Shipbroking said that “there was a slight pickup in interest this week on the tanker sectors, with a small amount of orders emerging. This is likely driven by the good discounts on offer by most of the shipbuilders which have driven down their price offerings considerably over the past couple of weeks. It does seem however that given the state of the market (even that of tankers who have seen their earnings shrink over the course of the past couple of months) it is still proving to be a difficult sale to any potential buyers. At the same time the huge uncertainty that overhangs the markets with regards to potential prospects over the course of the next two years makes the decision of placing a new order a fairly difficult one to make and as such it will likely take a considerable amount of discounts on top of the current ones seen in order to drive activity further in this market. At the same time the secondhand market still heavily competes in this regard and contending heavily in the minds of owners with a capacity to expand their fleet at this given time frame”.
In a separate newbuilding report, Clarkson Platou Hellas said that “in tankers, Kawasaki Kisen Kaisha Ltd (K-Line) have announced placing an order for two firm 311,360 DWT VLCCs at NACKS and one firm 310,300 DWT VLCC at Namura Shipbuilding. The two vessels from NACKS are set to be delivered throughout 2017 and 2018, and the single vessel from Namura Shipbuilding will be delivered in 2018. K-Line have also ordered two firm 113,000 DWT Aframax Tankers at Sasebo H.I. in Japan. The duo will deliver throughout 2018 and 2019. Jinhai Heavy has received an order for four firm plus four optional 300,000 DWT VLCCs from Hainan Airlines Group for delivery in 2018 for the firm units. In Dry, there is one order to report. Hyundai Mipo Dockyard have signed a contract with compatriot owner Il Shin Shipping for one 50,000 DWT Bulker. This unit will be built to be LNG fuelled and will deliver in the end of 2017 from Ulsan, Korea. Whilst there are no orders to report in the container market, there is one in other sectors, with Honda Zosen K.K reported to have received an order from Mitsui O.S.K. Kimkai for three firm 17,500 DWT MPPs. The three vessels are set for delivery throughout 2017 and 2018 and will be fitted with 2 sets of 75 tone cranes each”.
Meanwhile, in the market for second hand vessels, Allied said that “on the dry bulk side, there was a good flow of new deals emerging this week, with reported prices still showing a slightly bullish face and supporting the recent uptrend noted in prices. There is a sense that the pace of new price hikes will be considerably slower then what was being noted in late May/early June. Certain segments continue to show more keen interest than others, with a prime example being the modern Kamasarmaxes which have shown some of the fastest paced price hikes over the past three months. On the tanker side, there was limited activity being noted, with these most recent deals reflecting a trend of further price drops. It seems as though buyer sentiment has softened considerably, with most in the market now looking to compete only at a gross discount to what they had been seeing earlier in the year”.
Finally, in the demolition market, Allied noted that “minimum scrapping activity being noted this past week, with the Eid holidays taking out of action a number of end buyers and as such with so much lower competition abound prices noted a good drop over the final days of the week. Sellers too have now retracted some of their units feeling that the market is slightly softer, something which may possible helps balance things out over the coming days and keep price levels steady from here on. Being at a point where freight rates have improved on the dry bulk market, this may well be vital in keeping the demolition market buoyant in terms of price levels, as interest amongst demo buyers is expected to remain subdued during the course of the remainder of July. There are however fears that if this slowdown in activity keeps up for too long, the balance in the freight market might shift if the fleet grows at an excessive rate, something that could possibly lead to lower freight rates in the 3rd and 4th quarters of the year once more”, the shipbroker concluded.
VLCC rates’ outlook flat, as smaller tankers expected to keep on suffering (11/07)
Looking for the VLCCs to find a direction in the week ahead, with a flat outlook at the moment. Smaller crude tankers continue to take a beating with little relief in sight. Atlantic basin triangulated returns have fallen below $10k/day, which is sure to place downwards pressure on term charter rates.
In the Arab-Gulf dirty market, “rates trended sideways through most of the week. The cargo volume moved over the past three months is similar to the volumes lifted during the same period last year, but the supply of additional tonnage and decreased activity in west Africa were weighing on rates. Next week should see the start of August dates and the cargo volume will set the direction going forward. The economics of short term floating storage are looking better, and if this continues to develop it could bring an otherwise pessimistic outlook back into bullish territory”.
In the Altantic Basin Dirty Market, the shipbroker noted that there was “little immediate cause for optimism in Atlantic Basin at the moment. VLCC rates continue to hover around the mid $3 mn lumpsum range, treading water in line with the overall market. Suezmaxes trended downwards as the supply of ships continues to remain high amid ongoing production outages in west Africa. Aframaxes remain under pressure as well with ample tonnage for the cargo volumes. Some ships are ballasting away to Europe, which could help with the supply of tonnage should activity increase. Panamaxes are suffering from the same malaise. Returns appear to be below OPEX levels for Aframaxes and Panamaxes on the benchmark runs”.
Meanwhile, in the Atlantic Basin Clean Market, “a slight tick upwards in Atlantic Basin sentiment but the amount of tonnage available for the week ahead looks set to increase. Still very positive to see an increase in cargo volumes leaving the US. Supplies of gasoline in the US remain abnormally high, and the gasoline arbitrage trade from Europe to the US will likely be quiet. Several tankers are being held offshore in the US Gulf and Atlantic coasts. Distillate is reportedly moving from the AG and India to Europe, which will keep the US distillate arbitrage under pressure”, MJLF Research concluded.
Meanwhile, in a recent note, shipbroker Poten & Partners commented on the leading charterers of the tanker market, after the cross of the mid-year mark. According to Poten’s data, no major changes can be spotted, as the top seven charterers are exactly the same as last year. “Unipec is still on top and even expanded its lead slightly (from 13.4% of the total in 2015 to 13.8% in 2016 YTD). Not surprisingly, the leading charterers hail from China (Unipec, Petrochina), India (IOC, Reliance), complemented by the super-majors and the leading traders. As a reminder, these rankings are all based on reported spot fixtures. In the VLCC segment, Unipec continues to be the dominant spot charterer with 258 reported fixtures, equivalent to the volume of the next five largest combined! Bahri remains a significant player in the VLCC market and its listing as No. 4 in the ranking of reported spot market fixtures is not a correct reflection of their real influence in the large vessel segment”, Poten said.
Similarly, “in the Suezmax segment the traditional oil majors still rule, with all the majors that are remaining of the original “Seven Sisters” (Chevron, Shell, BP and ExxonMobil) represented in the top 10. Chevron continues to lead the pack, followed by Repsol (2nd) and Unipec (3rd). International oil traders are the best represented in the Aframax segment. Vitol maintains the lead, while 2nd placed ST Shipping has moved up the ranks (up from 5th in 2015). Trafigura also improved their position relative to last year (from 9th to 6th). These rankings serve as a reminder for tanker owners that, despite all the changes in the world’s economic and political landscape, changes in the oil market take time and long-term trends remain in place. No surprises here”, Poten concluded in its weekly report.
