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News

Tankers: What About Long-Term Demand? (11/12)

The tanker market is looking towards the oil demand and supply for future direction. In its latest weekly report, shipbroker Gibson said that “the IEA has recently released its long-term view of the energy markets. The agency presented different scenarios and cautioned that its outlook does not provide a forecast of what will happen; instead it offers several scenarios that explore different possible futures, depending on certain assumptions at government, industry and consumer level. The central case, referred to as the Stated Policies Scenario, incorporates today’s specific policy announcements; however, it does not include future policies that are needed to be fully aligned with the Paris Agreement”.

ccording to Gibson, “in this scenario, the IEA expects global oil demand to grow at a healthy rate of around 1 million b/d per annum through to 2025; however, the gains in consumption are expected to slow down dramatically thereafter, with just marginal growth projected beyond 2030, up by 0.1 million per annum through to 2040. Global gasoline demand will continue to grow modestly over the next decade but beyond 2030 it is anticipated to decline, down by 2 million b/d by 2040. Demand for diesel will see stronger growth through to 2025 but it is likely to remain virtually flat thereafter. Bigger gains are expected in demand for naphtha and jet fuel both in the medium and long term, driven by demand from the petrochemical and the aviation sectors. The IEA also expects stark differences to emerge in regional oil demand patterns. Demand in the advanced economies in North America, Europe and OECD Asia is expected to decline notably over the forecast period, while consumption in developing countries will continue to grow, although growth rates in some key countries also will slow down dramatically. In the long term, the biggest source of demand growth will be in the Middle East and India, with the expansion of the petrochemical sector in the Middle East fuelling regional consumption. In contrast, demand in China is likely to plateau in the 2030s, largely due to the widespread adoption of electric cars”.

The shipbroker said that “on the supply side, the IEA revised up its outlook for tight oil production in the US, despite concerns about slowing growth in output and the ongoing decline in rig count. By 2030, total US oil production is expected to reach 21.7 million b/d, up by 6.2 million b/d from 2018 levels. Gains are also expected in Brazil and Guyana. Beyond 2030, US output is likely to decline, but this will be largely offset by further increases in Latin America. Elsewhere, non-OPEC oil supply in Europe, Eurasia and Asia Pacific is anticipated to fall by 4.4 million b/d between 2018 and 2024”.

Gibson added that “major changes in the global refining industry are also expected. Some 15 million b/d of new refining capacity is projected to come online by 2040, mainly in Asia and in the Middle East, while refining runs in these two regions are anticipated to increase by over 10 million b/d, intensifying pressure on older plants to remain competitive. Most notably, refining runs in Europe could decline by 1.7 million b/d over the forecast period. In contrast, the combination of rising refining capacity and declining production in Asia is likely to translate into a substantial 10 million b/d increase in regional crude imports over the forecast period. These import requirements are expected to be met increasingly long haul from North and South America, although crude trade from the Middle East is likely to remain remarkably stable, in part due to the ongoing trend of Middle East producers investing in the upstream assets in Asia”.

 

The shipbroker concluded that “all in all, the latest IEA long term report suggests that the global oil markets are likely to be transformed over the next two decades, if all of the announced government policies are implemented. Yet, despite an anticipated dramatic decline in world oil demand growth, the picture is the opposite for crude tanker trade, with robust growth in tonne miles expected both in the medium and long term”.

Six new LNG tankers due to arrive in Northwest Europe

Six more liquefied natural (LNG) gas tankers are due to arrive in Britain, Belgium and the Netherlands this week, data from port authorities and Refinitiv Eikon showed.

* The Gaslog Savannah tanker, coming from the United States and with a capacity of around 153,000 cubic metres, is due to arrive at Britain’s South Hook terminal on Dec. 2, port authority data showed.

* The Maran Gas Lindos tanker, coming from South America and with a capacity of around 156,000 cubic metres, is due to arrive at the Dutch port of Rotterdam on Nov. 21, Refinitiv Eikon data showed.

* The Pskov tanker, coming from China and with a capacity of around 167,000 cubic metres, is due to arrive at Belgium’s Zeebrugge terminal on Dec. 14, Refinitiv Eikon data showed.

* The British Partner tanker, coming from Trinidad and Tobago and with a capacity of around 174,000 cubic metres, is due to arrive at Britain’s Isle of Grain terminal on Dec. 2, Refinitiv Eikon data showed.

* The Mesaimeer tanker, coming from Qatar and with a capacity of around 212,000 cubic metres, is due to arrive at Belgium’s Zeebrugge terminal on Dec. 8, Refinitiv Eikon data showed.

* The LNG Dubhe tanker, coming from Singapore and with a capacity of around 174,000 cubic metres, is due to arrive at Belgium’s Zeebrugge terminal on Nov. 25, Refinitiv Eikon data showed.



The Spike in Oil-Tanker Rates May Be Over, But a Boom Is Coming (15/11/19)

 

A surge in the cost of hiring oil tankers last month may already seem like a distant memory, but the rally was enough to convince analysts monitoring the industry’s fortunes that a couple of boom years are on the way.

Daily earnings for very large crude carriers, the market’s biggest vessels, will jump to $51,000 next year, according to a survey of 11 analysts by Bloomberg this month. As well as being the highest since 2015, their estimates are also up by 20% from what they were anticipating as recently as August.

Freight costs soared to a record in October on a combination of tensions in the Persian Gulf, sanctions on a giant Chinese shipowner, and vessels being removed from service in preparation for environmental legislation starting in January. While rates quickly slumped again, they remain high by industry standards. And the scale of the rally was enough to shift how analysts perceive the market.

“The recent surge in rates demonstrated how tight the vessel supply is,” said Randy Giveans, an analyst at Jefferies LLC in Houston. “The sector’s underlying, structural improvement will drive lasting rate strength year on year into 2020, with 2021 looking attractive as well.”

Key to the market’s strength in the coming years is fleet growth — or rather a lack of it, according to Giveans.

A total of 31 very large crude carriers, or VLCCs, were demolished last year, the most since 2002, according to Clarkson Research Services Ltd., a unit of the world’s biggest shipbroker. It’s estimating fleet expansion of 3.2% in 2020 down from 6.1% in 2019. Beyond next year, a lack of orders for new vessels has also made several analysts more hopeful about rates, since it takes the best part of two years from ordering a ship to it being built.