Product tankers could actually benefit from Brexit (05/07)
Notwithstanding the given aftermath of the Brexit vote and the geopolitical uncertainty which has prevailed during these first days, shipbrokers are looking for silver linings left and right. In one recent report, shipbroker Poten & Partners noted that, actually, product tankers could be among the segments which can benefit from the Brexit. According to Poten, the exit of the UK from the EU could have an impact on the tanker market, in terms of the movement of oil products between the two. Poten said that the exports from the UK to countries in the EU are slowly trending down, primarily as a result of the decline in crude oil production and exports.
Poten said that “in the first quarter of 2005, Great Britain exported 7.8 million tons of crude oil (equivalent to some 650,000 barrels per day) to other EU countries, representing 69% of total exports by volume. By the first quarter of 2016, crude oil exports were down to 5.1 million tons (422,000 barrels per day). Not only has the volume been reduced, the market share of crude oil Tankers Br(exit) Strategy has also shrank to 58%. Clean petroleum products, in particular gasoline and diesel, have gradually become a larger portion of UK exports”. According to the US-based shipbroker, in 2015, the UK sent about 66% of its crude oil and petroleum product exports to countries in the EU, with only 34% going to other countries. Looking at UK imports from the EU, the picture is different. “Since the UK does not import material volumes of crude oil from other EU countries, it is products (in particular middle distillates) that dominate the import picture. In Q1 of 2016, the UK imported 2.2 million tons (190,000 barrels per day) of middle distillates from the EU. This represented 62% of total petroleum imports from the EU. In 2015, the EU supplied 46% of the oil products imported into the UK. Given the short-haul nature of the UK – EU crude oil and product trades, any changes in trade-flows as a result of ‘Brexit’ could be positive for tonmile demand, in particular for product carriers”, Poten concluded.
Meanwhile, in a separate note, Allied’s Head of Market Research & Asset Valuations, Mr. George Lazaridis pointed out that “the potential fallout is significant. We have already witnessed a considerable rally in the U.S. Dollar, Japanese Yen and the price of gold. With the first two not taken as positive outcomes by the respective economies i.e. The U.S. and Japan, which are likely to be hurt by this in terms of their trade balance and in turn their competitiveness in the global markets. At the same time, there is less bullishness with regards to the major developing economies, with the Chinese economy being hit both in its stock market and its currency. The lower price of the Renminbi could possibly boost the competitiveness of their exports, but as a more immediate effect it will likely cause difficulties in terms of the importing of raw materials like iron ore, coal, grains and crude oil as their relative price increases considerably”.
Allied’s analyst added that “furthermore, given the fact that the focus of late within mainland China has been to source the next round of its economic growth from its own consumers, their purchasing power will be diminished by the inflationary pressure brought about by the hike in the prices of these main commodities. This however is a short term effect and should dissipate fairly quickly. The main thing that will remain is the likelihood of a further slowdown in the global economy and trade during the next two years, as the initial effects take on the first punch, later followed through by a lack in investment and consumer spending due to the once again increasing uncertainty, after which we will also see the third stage of the fallout be the actual dent caused in the two main economies involved (the U.K. and Europe) by the reversal of the open trade agreement currently held”.
According to Allied, “the effect of this last stage should spill over to the rest of the globe as the global multiplier of trade and economic growth takes a hit. It is obvious to point out here that all this depends on what happens next and being that the scenarios are multiple and a lot depends on the next decisions made by politicians, it is hard to see at this point which way things will swing. No matter which way the two parties choose to go politically and economically through their negotiations, the damage has been done and given the state of things, it looks as though we are in for a bumpy ride over the next couple of months while the ripples of the initial shock felt in the financial markets on the very day after the referendum, will soon come and hit the shores of shipping and global trade itself. The intense uncertainty and volatility will only amplify that which has already been seen in shipping markets up until today and will likely bring about a big series of further problems in terms of the balance between supply and demand”, Lazaridis concluded.
Tanker fleet growth erupts, as 203 ships have been added to the global fleet over the past 12 months (04/07)
Newbuilding orders for tankers have started to hit the water in growing numbers, leading to a rapid expansion of the global tanker fleet. In its latest mid-year report, shipbroker Gibson said that the global tanker fleet has grown by another 203 units, amounting to 21.9 million dwt, over the course of the past 12 months. In its report, Gibson noted that “this follows a period of very limited fleet growth (across all but the MR sector) following a period of reasonable demolition activity at firmer lightweight prices prior to 2015. Of course the strength of the tanker market during the low oil price regime has meant that owners have had little need to even think about scrapping as bunker prices headed south improving their margins still further”.
According to Gibson, “eco-ships no longer held any significant advantage as legislation on environmental issues continued to keep its distance resulting in demolition numbers falling to a mere 34 tankers (2.5 million dwt) over the past twelve months. Of the 366 tanker orders placed last year, 218 were contracted in the 2nd half of the year, although many were placed to circumvent the higher costs associated with the new Tier III regulations which came into force 1 st January in the US”. The London-based shipbroker “newbuilding prices themselves had been slowly falling since June 2014 but had a small resurgence over the 4th quarter 2015. However, the appetite for new orders across all the tanker sectors has evaporated this year despite renewed falls in pricing and the mounting pressure on shipbuilders to fill their forward orderbook. Finance too appears to have ended its love affair with the shipping industry, mostly driven by the disastrous state of affairs in the dry cargo market, but also the high tanker orderbook and the spate of deliveries scheduled for 2016/17”.
Gibson added that “in the 1st half of this year 14 million tonnes dwt has already been delivered compared to the 17 million in the whole of 2015. Despite the strong earnings across most tanker sectors over the past two years, second-hand values have also come under downwards pressure since the turn of this year as freight rates began to decline. Looking at the political scene, this time last year we were talking about the return of Iran to the tanker market and in particular more crude being available for shipment. Despite the lifting of sanctions in January, Iran continues to find it difficult to get significant traction into the market, but it will only be a matter of time as the difficulties associated with trading with the nation subside. Iraqi production continues to rise, however there is a feeling that this may have peaked. The low oil price has limited investment in new infrastructure which could restrict further increases in production. More recently we have seen the disruptions to crude oil production in Nigeria which has impacted heavily on Suezmax earnings (Suezmaxes also represent the largest segment of the orderbook in percentage terms compared to the existing fleet). Last December the US lifted their ban on exporting crude. However, so far the impact of this action has been minimal particularly as US shale oil production is falling as a result of low oil prices”.
Meanwhile, “the situation in Libya remains unchanged from what we were reporting this time last year and appears to be a long way from any kind of resolution. Meanwhile crude production continues apace despite moves by several producers who in April failed to find a consensus of agreement to cut production in order to stimulate higher oil prices. The IEA in its latest report states that OPEC production 32.76 million b/d, has reached its highest level since August 2008. Cheaper feedstock led to a renaissance for the less efficient refiners, in some cases changing the threat of closure into a return to profit. However, a global products glut has hampered arbitrage opportunities pressuring product tanker earnings. On the crude side, floating oil storage, mostly out of operational necessity, continues to provide support to the VLCC sector and employment for fuel oil storage is increasing. So much has happened over the past twelve months which is difficult to précis into a single page. What is clear is that the 2nd half of the year will remain challenging particularly with such a heavy delivery profile scheduled. Earnings across most sectors started the year quite strongly although crude began to slump recently, while the products sector has experienced a tough six months. Of course the health of the tanker market remains very much in the hands of the producers and the decisions that they make regarding future production, However, we still need to keep a watchful eye on the orderbook and hope that new orders remain in check”, Gibson concluded.
VLCC second hand values plummet, but shipbroker sees silver lining (02/07)
Values for second hand VLCC vessels have taken a plunge over the course of the past few months. For instance a five year old VLCC tanker is now worth more than $14 million less than it was worth back in February. However, according to shipbroker Alibra Shipping, this may not be such a bad thing. According to Alibra, “the value of a five year old VLCC of 305,000 dwt was assessed on Monday at just over $65 million, according to Baltic Exchange data.
Alibra said that “this figure is $3.4m below the estimate made seven days previously. Indeed, VLCC asset values seem to have fallen off a cliff. On February 22, the Baltic estimated the benchmark VLCC’s value at $79.3m, and its value has slumped since then, with depreciation gathering pace from mid-May. Why? For answers, look at the secondhand market, some 12 VLCC deals have been completed since January 1, at an average value of $56m per vessel, research from Deutsche Bank says. This is 25% below last year’s average. On June 23, Teekay Corp reportedly sold its fiveyear-old Korean-built VLCC Shoshone Spirit (314,000 dwt) to Pantheon Tankers for $62m. Another VLCC of the same age and build – Hanjin Ras Tanura (318,000 dwt) – achieved $75m when sold by Hanjin to Bahri in late February. But Deutsche Bank said depressed asset values are a good thing for the VLCC market because they disincentivise new ordering. Indeed, there have been orders for just five firm VLCCs this year to date, compared to 39 in the same period last year (excluding options and cancellations). The current orderbook isn’t expected to have an impact on fleet utilisation until the first half of 2017, which the bank said the low net fleet growth in the interim could support an “elongated crude tanker upcycle, which has positive implications in the 2018/19 timeframe”, Alibra Shipping concluded.
Meanwhile, in the tanker freight market this week, Alibra commented that “the effect of the Brexit is still uncertain. Brent oil dropped to a 7-week low on Monday but the shock has since steadied with price standing at 48.39USD/bbl as of Wednesday. à Meanwhile the newly expanded Panama Canal is expected to ease US energy transport from the US East Coast towards Asia, says Fitch. à Tanker sector still in cold state whilst everyone is waiting for a signal to happen. Period VLCC rates are still moving downwards hovering at around $38,500/day this week”.
Moreover, as London-based shipbroker Gibson pointed out on the tanker market out, “in the 1st half of this year crude tanker demand benefited from a major increase in Iranian crude exports. In addition, floating storage continued to rise. At the end of May, the number of non-trading VLCCs (including tankers employed in storage of Iranian crude/condensate) reached 9.5% of the existing fleet. However, at the same time we are also starting to see stronger growth in tanker supply. The VLCC market has witnessed 20 new additions so far in 2016, the same as for the whole of 2015. Deliveries in the Suezmax segment have been more restricted, yet the Aframax fleet has seen the biggest growth, both in terms of new deliveries and “migrants” from the clean segment”.
In a separate report this week, Allied Shipbroking added on the S&P market this past week, that “on the tanker side, activity seemed slightly more alive possibly boosted by the softer price ideas now offered by sellers. This has been greatly reflected by most of the sales that emerged this week, all of which show some degree of price softening compared to the previous comparable sales that had been done in each respective size and age group”.
Tanker markets not at their best “form” as high tonnage availability is hurting rates (28/06)
Increased tonnage availability is hurting tanker freight markets across the board it seems. A typical example of this has been witnessed in the USG MR product tanker market this week, where, despite increased chartering activity, rates remained firmly in negative territory, which according to shipbroker Charles R. Weber, can be attributed to a slow start and the sustained presence of high availability rates. According to CR Weber, “a total of 33 fixtures were reported, representing a 6% w/w gain. Of the week’s tally, five fixtures were for voyages to Europe (‐3 w/w), 21 were to points in Latin America and the Caribbean (‐1 w/w) and the remainder were yet to be determined. Despite a further normalizing of labor relations in France’s refining and port sectors, arbitrage opportunities failed to materialize with the resulting declining pace of trans‐Atlantic voyages against steadier demand in European markets ushering fresh downside for ex‐USG rates. The USG‐UKC route gave back nearly all of the prior week’s gains and concluded down by 17.5 points to ws62.5. That reality quickly trickled to intraregional rates and the USG‐POZOS route was off by $75k to $325k lump sum, accordingly”, said CR Weber.
The shipbroker added that “record‐high gasoline demand in the US last week failed to inspire much upside in the UKC market, where rates on the UKC‐USAC route lost 12.5 points to conclude at ws110. AIS data this week showed a small number of units reported as fixed to deliver gasoline cargoes to the US East Coast diverted to alternative destinations within the Americas. PADD 1 (East Coast) gasoline stocks stand 15% above year‐ago levels while the four‐week moving average of US gasoline demand is just 4% above year‐ago levels, complicating the ability for the US’ east coast to absorb gasoline from Europe. While presenting a near‐ term negative due to the fact that units diverted from the USAC to the CBS are more likely to contribute to USG availability than had they freed on the USAC, these diversions could signal a healthier USG market going forward. Rising PADD 1 gasoline imports had formed a large economic basis for sustained European refining runs despite the resulting glut of middle distillates. This closed a large part of the export market for US and Middle East diesel, creating tonnage surpluses in CPP tanker markets. If economic run reductions accompany complications in pushing gasoline into the US, product tanker demand should benefit overall while the USG market should benefit from a greater number of voyages away from the region to the UKC and elsewhere”, CR Weber said.
Meanwhile, in the VLCC segment, “the market commenced with an extending of last week’s rate losses as limited demand was met with an excessive number of available positions – many of which were commercially disadvantaged due to age, recent dry docking or their status as new‐buildings. At midweek, however, chartering demand surged substantially and, once the bulk of the disadvantaged units were fixed, owners of the remaining more competitive units succeeded in pushing rates higher. The Middle East and West Africa markets ultimately yielded a combined total of 48 fixtures for the week, a 153% w/w gain and the most in eight months. Voyages to points in the Far East led the demand gains as charterers worked stronger cargo requirements as regional refineries move past high Q2 maintenance programs. Meanwhile, demand in the West Africa market rose to its highest level since January as purchases of Angolan crude rose on an earlier widening discount of key grades to Brent. The surge was largely concentrated around mid/late‐week and after touching a low of ws36.25 for a voyage from the Middle East to Korea on an ex‐dry dock unit, the AG‐FEAST route rebounded and ws47 had been achieved for a voyage to China”, said CR Weber.