As recently as July, rates measured in industry standard Worldscale terms stood at about 40 points for the market’s benchmark trade route to China from Saudi Arabia, according to the Baltic Exchange in London. They surged to a record of more than 300 points by October.

The surge got underway in late September after U.S. sanctions were imposed on units of China COSCO Shipping Corp., operator of one of the world’s largest tanker fleets, which took some of its ships off the market. There was also a rush for cargoes as traders fretted over crude supplies in the wake of attacks on vital Saudi Arabian infrastructure. Then, on Oct. 11, Iran said that missiles hit one of its ships in the Red Sea, further raising regional tensions.

“It would impact your thinking” to see such a sharp rally, said Lars Ostereng at Arctic Securities ASA in Oslo. Since some analysts are working on the assumption next year will be stronger than this year, the October rates surge may have influenced their thinking for 2020 as well, he said.

IMO 2020

Part of the analysts’ bullishness also comes from environmental legislation that starts in January to limit shipping’s emissions of sulfur oxide, a pollutant blamed for aggravating human health conditions and causing acid rain.

Refineries will have to increase the amount of crude they process sharply in order to produce compliant fuel globally, something that would be very bullish for tanker demand if it materializes, said Espen Fjermestad, an analyst at Fearnley Securities AS in Oslo.

“The 2020 tanker story is already a robust one with increasing U.S. exports, higher refinery runs and decreasing vessel deliveries,” he said. “But the IMO fuel rule is taking it further to a new dimension.”

From Jan. 1, ships that haven’t installed an exhaust-cleaning system, or scrubber, will have to start consuming fuel with no more than 0.5% of sulfur. That’s down from a ceiling of 3.5% in most parts of the world today.

On some levels, the bullishness for next year is surprising since some of the drivers of the freight spike appeared short-lived. Companies that do business with the sanctioned Chinese owner were granted a wind-down period for their transactions, taking a degree of pressure off the freight market. At least some of the firm’s ships also started getting chartered again. The disruption in Saudi Arabia also proved less severe than early estimates, lessening a clamor for alternative barrels.

Healthy Demand

Nevertheless, the market’s showing signs of strength. Demand for VLCCs will grow next year by 5.7%, one of the strongest expansions in years, according to Clarkson. Flows should keep expanding from the U.S., which the International Energy Agency anticipates driving 85% of increases in production through the end of the next decade.

Healthy demand for oil will encourage flows across the Atlantic with greater exports also coming from the U.S., Brazil, and Norway, according to Ostereng at Arctic Securities.

“The Atlantic basin will be the incremental exporter of crude, whereas Asia will be the main importer,” he said. “If you map that up you’ll end up with a situation where every barrel will need to travel some distance and that should be good for tanker demand.”

 

 
IMO 2020 is coming (14/11/2019)

 

Genscape is now part of Wood Mackenzie. As we combine their commodity intelligence and proprietary short-term data sets with Wood Mackenzie’s world-class long-term analysis, we will be able to offer you unparalleled depth and breadth of insight across the entire natural resources world.

In the first of a three-part series, Suzanne Danforth and Amanda Fairfax examine the implications of IMO 2020 — past, present, and future — with an initial look at the state of the US distillate supply/demand balance.

As the weather turns colder in North America, the refined products market focus turns to distillate products. The fall season typically brings diesel demand, seasonal refinery maintenance, and expectations for how winter heating demand will shape the distillate supply/demand balance. This year the upcoming implementation of the International Maritime Organization (IMO) 2020 bunker fuel regulations adds another price-impacting factor to the mix, with the IMO set to lower bunker fuel sulfur specifications for ships globally from 3.5 percent sulfur to 0.5 percent sulfur on January 1, 2020.

Generally, the market expects that middle to heavy distillates, from consumer-grade ultra-low sulfur diesel (ULSD) to refinery feedstock low sulfur vacuum gasoil (LVGO), may be utilized as a replacement fuel for 3.5 percent bunker fuel, or used in bunker fuel blends to lower sulfur content.


US East Coast inventories fell on PES shutdown, fall maintenance, rising demand

US East Coast distillate inventories fell to 33.95mn bbls for week ending October 25, according to weekly EIA data, a record low for the fourth week in October. Conversely, EIA US Gulf Coast distillate stocks rose to 43.6mn bbls for the same week, the highest seasonal levels since 2012 for the region. For week ending November 1, this disparity narrowed slightly, with PADD 3 stocks falling 2.8mn bbls from the previous week to 41.8mn bbls and PADD 1 inventories rising by 2.6mn bbls to 36.6mn bbls, led by inventory gains in the US southeast (PADD 1C). However, weekly EIA distillate stocks for PADD 1B continued to fall for week ending November 1 to 16.6mn bbls.

This disparity between the two regions is unusual and related to several factors – distillate demand growth in PADD 1, reduced export levels out of PADD 3, PADD 1 fall refinery maintenance, and the shutdown of Philadelphia Energy Solutions’ (PES) 335,000 bpd Philadelphia refinery this summer following a fire. Colonial allocated its 1.2mn bpd Line 2 Pipeline starting in October, which carries distillate fuels from the US Gulf Coast to destinations throughout the US East Coast region. This is a typical seasonal occurrence exacerbated by reduced production and demand growth in PADD 1. With Colonial Line 2 full, the flow of distillates via pipeline into PADD 1B – the market hub for the Northeastern US — is at a maximum level, meaning that additional supplies may need to come via waterborne deliveries to balance the market if demand shocks occur.


PADD 3 vs. PADD 1 Distillate Inventories

New York Harbor (NYH) heating oil/diesel inventories also fell to record seasonal lows in October, according to our data, which goes back to November 2013 when we first started to monitor NYH. NYH heating oil and diesel stocks fell to 5.37mn bbls for week ending November 1, dropping below levels observed in 2017, when Hurricane Harvey impacted US Gulf Coast refinery utilization and flows of refined products from PADD 3 to PADD 1. For week ending November 1, NYH heating oil/diesel storage capacity utilization dropped to just 29.2 percent, according to our data.