According to the shipbroker, “given that the week’s demand has absorbed more tonnage than earlier expected and with the remaining list of available units now largely devoid of disadvantaged units, sentiment remains strong and could lead to further rate gains during the upcoming week as charterers move further into the Middle East July program’s second decade. We note that with 51 July fixtures covered thus far, a further 21 are likely to remain uncovered through the end of the month’s second decade. Against this, there are 35 units available through the same space of time from which West Africa draws are likely to total six, implying a surplus of eight units. This represents a considerable reduction from the 14 surplus units expected at the conclusion of the month’s first decade and matches the average end‐month surplus observed over the past 18 months”, CR Weber concluded.
Tanker supply “bites” VLCC market, as spot returns plunge to lowest levels in almost two years (27/06)
VLCC tanker owners had their own troubles over the course of the past week, as spot returns retreated to the lowest level since October 2014, with shipbrokers reporting TCE earnings for Middle East/Japan (TD3) falling close to $20,000/day. According to London-based shipbroker Gibson, “the current weakness has been essentially driven by the build-up of available tonnage, leaving charterers with healthy numbers to choose from. However, is this a temporary blip or are there more fundamental forces at play?”, Gibson asked.
In its latest weekly report, shipbroker Gibson attempts to answer this question, saying that “perhaps, the best way to understand the current situation would be to examine the main drivers of the VLCC market both last year and so far in 2016 to see what has changed. Back in 2015, the spectacular strength in all crude tanker markets (not just VLCCs) was underpinned by very limited growth in supply coupled with major gains in demand. Demand was supported by notable gains in Middle East crude exports and strong refining margins, which stimulated trade to existing and new markets, as well as commercial and strategic storage. At the same time, the overhang of crude oil production over demand not only “pushed” surplus barrels into floating storage but also resulted in sizable delays/inefficiencies in tanker transportation”.
Moreover, as Gibson points out, “in the 1st half of this year crude tanker demand benefited from a major increase in Iranian crude exports. In addition, floating storage continued to rise. At the end of May, the number of non-trading VLCCs (including tankers employed in storage of Iranian crude/condensate) reached 9.5% of the existing fleet. However, at the same time we are also starting to see stronger growth in tanker supply. The VLCC market has witnessed 20 new additions so far in 2016, the same as for the whole of 2015. Deliveries in the Suezmax segment have been more restricted, yet the Aframax fleet has seen the biggest growth, both in terms of new deliveries and “migrants” from the clean segment”.
Furthermore, “the Suezmax and Aframax markets have “underperformed” so far this year relative to VLCCs, capping the earnings’ potential for VLCCs. Crude oil production disruptions in Nigeria have caused the most damage to Suezmax demand, but long haul crude trade WAF/East has also somewhat eased. Finally, tight tanker supply/demand fundamentals back in 2015 enabled owners to take advantage of falling bunker prices; this year charterers are gaining an upper hand and rising bunker prices are gradually eroding owners’ profitability”, Gibson noted.
So, what should we expect in the second half of this year? According to the shipbroker, “the pace of deliveries is expected to accelerate. Between July and December 35 VLCCs are scheduled for delivery, although some slippage is anticipated, taking into consideration the turmoil in the shipbuilding industry. Furthermore, the market may see NITC tonnage starting to compete for spot VLCC cargoes in the latter stages of 2016. On the demand side, any further increases in crude exports out of the Middle East will be supportive to trading demand; however, at the moment the scope for further increases appears to be limited. This coupled with the anticipated strong seasonal increase in oil demand, continued decline in US shale and ongoing production outages in a number of countries around and the world suggest that oil markets are likely to move to much closer balance in the 2nd half of this year”.
Gibson went on to note that “although, inefficiencies in transportation and tanker storage are unlikely to disappear overnight; nonetheless, storage demand is expected to wane. All of the above indicate that VLCCs could face rough seas ahead. However, as with any forecast (including UK opinion polls), there is a degree of sensitivity. The actual decline in US crude production could be smaller than currently expected. The situation in Nigeria may improve, following the recent announcement of ceasefire with militants. Alternatively, Iran could beat market expectations once again and the country’s crude exports may register further strong gains. Any of these scenarios will help to maintain the overhang of crude production over demand, offering further support to forced and operational tanker storage and/or tanker trading demand. In addition, the presence of a mild contango structure in oil futures could at least provide a floor to short term VLCC rates. And last but certainly not the least is the prevailing owners’ sentiment, which can at any moment override any fundamental developments”, the shipbroker concluded.
Oil market rebalancing on the cards, could spell new reality for tanker markets (25/06)
The Saudis called it this week, while shipbrokers have long suspected it; an oil market rebalancing could be the new reality. In a recent weekly note, Poten & Partners referred at the EIA’s (US Energy Information Administration) analysis, which noted that “unplanned global oil supply disruptions reached 3.6 million barrels per day (mb/d) in May 2016, the highest level since they started tracking this in January 2011”.
According to Poten, “it is not difficult to identify the culprits; we have discussed a number of them in our recent tanker opinions: Canadian forest fires, production and transportation disruptions in Nigeria as well as continued problems in Libya have been some of the most high profile ones. As these disruptions have taken a bite out of global supply, oil demand keeps chugging along, helped by solid growth in most developing economies, in particular in Asia. Last week we discussed the rapid expansion of crude oil demand and imports by independent Chinese refiners, which have provided a boost to the tanker market, in particular the VLCCs. The combination of production outages and continued demand growth have pushed oil prices above $50/bbl, their highest level since the first half of last year”.
The shipbroker added that “this, in turn, may have brought the independent shale oil producers in the U.S. back to life. Last week, data showed an unexpected increase in active rigs in the U.S. and oil production rose by 10,000 b/d. A small increase, but nevertheless significant, because it follows a long period of steady declines in U.S. production. The question for tanker owners is: are we at the beginning of the long-awaited market correction or is this just a combination of random factors that does not indicate a new trend? While the problems in Canada are weather related and the production outages have already started to subside, most of the other supply disruptions are due to political disputes or conflicts and are expected to last longer”.
According to Poten, “in terms of world crude oil production, the Canadian wildfires have had the biggest impact (average supply disruption of 0.8 Mb/d in May), but the problems in Nigeria have a more profound and (potentially) longer lasting impact on the tanker market. Disruptions resulting from political unrest tend to last much longer and these made up 90% of the unplanned production outages in 2016 to date. The increase in outages at other producers has more than compensated for the reduction in unplanned outages when the Iranian sanctions were lifted earlier this year. It once again shows how quickly the oil markets can change as a result of geopolitical events or factors such as weather, natural disasters or labor conflicts. Most of these factors are highly unpredictable as to timing and duration”.
The only certainty seems to be that they will continue to happen, in particular when you least expect them. For example, “although everybody expected U.S. production to recover with rising oil prices, the speed of this turnaround caught many pundits by surprise, but it might still prove to be a false dawn. Also, let’s not forget that U.S. production has declined by approximately 0.9 Mb/d over the last 12 months, so there is a lot of ground to make up. Nevertheless, the change is remarkable and it may have dismayed OPEC members that it already started happening when oil prices barely breached $50/bbl. We will need to look at a few more weeks of data to see if this was a one-off or if we are witnessing a trend. Generally, tanker owners should look at these developments with a smile on their face. The oil continues to flow and the tanker industry is, by its nature, well equipped to deal with changes in tradeflows as a result of supply disruptions in various parts of the world. Disruptions create inefficiencies and bottlenecks, which are generally good for tanker rates. And the early boost in U.S. production? If it continues, it will increase overall world crude oil supply, counter disruptions elsewhere and keep oil prices from rising too quickly or to levels that may choke off demand. Over time it may even stimulate more U.S. crude oil exports”, concluded Poten.