New York Harbor Heating Oil/Diesel Inventories, 2017 to 2019

As a result of lower stock levels and expectations for increased distillate demand globally starting in 2020, prices for CME front-month NYH ULSD rose as high as $1.9863/gal October 24, up nearly $0.10/gal from the beginning of October. Spreads between ULSD futures and front-month CME Light Sweet Crude (WTI) futures stayed buoyant over the last year above $20/bbl, even in the summer when diesel demand is typically lighter than other periods of the year. In terms of time spreads, December 2019 CME ULSD futures widened to as much as $0.0564/gal premium to the March 2020 contract month October 8. Backwardation is typically seen in the winter, but this spread widened in recent months ahead of IMO 2020 implementation and expectations for increased diesel demand for both winter heating and bunker fuel blending. As of November 4, the December/March ULSD futures spread was $0.035/gal. A backwardated structure in commodity futures time spreads is usually indicative of a tightly supplied market, where prompter prices command a premium to forward prices.


CME ULSD Futures and Light Sweet Crude Futures, October 2018 to Present

Fall 2019 refinery maintenance season in the US East Coast brought utilization rates to two-year lows, as 2018 rates for primary processing, middle distillate, and heavy product processing stayed near 100 percent throughout that year, according to our refinery monitoring data. Inclusive of the PES Philadelphia refinery, which remained fully shut since early August, primary processing utilization in PADD 1 dipped to a seasonal low of 59.7 percent on September 30, and middle distillates utilization fell to 43.4 percent October 1. Our Refinery Stream Monitor, which aggregates crude and downstream inputs to refineries based on crude unit operations and secondary unit impacts, calculated crude runs in the East Coast at a seasonal low of 700,000 bpd for week ending October 11.


PADD 1 Refinery Utilization and Inputs

Distillate demand remained buoyant in PADD 1 for 2019 versus previous years. Our Supply Side Prime Normalized data – where daily rack activity is adjusted via EIA Prime Suppliers to reflect full rack market coverage – showed monthly demand up 1.7 percent and 2.4 percent for September and October, respectively, vs. EIA Prime Suppliers in 2017. Elsewhere in the US, fall distillate demand contracted in PADD 2 amid a weaker crop harvest season. PADD 3 experienced changes in demand due to declining rig counts and demand for diesel to transport drilling equipment, materials, and produced crude. As a result, total US diesel demand for October was 3.6 percent below 2017 levels, according to our Supply Side data.


Supply-Side Prime Normalized No. 2 Diesel 2019 vs. EIA Prime Suppliers 2017

Looking ahead, forecasts for winter temperatures in the coming months are varied. The 2020 Farmers’ Almanac is calling for colder-than-normal temperatures in the northeastern US (PADD 1A and PADD 1B), along with above-normal precipitation. In contrast, the National Oceanic and Atmospheric Association (NOAA) is predicting warmer-than-average temperatures for most of the US but warns that some areas may experience a colder-than-average winter. Above-average precipitation is expected to the northern tier of the US, according to NOAA, which, combined with swings in the Arctic Oscillation, could lead to large variability in temperature and precipitation.


Looking Ahead to January

The challenges in predicting winter heating demand for distillate, coupled with the uncertainty of how IMO 2020 implementation will affect distillate supply/demand balances and product flows in the US and globally, highlight the importance of our near-real-time fundamental data. Any changes in supply and demand trends could have a significant effect on price. In addition, the crude oil supply market is changing, as the availability of heavy crudes is decreasing and demand for lighter crudes is increasing. These fundamental changes compound the complexity of refinery future margins.

 


Product Tankers In Line for Major Profits (07/10)

The product tanker market is primed for a strong finish to the end of the year, as predicted. In its latest weekly report, shipbroker Gibson said that “with most crude tanker markets surging to multi-year highs, many have questioned whether the clean sector should expect to experience the same fortunes. The last few days have seen product tankers firm both East and West, in some cases considerably. Now, many are questioning whether this recent firming the start of a more sustainable trend or merely a short-term blip?”

According to Gibson, “great faith has been placed in IMO2020, particularly in terms of its impact on distillates trading. However, can owners still realistically expect this seismic event to transform prospects in the clean tanker sector over the coming months? To answer this question, it is first important to look at how expectations for demand for the different types of compliant fuels have evolved since the convention was first ratified back in 2016. Initially, a consensus opinion emerged that marine gasoil (MGO) would offer the primary route to compliance in the early days of 2020, and with a surge in demand for gasoil, clean product tankers would stand to benefit from increased trading opportunities. This theory is still valid. However, the supply of 0.5% fuel oil (VLSFO) appears to be improving, with an ever-increasing number of suppliers now offering the fuel on a regular basis. If more VLSFO is available than originally anticipated, it would seem logical that MGO demand growth expectations might need to be pared back. However, even if VLSFO supply does exceed initial expectations, industry estimates still point towards an increase in MGO demand of 1 to 2 million b/d, with the transportation of gasoil and other blending components still supporting trade. What is unclear, however, is the impact on tonne miles in terms of how much product will be traded long haul versus retained locally for bunkering demand. In any case, increased products trading activity around IMO2020 should be a supportive, even if it isn’t obvious just yet”.

Meanwhile, “fleet supply factors are also likely to be having an impact. Not only have newbuild product tankers been a constant factor this year, but so have newbuild crude tankers entering the clean products market on their maiden voyage. However, a bullish crude tanker market is likely to deter this activity in the short term. Finally, the recent strength of the crude market has also attracted a number of product tankers to ‘dirty up’, which may constrain product tanker fleet supply and thus support clean freight rates”, the shipbroker said.

Gibson added that “however, a key factor weighing on product tanker demand is that of world oil demand which has already been revised down on a number of occasions and could be trimmed further. As it stands, demand is projected to average 1.3 million b/d in 2020, which if it holds true, will mark a modest increase from this year’s 1.1 million b/d growth rate. Furthermore, with IMO 2020 driven distillate demand potentially growing at a faster rate than total oil consumption (due to contractions in fuel oil use), product tankers may largely be insulated from any slowdown in total demand”.

“Finally, on the refining side, higher refinery runs are expected for the remainder of the year and into 2020 (notwithstanding some seasonal maintenance). Refining runs for May to July this year fell versus the same period of 2018 but are expected to firm substantially over the coming quarter, growing by 1.4 million b/d YOY. Thus, a strong end to the year in terms of refining runs, the implementation of IMO2020 and the potential for more favourable fleet supply conditions could all support product tankers towards the end of 2019 and into 2020”, Gibson concluded.