Suezmax tankers could face oversupply issues moving forward, while cargo demand could also diminish (30/05)
The Suezmax tanker market could be heading in a storm, as an oversized orderbook could soon prove difficult to overcome, unless older tonnage finds its way to the scrapyards. In its latest weekly analysis, shipbroker Gibson said that at the moment, about 89 Suezmaxes are over 15 years old, which equates to 18% of the existing fleet. As the shipbroker points out, this is the preferred upper employment limit set by most charterers.
However, as Gibson points out, “many of the older units are able to trade in the shuttle markets, where age is not so much of an obstacle. In fact, sixty percent of the current Suezmax shuttle fleet is over 15 years old. Older conventional tankers continue to find employment East of Suez, typically loading Middle East cargoes for India or Singapore. Between 2014-2015, huge investment in new Suezmax tonnage has taken the orderbook profile as a percentage of the existing fleet to 24%; the highest of all the tanker newbuilding sectors. Almost all of these are scheduled to be delivered over the next 24 months.
The shipbroker went on: “But how are these newbuilds going to be absorbed as there appears to be little chance of any withdrawals from the fleet? Last May we wrote in our weekly that “supply appears in check, although robust earnings are likely to lead to a slowdown in demolition activity and that the increase in the Suezmax trading fleet is still expected to be limited”. We were correct at the time, but the 49 orders placed since last May now paint a different picture. It appears that geopolitical events have a huge influence on the Suezmax market, more so than other sectors of the tanker market and the short term prospects appear to be very much under threat. The loss of West African barrels to the US (TD5) over recent years (although recently enjoying a renaissance) has been substituted with WAF-UKC (TD20) as the crisis in Libyan production continues. This situation is likely to continue for the foreseeable future, but we should assume that Libya will one day return to precrisis levels in the same way as Iraqi production has returned”.
Gibson added that “Iraqi production since 2006 has also supported Suezmax demand, with the largest jump in output from 3.3 million b/d (2014) to 4.0 million b/d recorded last year (including Kurdish exports through Ceyhan). However, there is a view that Iraqi production has reached a plateau and may even decline in the short term. The loss of revenues from the low oil price has limited the government’s ability to pay oil companies, who in turn are not investing in Iraq’s infrastructure which is needed to expand crude exports. The recent supply disruptions in Nigeria represent another threat to the Suezmax market and again some industry experts are forecasting the nation’s oil output to drop sharply over the next decade. Wood Mackenzie, the energy consultancy, has cut its output forecast for Nigeria by more than a fifth, to 1.5 million b/d on average over the next decade (because of uncertainty over promised reforms to the cash-strapped state oil company) and is not related to the militant activity which is currently disrupting exports. Production here has reached a 20 year low following recent acts of sabotage. Lost Nigerian output destined for India discharge may in future have to be sourced from the Middle East which could support the Suezmax market. However, other areas where growth in cargo volumes was forecast have not materialized as expected such as Kozmino and the Caribbean and have taken their toll on Suezmax demand. The Suezmax market could face some tough challenges over the next few years; not just from the threat of the newbuildings”, Gibson concluded.
Meanwhile, in the crude oil tanker market this week, in the Middle East, Gibson said that “VLCCs spent the week toying with the lower regions of the previous rate range but although availability remained well stocked in the fixing window, Charterers failed to really turn the screw and rates seemed to have bottomed out within a ws 52.5/55 range to the East and into the low ws 30s West. Roughly half the June program is now covered and Owners will attempt to secure the rate-platform whilst keeping an eye out for opportunity to secure a modest premium. Suezmaxes picked up the pace a little and sentiment turned more positive to lead rate demands up to around ws 40 to the West and into the low ws 80s to the East with hopes, at least, of a little more to come. Aframaxes had been on the backfoot, but things then became busier and owners drove rates to 80,000 by ws 100 to Singapore with further gains possible into next week”.
Storing oil on board VLCCs could be losing its appeal soon (28/05)
It’s all a matter of pricing and oil traders have played the waiting game for quite some time now. With oil prices briefly surpassing the psychological barrier of $50/bbl on Thursday, the highest level since July of 2015, some analysts are beginning to question the long-term viability of storing oil onboard VLCC tankers. If that indeed is the case and this view is more widely accepted, it could release a significant number of VLCCs in the market, as these vessels are currently used as floating storage units. If that scenario unfolds, it would exert additional pressure on tanker freight rates moving forward.
In a report this week, shipbroker Alibra Shipping said that “analysts expect a further correction in crude prices because supply remains so abundant. Iran’s oil exports are expected to rise a further 200,000 bbl to reach 2.2m bpd by the middle of this summer. Last Friday, rig counts in the US did not decline for the first time in 17 weeks, possibly indicating that America intends to ramp up oil production again. Meanwhile, disruptions to supply such as wildfires in Canada and unrest in Nigeria appear to be resolving themselves”, said Alibra.
The shipbroker added that “global oil stockpiles, including floating storage, have increased for the past 10 consecutive quarters – and there’s a lot of oil in floating storage. A senior derivatives trader at Global Risk Management told the WSJ this week that if oil prices hit $51 or $52/bpd they could fall again by $6-$10 because of the volumes stored at sea. It is estimated that almost 9% of the global VLCC fleet is currently booked for floating storage, which is a 40% increase in tankers by number since December. Reuters last week reported that at least 40 laden VLCCs anchored off Singapore as floating storage, storing estimated volumes of up to 47.7m bbl, thought to be the highest level in at least five years. Rather than the prospect of arbitrage opportunities on the horizon, traders have been enticed to store oil at sea by the cost efficiencies created by cheap oil and falling VLCC charter rates during the first quarter. Morgan Stanley estimates the current one-month arbitrage on Brent in floating storage arb is -$0.48/bbl, while the 12-month arbitrage is -$6.11/bbl, implying there is no profit incentive to store oil on ships”, Alibra concluded.
Meanwhile, in a similar report prior to the recent rise of oil prices, shipbroker Gibson had also noted that the contango structure in crude futures never widened enough to justify a major floating storage play. The possibility of this happening now is perhaps even smaller than it has been over the past sixteen months. The premium for forward assessments in Brent futures has generally been in decline this year. Although VLCC period rates have also edged down, the decline has not been so steep. As such, the gap between VLCC freight costs and the contango premium has widened”, Gibson had said.