 

Tanker Market: Will it End 2019 With a Bang? (01/10)

Tanker freight rates have rallied during the past few weeks, in the aftermath of the attacks on Saudi Arabia’s oil facilities. With production now almost reaching pre-strike levels, it seems that the tanker market is primed for a sustainable rally, as the traditionally strong fourth quarter has officially began. In its latest weekly report, shipbroker Gibson said that “at the time of writing this report, spot TCE earnings on most benchmark crude trades stood at or close to their highest level this year, after firming spectacularly over the past two weeks, in part on the back of the attacks on Saudi oil infrastructure. This week’s US sanctions on two Cosco subsidiaries added more fuel to the fire. The current strength in rates has been triggered by geopolitics; however, both demand and supply factors suggest tightening tanker supply/demand balance as we approach the 4th quarter of the year”.

According to Gibson “weather related delays and disruptions traditionally offer seasonal support during the period to rates across all segments. For Suezmax and Aframax tankers, delays for passage through the Turkish Straits help to tighten tonnage availability and support earnings on regional trades. The 10-year average for both northbound and southbound delays for passing through the Straits stands at 10 days in Q4 versus 3.7 days in Q3. There are also fundamental factors. Global crude refining runs tend to increase in order to accommodate stronger demand during the winter season. This year, the approaching global sulphur cap on marine bunkers is anticipated to offer an additional boost to refining runs, with demand for distillates being the key driver. According the latest IEA monthly report, global crude refinery throughput is projected to average 83.7 million b/d in Q4 2019, up by 1.4 million b/d year-on year and up by 400,000 b/d quarter-on-quarter. While stronger demand from refineries is anticipated, the expectations are for substantial increases in crude production in the Atlantic Basin. US crude production is projected to average 12.78 million b/d in Q4, up by more than 0.5 million b/d versus the previous quarter (EIA). Pipeline capacity from the Permian Basin to the US Gulf is also expanding. 670,000 b/d Cactus II pipeline started initial operations, while 400,000 b/d Epic pipeline also commenced filling the line. Both lines are expected to ramp up throughput and export capabilities through the 4th quarter of the year. Furthermore, 900,000 b/d Gray Oak pipeline is projected to begin operations in Q4 2019. All of the above suggest strong potential for robust growth in US crude exports during the last three months of the year”.

The shipbroker added that “meanwhile, across the Atlantic expectations are for sizeable increases in North Sea crude supply, following the start-up of the massive Johan Sverdrup oil field in Norway. Initial loading program shows 12 Aframax cargoes planned for October. Elsewhere, preliminary Urals loading program for October also shows a rebound in Russian crude exports out of the Baltic. This indicates an increasing surplus of crude supply in Europe, with the Johan Sverdrup start-up and more US barrels being shipped into the region being the key drivers. As refinery crude runs in Europe could remain under pressure due to economic turbulence, surplus regional production – North Sea, Black Sea/Mediterranean, Baltic or West African barrels are likely to flow on an increasing basis long haul to the East, translating into higher demand for larger crude carriers”.

Gibson concluded that “while demand is projected to increase, there are also some positive indications on the tanker supply side. There are still 22 VLCC deliveries outstanding until the end of the year, but only 4 Suezmax and 9 Aframaxes/LR2 deliveries remaining. The market will also continue to benefit from scrubber retrofits taking place, with tonnage temporarily out of trading operations. Spectacular spikes in tanker rates have a tendency of being short-lived. Only time will show how long the current strength in the market will last. However, with market fundamentals improving in the 4th quarter, there is indeed potential for rates and earnings to maintain at least some of the latest gains”.

 

Tanker Market Looking Good Entering Fourth Quarter (27/09)

It’s never boring in the tanker market and 2019 has been no exception, with rates rising – for the most part, but the way they did that was never going to be straightforward, with so many factors, most notably geopolitical ones, entering into play. Still, things are looking rosy ahead of the traditionally strong fourth quarter.

In its latest weekly report, shipbroker Allied Shipbroking said that “with just one week to go before we officially enter the last quarter of the year, uncertainty has once again returned to the tanker market after the recent developments in Saudi Arabia, reminding everyone that geopolitical tensions in the region still linger around and be a cause for unforeseen disruptions. The year began with OPEC being modestly optimistic, stating that oil demand is expected to reach the 100.08 mb/d in 2019, increased by 1.29 mb/d compared to 2018, with prospects back then showing that India, China as well as other SE Asian countries will lead on this oil demand rally. However, as we were reaching the end of the first quarter, all forecasts were revised downwards by OPEC, declaring that the estimated growth rate declined to 1.24 mb/d (99.96 mb/d average demand for 2019)”.

According to Allied’s Research Analyst, Mr. Yannis Vamvakas, “the slowdown in growth noticed in the global economy and the increasing uncertainty as part of the US-China tariff war has also dragged down oil demand. Given these facts and with seasonality playing its part as well, it was of little surprise that we saw the average TCE for all crude oil segments posting losses compared to the previous quarter. However, looking at it from a more optimistic angle, the figures witnessed were much better than the respective rates seen back in 2018”.

He added that “moving on to the second quarter, oil demand forecast by OPEC were revised further down, as key oil importers, such as China and India continued showing signs of economic weakening. The growth estimate for world oil demand for 2019 fell to 1.14 mb/d (99.86 mb/d production in total). With the ongoing trade disputes and new tensions rising between Iran and the US, business and consumer sentiments slumped further, darkening the overall market outlook. As a result, freight rates also dropped in the second quarter, with VLCC average TCE reaching US$1,919 (down from US$13,826 in Q1), Suezmax average TCE reached US$13,166 (down from US$19,521 in Q1) and Aframax average TCE closed at US$9,757 (down from US$17,052 in Q1). Once again though, these figures were an improvement compared to their respective figures in 2018. During the third quarter, oil demand forecast by OPEC fell even further, with their latest report showing that oil demand growth in 2019 will be a mere 1.02 mb/d, reaching 99.84 mb/d in total production. At the same time, EIA cut its oil demand growth forecast as well to 900,000 bpd, a noticeably soft figure, as if it were to be the case it would mark it as the first annual growth figure below 1 million bpd since 2011”.

Vamvakas also noted that “it is worth mentioning though that freight rates improved significantly compared to Q3-2018, as shorter tonnage lists in key regions helped markets move upwards. Average y-o-y growth rates stands at 5% for Aframax, 39% for Suezmax and 2499% for VLCC. Crude tanker freight rates have showed improvement compared to 2018, but remaining below their long run averages, we expect the same pattern to follow in the final quarter. We don’t expect any significant changes to take shape on the supply side during the following months, with 103 units scheduled to enter active service over the next couple of months, much lower than the 126 vessels delivered in 4Q18. The paper market is also sharing this bullish sentiment, with Q4 contracts on the rise. Finally, it is worth mentioning that the average rise in rates noted during Q4 over the past 3 years has been 138% for Aframaxes, 162% for Suezmaxes and 315% for VLCCs, fact that further enhances the bullish sentiment, even if demand growth ends up less than what was expected at the start of the year”, Allied’s analyst concluded.

 

Long-Term Outlook Positive for Product Tankers (23/09)

With big changes coming in the refinery landscape in the future, ship owners active in the clean tanker market stand to benefit from longer ton-mile demand. In its latest weekly report, shipbroker Gibson said that “over the next 5 years, the global refinery landscape will continue to evolve, with the IEA projecting that over 9 million b/d of new capacity will be added, roughly twice the level of refined products demand growth over the same time period. With over two thirds of new capacity being added East of Suez, pressure will grow on older, less complex refineries, many of which are located in Europe. Structural changes in global oil products demand and crude supply will also significantly impact on refining margins and arbitrage, not just in Europe, but globally. In the short term, less complex refineries may lag behind, as new regulations come into play, particularly those that lack the ability to upgrade or desulphurize fuel oil. Some may turn to lower sulphur crudes although price premiums for these grades are likely to rise, impacting upon margins. However, as the refining landscape recalibrates post 2020, other structural changes will come into play. Gasoline exports have proved a key source of profitability for European refineries. However, demand growth is expected to slow in the Atlantic Basin, whilst the potential start-up of Aliko Dangote’s Lekki refinery also threatens to starve off a key outlet for European gasoline”.

According to Gibson, “ultimately, many of the older and less complex refineries in Europe will come under increased regulatory and competitive pressure over the next five years, having to deal with IMO2020 and then fight off competition from newer, more efficient plants, located either close to major demand centres, or close to key sources of feedstock supply. This of course a generalisation, many plants in Europe have invested in cokers, hydrocrackers and solvent de-asphalting units to aid the production of higher quality fuels, whilst there will still be significant exports and regional demand for European products. Nevertheless, newer/more efficient plants in the US, Asia and the Middle East will pressure European Refinery runs lower by 2024, with the IEA projecting a 900,000 b/d decline. Even if global oil products demand surprises to the upside, there is still likely to be excess refining capacity”.

“Changes in the European refining scene will also impact crude trade flows at a time when North Sea crude production is expected to rise. By 2024, Europe is expected to see its crude production increase by 440,000 b/d. However, with refinery utilisation projected to fall, crude exports from the region look set to increase. Imports into the region are also expected to ease back, boosting the overall crude surplus in the Atlantic basin. With the majority new refining capacity being added in the East, shipowners stand to gain from stronger tonne mile demand growth, although shorter and medium haul trading opportunities may well diminish”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “the week started with a degree of uncertainty after the weekend attack. On the back of this, both some VLCC Owners and Charterers held back until there was some clarity as to how the market would react. One Chinese Charterer dominated the amount of fixing throughout the week, proved to be a wise move. As the week progressed, rates have started to rise gradually. Last done is 270,000mt x ws 69.5 for Far Eastern destinations. With muted interest for Western destinations, it is nearer to mid ws 30’s on 280,000mt. The attacks in Saudi caused mixed reaction from Suezmax Owners; some were hesitant to engage but not enough to alter the scene completely. The more compelling story is action elsewhere and Owners ballasting away from the MEG, which will likely lead to a tonnage deficit further down the line. Rates have settled in the mid ws 30’s for TD23, with upside on the horizon heading into next week. Levels to the East hover around 130,000mt x ws 90. Aframaxes in the AGulf began the week looking flat, trading sideways at 80 x ws 100 levels. However, behind the scenes the market makers were rapidly looking to take cover and by Tuesday/Wednesday an influx of cargoes had flooded the market. Rates are up to 80 x ws 120 for AGulfEast, with potential for further gains”, the shipbroker concluded.

 

Historic disruption to Saudi oil supply to have severe implications for oil and tanker markets (20/09)

Global spare production capacity is not enough to compensate for the decline in Saudi Arabia’s oil production after the recent attacks on two of the country’s oil facilities and the consequent inventory drawdown will therefore underpin oil prices and adversely affect tanker demand if supplies take longer to be restored.

The oil market lost about 6% of global supply in the biggest single disruption ever, when drone strikes on two critical oil facilities in Saudi Arabia knocked reduced oil production in the Kingdom by about 5.7 mbpd on 14 September. The explosions set off fires at the Abqaiq oil processing facility (7.0 mbpd capacity) and the nearby Khurais oil field (1.5 mbpd capacity), halting more than 50% of the country’s production.

While Yemen’s Houthi group claimed responsibility for the attack, the US put the blame squarely on Iran. Saudi Arabia’s oil infrastructure has been hit by the Houthis many times before, but there has not been any disruption in supply. This latest attack, which follows last month’s drone attack on the Shaybah natural gas liquefaction plant and attacks on two oil pumping stations in May, highlights the vulnerability of Saudi Arabia’s oil infrastructure to Houthi attacks.

Although the fire at both the facilities is now under control, it is still not clear how long it will take to fully restore 5.7 mbpd of production. Other OPEC producers have spare capacity of around 0.8 mbpd, but it will not be enough to compensate for the big drop in the Saudi output. In addition, the spare capacity will take time to come online. Therefore, the disruption to about 6% of global supply will have severe implications for the oil and tanker markets if Saudi Arabia’s oil supply remains affected for long. Asia Pacific buyers will be particularly affected as they account for about 70% of Saudi Arabia’s total crude exports of around 7 mbpd.

While Saudi Arabia is planning to use oil from its storage facilities to partly compensate for the supply disruption, the oil market will be in short supply as long as the production remains affected. The country has about 188 million barrels of crude oil stock, which is equivalent to about 26 days of its exports. If Saudi Arabia taps its oil inventories to compensate for half of the total loss in production, there will still be a supply deficit of about 2.8 mbpd.

In such a situation, if Saudi’s supply remains affected for one week, there will be a modest decline of 10 VLCC loadings in the Arabian Gulf during this period. If other producers in North America, Latin America and Africa manage to compensate for the shortage in Saudi Arabian supply in the short run, the crude tanker market will be positively impacted as tonne-mile demand for VLCCs will increase, with most of the supply moving to Asia.