The shipbroker has also mentioned that “despite a shrinking contango, there has been an increase in VLCCs storing crude of non-Iranian origin: from 8 tankers in January to 16 currently, most likely for operational/logistical reasons. The main driver behind this type of storage has been a persistent and major overhang of crude oil production. However, US shale output is falling and so the excess in oil supply vs demand is expected to fall notably in the 2nd half of this year. In its latest monthly report, the IEA sees global oil inventories rising by just 0.2 million b/d between July and December 2016, versus an expected stock build of 1.3 million b/d in the 1st half of the year. More importantly, global oil inventories are expected to start to draw steadily at some point in 2017 and with it, crude floating storage is also likely to decline. Tanker storage of Iranian crude/condensate has also moved up this year, despite sanctions being lifted. Currently 28 VLCCs are employed, up from 24 in January. Most of these tankers are part of the NITC fleet, although a few are owned by international players. It remains to be seen what the immediate future holds for these VLCCs. It has been widely speculated that the majority of Iranian storage is condensate, which is difficult to market for a number of reasons. Furthermore, for a while now we have been of the opinion that it will take time for the Iranian tankers to sort out insurance, classification and some units are too old to return to trade”, said Gibson.
It also added that “however, it appears that Iran is making progress to address these issues. Earlier this week Iranian officials stated that Iran has obtained agreement of the International Group of P&I Clubs for insurance coverage of its tankers and that the Egyptian authorities have issued the permit that will allow the NITC tankers to resume oil shipments through the SUMED pipeline. Crude/condensate storage aside, there also has been an uptick in a number of VLCCs involved in other non-trading activities this year, with the latest count at 14 tankers. These units have been primarily employed for fuel oil storage off Singapore. The dynamics of fuel storage are different to crude, and as such it is unlikely to be affected to the same extent by rebalancing in oil markets. All in all, the number of VLCCs employed in non-trading activities has reached 58 units since late March. This represents nearly 9% of the global fleet, offering major support to tanker earnings. What happens to these tankers over the course of the year is critical to the health of the VLCC market, as any major changes in these numbers are likely to have a notable impact on spot rates”, the shipbroker concluded.
VLCC tanker prices down by 15% since the end of 2015 as Ship Owners Turn to Dry Bulkers (26/05)
Tanker market dynamics are shaping up quite lackluster over the past few weeks, as shipbrokers note that the tanker market currently displays an evident lack of confidence, when it come to future prospects, hence buying interest for second hand tonnage remains particularly reserved. In its latest weekly report shipbroker Intermodal noted that “the number of inspections that takes place at the moment is fairly limited, while comparing recent sales of VLCC tonnage to similar sales that took place towards the end of last year, we see that prices are roughly 15% down. With the exception of a few specific deals involving VLCC and Suezmax tonnage, buying interest over in the tanker sector mostly focuses on MR vessels, particularly those units controlled by financiers, while except from the lack of confidence, another major issue that weighs down on SnP activity is the big gap between price levels offered by Buyers and those that are accepted by the Sellers”.
According to Intermodal’s SnP Broker, Mr. George Iliopoulos, “moving on to the demolition market, prices here are also pointing down. At the same time, demo buyers are also becoming more and more reserved in their bids, while despite the fact that prices offered at the moment are without a doubt improved compared to the $220/ldt levels that the market witnessed back in February, we believe that the stability can only be achieved only after budget announcements, scheduled in June, take place”.
Iliopoulos added that “at the same time, the dry bulk SnP market displays signs of strength, with buying interest focusing mainly on Supramax and Kamsarmax tonnage built during the last decade. A representative example of this recent momentum in the market is the M/V UNITED TREASURE (82kdwt blt 06 Japan), which was inspected by more or less fifteen (!) buyers. The healthier freight market, combined with improved psychology and of course the aforementioned firming appetite by Buyers, have provided support to asset prices for vessels close to 10 years of age. We calculate this increase in the region of 15%-20% compared to price ideas for similar vessels back in the beginning of the spring season. Similarly, buyers are also looking with increased interest tonnage built around the end of the 90’s up to the early 00’s, something that we hadn’t seen in a while as the majority of sales was mainly focusing on modern tonnage up until recently. It is mainly ships of 40,000dwt and above that are enjoying this renewed interest for older tonnage and as a result the values of these vessels have also firmed despite the fact that scrap prices offered today are $20/ldt lower than what they were a few weeks ago”, Intermodal’s analyst noted.
He went on to mention that “to put things in perspective, a 2000 built Handymax with SS/DD passed was sold at around USD2.9m sometime in the beginning of March and a similar ship today could easily fetch USD3.5m or more, which translates to a 21% increase. Another positive sign that comes to reinforce this reserved optimism of late is that during the past few months the number of ships sold for scrap has been particularly firm, while at the same time newbuilding activity remains almost non-existent. Despite the fact that earnings have still a long way to go before reaching levels at which owners can feel less challenged, the reality is that all the developments above are displaying clearly that the market is moving towards more balanced fundamentals as the size of the size fleet is slowly getting “under control”. Given of course that global growth and consequently trade growth still face numerous challenges, it is imperative that we see more scrapping activity for longer before things balance out”.
Concluding, Iliopoulos said that let’s hope that the reserved optimism in the dry bulk market is not exaggerated and that the market manages to move to healthier and more viable levels sooner rather than later”.
Tanker markets look to regain positive momentum after lackluster week saw VLCC rates plunging by almost 20% (24/05)
The tanker market is looking for renewed positive momentum this week, after a quieter than anticipated last week, when inactivity took its toll, bringing eastbound VLCC rates down by almost 20%. According to the latest weekly report from shipbroker Charles R. Weber, “dates were announced by the suppliers, but when that didn’t cause an influx of activity, owners began to get nervous despite the realistic belief that it is only a matter of time, a “short term lull” before activity picks up. The past three months (March, April and May) have all seen in excess of 130 cargoes and there is no reason to expect June to be any lower, if anything it could be higher. What we have seen over that period is the first decade’s tally has seen the lowest number and the final decade the highest, with the most recent period in May yielding 50 fixtures, the highest of all, and which might explain the slow start for June. Either way, we do expect the activity to pickup once we hit the second decade. However, with that being three weeks forward, charterers could be patient and hold back and allow further softening while they have the chance”, the shipbroker concluded.
C. R. Weber added that “there were a total of 28 fixtures reported last week, 20 emanating from the Arabian Gulf and 8 from the Atlantic Basin. The former was led by eastbound business with India discharge leading the way accounting for forty‐four percent of that. Eastbound rates ended last week in a two tiered state, with the modern tonnage in the low‐mid ws70’s and the older less‐approved tonnage in the 60’s. The limited activity witnessed this week resulted in rates on modern ships falling to ws60, with reports of lower being concluded. Westbound business was less active, although the usual preference for this voyage was not as strong with the slower demand of export cargoes from the Caribbean. Rates to the USG were pegged at in the upper ws30’s depending on destination and routing, but may be tested”.
“With approximately 21 fixtures concluded, we anticipate another 15 cargoes to go through the first decade which compares to a position list that has 29 vessels (excluding VLCC Chartering) over that period. The supply‐demand equation is in the Charterers favor, but not overwhelmingly so and moves more into balance as we approach the middle of the month. The current quietness, not helped by a seeming lack of Unipec activity, usually the most active charterer, as they utilize COA tonnage, will push rates a little lower for now before rebounding as we move forward into next week”, said the shipbroker. Meanwhile, as C. R. Weber added “the Atlantic Basin was quieter with 8 fresh fixtures to report, half of those emanating from the Caribbean‐South America. West Africa followed the trend of the AG with rates falling from the mid ws60’s, down below ws60, the latest fixture at ws59.5 for a voyage to China. Business from the Caribbean continued at its slower pace with half of the activity emanating from Brazil. Eastbound rates from the Caribbean fell to the lowest of the year, with Singapore assessed at $4.8 million and little change expected”.