However, if the Saudi Arabian crude oil supply remains affected for one month, the global oil and tanker markets will be severely impacted. Although the country’s inventory of 188 million barrels can fully compensate for the 5.7 mbpd drop in supply for one month, this is highly unlikely as it will exhaust most of Saudi Arabia’s crude oil stocks. If the supply remains affected for one month and Saudi Arabia manages to meet half of the disrupted supply through inventories, the country’s crude oil inventories will come down to around 100 million barrels. But as the remaining half of the global supply will come from inventory drawdown outside Saudi Arabia, it will lead to a significant decline in the demand for tankers. Since the average haul-length of Saudi Arabian crude is about 5,500 nautical miles (NM), the drop of 2.8 mbpd in the country’s exports for one month will render more than 50 VLCCs unemployed over this period. In such a situation, while oil prices will surge, freight rates in the crude tanker market will come down significantly.

 

Tanker Market in Limbo After Latest Attack on Oil Facilities (18/09)

More tanker market turbulence should be expected in the coming weeks, as a result of the latest drone attacks, this time on Saudi Arabia’s oil facilities. In its latest weekly report, shipbroker Banchero Costa said that “on Saturday, September the 14th, a reported drone attack occurred on Saudi Arabian oil processing facilities at Abqaiq and oil production facilities at Khurais. Saudi Arabia is the world’s biggest oil exporter. The incident resulted in production suspension of 5.7 mln bpd of crude oil, which is almost 60% of the Kingdom’s 9.63 mln bpd production in August 2019, and about 5% of global supply. Saudi Arabia’s return to its full oil supply capacity could take “weeks not days”, a source close to the matter told Reuters on Sept 15th”.

The shipbroker noted that “according to Aramco, the Abqaiq facility is the largest crude oil stabilization plant in the world, processing more than 7 mln bpd of crude. Considering the plant plays a vital role in removing the sulphur impurities and reducing the vapor pressure of the crude in order to make it safe for being transported by tankers, exports from the Kingdom’s main terminals of Ras Tanura and Juaymah could be expected to have an impact, if there is an extended delay in bringing the facility back into operation. This was seen in the number of ships that have lined up at the port’s waiting anchorage, which have increased from just 5 ships waiting to load on Thursday (12th Sept) as per the port line up to at least 16 VLCC’s waiting on Sunday morning (15th Sept)”.

According to Banchero Costa, “oil prices surged on Monday, September 16th, with Brent recording its biggest intra-day percentage gain (19%) since the Gulf War in 1991, but later corrected downwards after U.S. President Donald Trump said he had authorised the release of oil from the U.S. Strategic Petroleum Reserve. The attacks on Saudi oil installations on Saturday are unlikely to reduce the Kingdom’s oil exports dramatically since it holds a significant amount of crude oil and petroleum products in storage. Aramco has the option to draw on the Kingdom’s 188 million barrels of reserves to maintain exports of 7 million barrels per day that mostly go to Asia”.

The shipbroker added that “however, the accident could again add a significant risk premium to oil prices in the medium term, especially as it reduces the inventory and spare capacity cushion, which plays a key role in price formation. The world’s oversupplied oil market certainly has some scope to absorb a short-term shock. Developed economies’ oil stocks are above five-year averages, and the combination of a global economic slowdown and increased output by other countries means that OPEC was already considering to voluntarily further cut back on production. However, most of the world’s spare capacity is in Saudi Arabia itself. The attack also constrained Saudi Arabia’s ability to use the more than 2 million bpd of spare oil production capacity it held for emergencies. The Kingdom has for years been the only major oil producing country that has kept significant spare capacity. Before the attack, OPEC’s global supply cushion was just over 3.21 mln bpd, according to the IEA. Saudi Arabia – the defacto leader of OPEC – had 2.27 mln bpd of that capacity. That leaves around 940,000 bpd of spare capacity, mostly held by Kuwait and the United Arab Emirates. Non-OPEC members such as Russia are pumping near capacity, with perhaps only 100,000-150,000 bpd of available additional production. Shale producers in the USA could arguably rise production, but there are constraints on how much the United States can export because oil ports are already near capacity”, Banchero Costa concluded.

 

Tanker Shipping: A Boost From The 2020 Sulphur Cap Will Not Make Up For A Fast-Growing Fleet (18/09)

Even with the sulphur cap expected to give a boost to the tanker market, high fleet growth will put pressure on earnings.

Demand drivers and freight rates

Rising geo-political tensions have led to disruptions to the tanker shipping industry and all other ships trading in the Persian Gulf. Tensions have risen following the expiry of waivers to the US imposed Iran sanctions, as well as attacks and arrests of ships sailing through the Strait of Hormuz.

Despite the ending of waivers which the US had hoped would lead to all countries stopping their imports of Iranian crude oil. This has not been the case with the Chinese in particular continuing; their crude oil imports from Iran totalled 11m tonnes in the first six months of the year. This is 30.1% lower than last year and imports have slowed throughout the year; averaging 2.3m tonnes in the first 4 months but subsequently slowing to 1.1m tonnes in May and 0.9m tonnes in June.

Exact data for Iranian crude oil exports does not currently exist. Reuters has reported that a Trump administration official estimates that 50-70% of Iranian’s crude oil exports are for China and around 30% go to Syria. The now renamed Adrian Darya 1 (formerly Grace 1) was arrested while believed to be sailing with crude oil from Iran to Syria, in breach not only of US sanctions against Iran, but also EU sanctions against Syria.

Tensions remain high in the Persian Gulf, where a US-led mission to ensure the security of international ships when transiting the Strait of Hormuz has so far been joined by the UK, Australia and Bahrain. Iran’s President Rouhani has been quoted by Reuters as issuing a veiled threat that, should Iran’s crude oil exports be forced to zero, security in international waters could not be guaranteed.

In reaction to the first attacks, on two tankers transiting the Strait of Hormuz in June, crude oil freight rates from the Persian Gulf to China doubled over the course of a few days, as BIMCO reported. They soon returned to previous levels as it became clear that despite the added risk, maritime operations would continue at close to normal levels and shipowners would have to absorb the higher insurance cost.

There was a sudden jump in earnings for the largest crude oil tankers in August, with VLCC earnings reaching their highest point of the year at USD 37,239 per day on 16 August. Earnings for the smaller vessel sizes have remained much more stable, and after falling fast at the start of the year, Suezmax earnings have averaged USD 16,716 per day between June and August, while an Aframax tanker has in the same period earned an average of USD 12,215 per day.