“A quieter period in the West Africa Suezmax market prevailed this week with reported fixtures off by three to 10. Further negatively impacting sentiment, participants were cognizant of stronger recent VLCC coverage of West Africa stems, implying a continuation of lower regional demand. Meanwhile, Suezmaxes in the Middle East market faced strong losses with normal Basrah premiums for suitable units (crane restrictions) absent and rates there off markedly, adding to negative pressure on the West Africa market as more units look to ballast from the East. Rates on the WAFR‐UKC route shed 12.5 points to conclude at ws57.5. With the corresponding TCE at a strong discount to alternative markets, rates should stabilize on fresh demand during the upcoming week”, said the shipbroker.
According to C. R. Weber, “rates in the Caribbean Aframax market were largely flat this week with the CBS‐USG route holding at the ws95 level. After a modest start from an activity standpoint, possible negative sentiment was eroded after demand picked up from mid‐week and late in the week owners pointed to the possibility of ballasting to the more profitable North Sea market (where strong Baltic market upside also enhances forward prospects). A late fixture at ws100 failed on subjects and a late‐week lull implies repeating will be difficult. Thus we expect the market to commence the upcoming week with little change. The Caribbean Panamax market was busier this week but with limited resulting change to the supply/demand position, rates were largely unchanged. The CBS‐USG route held in the low ws100s”, the shipbroker concluded.
Tanker Market: Oil supply disruptions offer mixed outlook for tankers (23/05)
Oil disruptions offer an additional parameter to the tanker market, in terms of determining supply and demand and thus freight rates. As such the current period is rather interesting. In its latest weekly report, shipbroker Gibson said that “major supply disruptions can be a frequent feature of the oil markets with the most recent examples this decade being Libya and Iran. Yet at the start of the year, global supply disruptions fell to their lowest levels since mid-2013 as Iran returned to the market. With more oil on offer, it was little surprise to see crude prices collapse to 12 year lows of $27 – $28/bbl in January. However, since then, global supply disruptions have increased once again. At the start of 2016, global supply disruptions stood at 1.9 million b/d, steadily increasing to 2.5 million b/d by April as disruptions impacted on production in Nigeria, Kuwait, Libya and Iraq. By May the situation deteriorated further with wildfires shutting in at least 1 million b/d of Canadian production, whilst Nigeria’s 0.3 million b/d Qua Iboe stream went offline for a number of weeks. At the same time, concern over a deepening crisis in Venezuela added fuel to the fire. With so much uncertainty, it was little surprise to see oil prices rally to a 6 month high of $49.28/bbl earlier this week”.
However, as shipbroker Gibson said, “global supply disruptions are nothing new, having averaged 2.3 million b/d since mid- 2014 when global crude prices collapsed. The world has simply become accustomed to disruptions, with alternative sources of supply acting as a buffer to volatile price increases. However, lower prices are slowly eroding these cushions. US production is falling, other Non-OPEC production pressured and signs are emerging that the crude market is starting to move closer towards equilibrium. Some analysts have even suggested that the outages experienced this month have led to a temporary stock draw, although the world remains awash with oil”.
The shipbroker noted that “our report last week identified an increase in the number of VLCCs engaged in floating storage, at the same time global shore based stocks remain at near record levels. In the IEA’s latest oil market report they noted that in Q1 2016, global stocks grew at the slowest pace since the end of 2014; however, growth is still growth. In the US alone, crude stocks built by 1.3 million barrels last week despite ongoing outages in Canada and falling domestic production”.
Gibson said that “for the tanker market, the impact is mixed. Ongoing issues off West Africa have contributed to the recent weakness in Suezmax freight, given that production from both Qua Iboe and Forcados has been disrupted. Thus the return of these lost barrels from Nigeria should prove supportive, although the escalation of violence in the West African nation remains a major concern. Disruptions in Canada could see US and Canadian refiners source cargoes from the Middle East, West Africa and Caribbean – if the fires persist. However, in the short term refiners have plenty of options, from drawing down shore based inventories to tapping floating storage, neither of which are supportive for tankers. Tapping floating storage might cause further pain as it would release ships back to trade. Yet this may prove unlikely considering that supply disruptions are largely centered in the West, whilst nearly all floating storage is located in the East. It is therefore most likely that refiners will opt to both draw down land based stocks and add incremental seaborne imports”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, “the softening trend set late last week continued for VLCCs. Charterers eyed reasonably full medium term tonnage lists and trod cautiously into the new June program to massage sentiment – and rates – lower. Currently, levels operate into the mid ws 50s to the East and to mid ws 30s to the West and there may yet be room for further deterioration. Suezmaxes started well stacked on the market shelf, and although there is now a degree of balance reforming, it will need a good dose of bargain hunting momentum to raise rates significantly from the present low ws 30 level to the West, and from the mid ws 70s to the East. Aframaxes suffered from very light enquiry so that last week’s 80,000 by ws 87.5 to Singapore remained cemented, and possibility of further discounting lurks”, Gibson concluded.
Gasoline is expected to drive the MR tanker market for the rest of 2016 says ship owner (21/05)
The product tanker market has been witnessing a very mixed picture so far this year, as new trade flows have emerged and the market has taken some time to adjust to these new developments. In its recent outlook for the market, ship owner Norden noted that the MR fleet benefited from broadly based stable rate levels throughout the first quarter. “Continued low oil prices and generally higher oil consumption contributed to maintaining a reasonable demand for transportation. In the Atlantic, the American diesel export to Europe was replaced by increasing exports from especially the Middle East, India and China, which still have Europe as buyer of diesel. This has contributed to maintain the record high European product stocks”, said the ship owner.
Norden expects a solid market for the rest of the year, driven by gasoline trade. According to the ship owner, “IEA’s latest estimates indicate a reasonable growth in oil demand of 1.2% for 2016. Even though growth this year looks like it will be lower than the 2.0% growth of 2015, the starting point is, however, an already strong demand for oil. Growth is still expected to be driven by the demand for transportation of gasoline and less so by the demand for transportation of diesel, which has not shown the same positive growth rates. This past year, China has experienced strong growth in diesel exports, and similar developments in the rest of Asia have kept the fleet employed. Despite the many diesel cargoes to Europe, the return trips to Asia with gasoline has contributed to maintain a constant distribution of tonnage between the Pacific and the Atlantic – for the benefit of NORDEN’s fleets in the Atlantic”, said the ship owner.
Meanwhile, “the expectations for fleet growth remain unchanged, and a net growth of about 6% this year is still expected. The reasonable market conditions have kept scrapping activity at a low rate, and until the end of March only 5 product tankers have been scrapped. At the same time, the delivery of newbuildings has continued to be high – especially within MR and LR2. For crude oil tankers, the order book still indicates a high increase in tonnage for the second half of the year – especially of VLCC tonnage”, said Norden.
In terms of the market in general, Norden noted that “it has positive expectations for the market in the short-term. The refineries’ product margins – which have been under pressure by high stocks and a declining demand for diesel – are expected to get a welcomed boost by the coming seasonal demand for gasoline. Increasing margins will improve export opportunities, and this should result in an increase in trade for the benefit of the tanker fleet. This year, the refinery sector has sought to adjust production towards higher gasoline yield in order to adapt to demand. It is, however, limited how much of the production that can be adjusted in such a short time, and therefore it is still expected that more diesel will be produced than what is required. The future gasoline production is therefore also expected to contribute to additional stockpiling of diesel”.
In a separate note, Italian ship owner d’Amico International Shipping said that during the first quarter “the Asian gasoil market is experiencing a shift against the usual seasonal flows. Gasoil import demand from the Middle East has yet to materialize. Despite refinery maintenance, China is expected to continue to export high levels of gasoil as stocks remain high but India is expected to continue importing significant volumes of gasoil as product demand rose to a record of 4.33 million b/d in March 2016 (driven by gasoline, even though diesel demand was also strong) while Thailand, another typical net exporter, is also likely to continue importing gasoil this month and next as low oil prices have boosted 8 demand. The US Gulf to Europe diesel trade has started to ease as stocks in northwest Europe have risen to just under record levels, which is causing delays outside the major trading hub of Amsterdam Rotterdam-Antwerp. However despite the narrower arbitrage, US refiners are still keen to continue exporting diesel across the Atlantic as runs have picked up ahead of anticipated gasoline demand. The gasoline market from Europe has had a slight revival. Imports into West Africa have picked up recently on the back of supply issues. The exports to United States East Coast have also improved as stock has finally had a marked stock draw. Imports to the US are currently in excess of 2 million b/d compared to 2.5 million b/d in April-June last year”.
It added that “in Q1 there was a very mixed picture for the Product tanker market. The Oil price declined markedly up to 11 February and then rose during the rest of the quarter. The decrease in average crude oil prices improved refinery margins. This resulted in trade picking up even without a healthy increase in demand. Stocks build unseasonably and by the end of the quarter were 12% high year on year. Throughout the quarter, United States exports averaged around 4 million b/d and imports volumes were around 1.7 million b/d. The volatility in Oil and Product prices led to arbitrage windows opening but also closing just as quickly. This did create some opportunities for the Market rates to improve from time to time. Refinery maintenance had little or no effect as stocks were high enough to meet any demand. The supply of tonnage was almost entirely kept in check by logistical problems with storage being full and ships not being able to turn around quickly enough. Positive demand for Naphtha and mixed aromatics supported long haul trades into the Far East. The one year perceived Time charter rate is always the best indicator of spot market expectations. In Q1 2016 the one year rate for an MR remained flat at $17,000 / $17,500 per day”, d’Amico concluded in its analysis of the market.
Suezmax Tankers Proved the Best Performers During April (14/05)
The Suezmax tanker market was the strongest performer during the month of April, according to data from the latest monthly report, issued yesterday from OPEC. Dirty tanker market sentiment weakened in general in April, as average spot freight rates dropped on many routes in different regions. On average, dirty tanker freight rates declined by 6%, compared with the previous month. For the VLCC sector, average spot freight rates for reported routes dropped by 5% in April, compared with the previous month and Aframax spot rates dropped by 17%, while Suezmax freight rates turned positive, on average higher by 12% from the month before. Relatively light activity during the month, versus a prolonged tonnage list in addition to reduced delays at the Turkish Straits, were partially behind the drop in rates, along with other factors in April. Clean tanker sentiment strengthened over the previous month, pushed mostly by higher rates in West of Suez on the back of stronger rates in the Mediterranean Sea.
Global fixtures dropped by 8% to stand at 16.28 mb/d in April. OPEC spot fixtures dropped as well in April by 4.4% to stand at 11.65 mb/d. The decline came mainly as a result of a fall in Middle East-to-West fixtures and Outside Middle East fixtures, which were down 5.6% and 13%, respectively, compared to the previous month.
Sailings and arrivals
OPEC sailings increased by 0.5% from the previous month to average 24.21 mb/d in April. Arrivals in West Asia were up, while those in North America, Europe and the Far East dropped from the previous month by 0.3%, 1.2% and 0.7%, to stand at 9.97 mb/d, 12.42 mb/d and 8.46 mb/d, respectively. Despite higher monthly arrivals in West Asia, they were lower by 0.05 mb/d compared with the same month the previous year.
Spot freight rates
VLCC freight rates experienced a dramatic fluctuation at the beginning of April; higher freight rates were seen earlier in the month as the market exhibited limited supply following loading delays in Middle Eastern ports from the previous month. However, VLCC freight rates dropped afterwards as market fundamentals proved to be balanced and tonnage demand eased. VLCC freight rates continued to be volatile, fluctuating in the Middle East and West Africa, despite relatively stable activity. Middle East-to-East spot freight rates declined by 11%, and West Africa-to-East rates dropped by 6% in April, to stand at WS65 points and WS67 points, respectively, compared with the previous month. Rates in West Africa were supported by the flow of cargoes, though this was corrected downward once activities thinned. VLCC loadings and fixtures to western destinations maintained higher levels and ended the month showing a gain of WS2 points. April activity was light and firm cargo requirements were on the low side. The anticipation of higher requirements for loading in May did not materialize and the total number of fixtures remained on the low side.
Suezmax vessels were the only ones in the dirty tanker segment to show positive returns in April. Suezmax average spot freight rates edged up by 12% in April from the previous month as a result of higher freight rates achieved on both reported routes. West Africa-to-US spot freight rates rose from a month ago by 14%, while Northwest Europe (NWE)-to-US rates increased by 10% in April compared with the month before. Suezmax spot freight rates were supported in the beginning of April by strong sentiment to the east. A tight positions list and flow of cargoes for end-April loadings supported rates before they were corrected down, as May loading requirements were lighter than expected. Tonnage availability in the Mediterranean and Black Sea was limited, though freight rates remained mostly flat. At the same time, delays in the Turkish Straits were minimal, while delays at Mediterranean ports tightened vessel supply.
Aframax spot freight rates ended the month showing a drop of 17%, on average, compared with the previous month. Negative performance was seen in April on all selected routes, although the rate drop amount varied from one region to another. The decline of Aframax spot freight rates came on the back of lower tonnage demand seen in several regions. Freight rates declined as the positions list kept growing and the size of requirements was not enough to absorb tonnage availability.
At the same time, charterers took the opportunity represented by lower rates to complete fixtures in the month. In the Aframax Mediterranean market, rates stayed flat before dropping, as tonnage demand in the Black Sea and the Mediterranean was thin. Thus spot freight rates for Aframax operating on Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes declined by 18% each in April compared with the previous month. The Caribbean Aframax market saw a short flow of activity in the middle of the month, combined with some replacements, but this was not enough to prevent average monthly spot freight rates from dropping; rates on the Caribbean-to-US route fell by 5% from the previous month to stand at WS109 points.