Oil product tanker earnings have been volatile over the summer, falling to below USD 10,000 per day for all vessel sizes in July, but have since risen again, with LR2 rates reaching USD 21,542 per day on 9 August, and at the end of August, remain above USD 19,000 per day.

US exports of finished petroleum products were down 4.5% in the first five months of the year. A longer than usual refinery maintenance season which was brought about to allow refineries to produce the low sulphur fuel oil needed by the maritime industry come 2020 by avoiding further maintenance shutdowns which are traditionally performed in the last few months of the year. Exports of finished petroleum products have so far this year averaged 3.3m bpd.

Fleet news

By the middle of August, the total tanker fleet has already grown by 4.3%. Growth in the crude oil tanker fleet is particularly high with BIMCO expecting full year growth of 5.3%. The higher fleet growth comes not only from increased deliveries, but also from slower than expected demolitions.

Only 2.1m DWT of crude oil tankers has been demolished so far this year, in response BIMCO has lowered its expectations for crude oil tanker demolitions in 2019 from 9m to 4m DWT.

In contrast to the disappointing demolitions, ordering has picked up. New orders for the total tanker fleet have increased to 13.1m DWT. Since May 6 VLCCs of 300,000 DWT or more have been ordered as well as 30 Aframaxes. As BIMCO expects the total tanker fleet will grow by 5% this year, the already over supplied market has no need for extra ships, and further ordering will only worsen future market conditions.

Demolitions of product tankers have also slowed down through the year, with owners preferring to keep their tonnage active in the hope of benefitting from additional demand for oil product tankers as we approach IMO 2020, and new low sulphur fuel types are made available around the globe. BIMCO expects this will provide a much-needed boost to demand for tanker shipping.

With only 0.6m DWT having left the oil product fleet, deliveries of 6.4m DWT has meant fleet growth of 3.5% this year, with BIMCO expecting full year fleet growth of 4.4%. Even with a demand boost to the oil product tanker shipping sector expected to come, this high fleet growth will put pressure on earnings.

Recently contracting activity has slowed down in the oil product tanker market, with only nine MRs being ordered in June and July. The orderbook for oil product tankers now stands at 11.9m DWT, which is 15.9% lower than in August 2018, as more has been delivered than ordered in the past twelve months, a positive trend to be continued to enable a return to a more balanced market.

Outlook

In July OPEC+ ministers announced that they would maintain their current output restrictions, of 1.2m barrels per day (bpd), aiming at reducing high stocks in an oversupplied market. The US has continued to increase its crude oil production and exports, with seaborne exports reaching a new record high of 11.9m tonnes in June. South Korea became the largest importer of US seaborne crude oil exports, after China all but disappeared from the market as its relationship with the US soured.

Chinese crude oil imports from the US fell by 76.2% in the first six months of the year. Over the same period, total Chinese crude oil imports are up 8.8% reaching 244.6m tonnes. Saudi Arabia has overtaken Russia as the largest supplier of crude oil to China, the two nations sent 37.8m and 37.7m tonnes respectively in the first half of the year.

The increase in volumes from Saudi Arabia of 10.5m tonnes is good news for the shipping industry, as most Russian crude oil exports to China are through pipelines, and therefore have no effect on the crude oil tanker market.

Although Chinese imports from Saudi Arabia boost the shipping industry more than those from Russia, a resolving of trade tensions and a return of Chinese buyers to the US crude oil market would provide an even larger boost for crude oil shipping, as it would increase tonne mile demand.

Another boost to the industry comes from the ramping up of refined oil product exports around the world as the traditional Autumn maintenance season will be shorter, and volumes won’t fall as much as usual. As refineries start producing and selling low sulphur fuel, oil product tankers will be employed to transport the product to where it is needed.

Any further escalation of the situation in the Persian Gulf, as Iran has hinted could come should their exports be forced to zero, would have a severe impact on the tanker shipping industry as around half of all seaborne crude oil is transported through the Strait of Hormuz. Should it be further threatened, or outright closed, the tanker market would face severe consequences.

 

Tanker Market “Hostage” of Financial Turmoil (16/09)

The turmoil in the global economy is taking its toll in the tanker market, with demand for oil expected to take a turn for the worse. This is expected to have a negative impact in demand for crude oil tankers as well. In its latest weekly report, shipbroker Gibson said that “global oil demand looks set to grow at a slower pace than first anticipated, many energy analysts have concluded. Since the start of the year, many forecasts for the immediate future have frequently been downgraded as global trade wars and disappointing economic performance weigh on their decisions to downgrade forecasts”.

According to Gibson “the EIA said in its latest Short-Term Energy Outlook that it expects oil demand to grow by just 900,000 b/d in 2019, following a series of downgrades earlier in the year. In July, it said 2019 demand would grow by 1.1 million b/d, while at the start of the year the expectations were for oil consumption to grow by 1.5 million b/d in 2019. It isn’t just the EIA downgrading forecasts. OPEC on Wednesday cut its outlook for growth in world oil demand both in 2019 and 2020 due to an economic slowdown. The producer group also said that these projections highlighted the need for ongoing efforts to prevent a new glut of crude. The report stated that global oil demand would expand by 1.08 million b/d next year, 60,000 b/d less than previously estimated. The expectations were also lowered for world economic growth in 2020, from 3.2% to 3.1%. Furthermore, OPEC indicated that the market would be in surplus and that next year’s increase in oil demand would be outpaced by “strong growth” in supply from rival producers such as the United States. On this basis, demand for OPEC crude will average 29.40 million b/d in 2020, down 1.2 million b/d from this year’s level. Analysts this week also reported stocks in July exceeding the five-year average by 36 million barrels, a measure OPEC watches closely”.

“In addition, OPEC reported that despite voluntary production cuts, its output rose in August, by 136,000 b/d to 29.74 million b/d. It was the first increase this year, as Saudi Arabia, Iraq and Nigeria all boosted supply. Saudi Arabia alone raised its production by just over 200,000 b/d to 9.79 million b/d, but it must be stressed that the country continues to pump far less than its quota of 10.31 million b/d. Losses from Iran and Venezuela are helping with supply reductions; however, last month’s increase puts OPEC output further above the 2020 demand forecast. The report suggests that if OPEC keeps pumping at August’s rate and other things remain equal, there will be an oversupply of 340,000 b/d next year”, Gibson said.

The shipbroker concluded its analysis by noting that “oil prices continue to linger around the $60/bbl mark, down from April’s peak of $75/bbl, despite extensive OPEC+ production cuts. Large economies are constrained by geopolitical uncertainty, which is causing markets to stall. Until a trade breakthrough is reached between the US and China and other political uncertainties around the globe are tidied up, the world economy will continue to look fragile and behave unpredictably”.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “VLCCs agitated for improvement as the market moved into the final phase of the September programme but although the top end of the range was slightly prised open, there wasn’t quite enough volume to tighten sufficiently to allow for a mass break-out and holidays in the Far East end the week also compromised. It’s all about October next week, but ‘start again’ for the market. Rates to the East moved to a peak ws 53.5 to China on modern, with rare runs to the West marked in the mid ws 20’s, via Cape. Suezmaxes had very little to chew on and merely maintained a very flatline front. Rates again compressed to ws 27.5 West, and to ws 70 to the East, with no early change likely. Aframaxes slid along, and then eased a little to 80,000mt by ws 97.5 to Singapore with a slow feel persisting”, the shipbroker concluded.

 

Tanker Market Flat During August (14/09)

The tanker market was broadly unchanged during the month August, according to the latest OPEC report. Dirty vessel spot freight rates were broadly flat in August as gains in VLCCs were outweighed by declines in average rates for Aframax and Suezmax. A pick up in tonne-mile demand and reduced deliveries supported the VLCC market at the start of the month before slowing activities allowed availability to build, capping gains. Clean tanker market spot freight rates remained under pressure with strong declines west of Suez offsetting an improvement east of Suez. The return of refineries from maintenance reduced the need for interregional trade flows.

Spot fixtures
Global spot fixtures edged lower in August, down by around 0.16 mb/d or 1% m-o-m and around 1.37 mb/d or 7% lower than the same month a year ago. Indeed, global spot fixtures have broadly underperformed compared to the previous year, as the seasonal rise in activity was insufficient to offset exiting availability.

OPEC spot fixtures also remained below y-o-y levels. In August, OPEC spot fixtures averaged 13.90 mb/d, marginally lower than the previous month and about 0.27 mb/d or 2% lower y-o-y. Fixtures from the Middle East-to-West averaged 1.28 mb/d in August, representing a drop of 28% m-o-m and 36% y-o-y. The decline in crude flows to North America has been the one of the key contributors to this decrease, as burgeoning US crude supply dampened the need for inflows from outside the region. In contrast, fixtures on the Middle East-to-East route increased 0.62 mb/d or 8% in August to 8.21 mb/d. Annually, fixtures on the route were some 0.35 mb/d or 4% higher than last year’s levels. New refinery capacity in China and the return of Asian refineries from maintenance helped support the y-o-y and m-o-m increase. Outside of the Middle East fixtures averaged 4.41 mb/d in August, a decline of 0.22 mb/d or 4.7% from the previous month but an increase of 0.11 mb/d or 2% compared to the same month last year.

Sailings and arrivals
OPEC sailings rose 0.5% m-o-m in August to average 24.72 mb/d, but were down 0.2% y-o-y. Sailings from the Middle East increased 2.5% or 0.44 mb/d m-o-m and gained 1.2% or 0.22 mb/d compared to the same month last year. In monthly terms, crude arrivals in August declined in all regions except West Asia, but showed gains in annual terms in all regions except North America. Arrivals in the Far East declined 0.25 mb/d or 2.7% m-o-m but were 0.13 mb/d or 1.5% higher y-o-y. Arrivals in Europe declined by 0.06 mb/d or around 0.5% m-o-m, but were 0.20 mb/d or 1.7% higher y-o-y. Arrivals in North America declined by 0.06 mb/d or 0.6% m-o-m and fell by a stronger 0.73 mb/d or 6.9% y-o-y. Arrivals in West Asia were flat m-o-m in August at 4.47 mb/d. This partly reflects crude flows to India which have held rather stable so far this year.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
VLCC spot freight rates rose in August with gains across all routes. Middle East-to-West saw an increase of 35% m-o-m to stand at WS27 points in August. Freight rates registered for tankers operating on the Middle East-to-East route rose 30% compared to the previous month, to stand at WS57 points in August. West Africa-to-East also showed gains in August, increasing 24% from a month ago, to average WS58 points.

Suezmax
Suezmax average spot freight rates fell further in August. The decline came from tankers operating on the West Africa-to-US Gulf Coast (USGC) route, which saw an 5% drop in spot freight rates to average WS57. This was sufficient to outweigh a gain in Northwest Europe-to-USGC rates, which recovered from the losses seen in the previous month, to stand at WS47 points

Aframax
The Aframax sector declined further on most routes in August, with only the Caribbean-to-US East Coast managing to avoid a loss, remaining flat at WS75 points. Both the intra-Med and Med-to-Northwest Europe dropped by 13%. The Indonesia-to-East route slipped 5% to average WS88 points.

Clean tanker freight rates
Clean spot tanker freight rates showed diverging trends in August, with West of Suez losses overwhelming smaller gains East of Suez. Average spot freight rates West of Suez declined 28% on average as the return of refineries from maintenance left local product markets well supplied. The Mediterranean-to-Mediterranean led losses with a decline of 33% to WS103 points, followed by the Med-to-Northwest Europe route which came in a close second with a decline of 32% to WS111. Average rates on the Northwest Europe-to-US East Coast route fell 16% to WS99. To the East of Suez, clean tanker freight rates rose around 8% in August from the previous month to WS112, with the Middle East-to-East route increasing by 17% to average WS112 points and Singapore-toEast route slightly higher at WS131.

 

Petrochemical to Drive Future Tanker Demand (09/09)

When deciding for the type of tanker to invest for in the next 20 years, ship owners should take a closer look at future demand for various oil-based products, as things are bound to differentiate considerably, compared to today’s conditions. In its latest weekly report, shipbroker Gibson said that “the so called ‘War on Plastics’ has been steadily gaining traction over the past few years, with major companies such as McDonald’s and Carlsberg, to name a few, seeking to reduce the presence of single use plastics in their businesses. Governments are increasingly regulating plastics use, with the UK banning plastic straws from April 2020. Other initiatives will be rolled out in due course. Admittedly, however, the use of plastics is still projected to grow strongly over the coming years, largely driven by the emerging economies, where the desire for economic growth often outweighs environmental concerns. Given that demand for plastics is expected to make up an ever-increasing share of oil demand, understanding the drivers behind this demand will have ever increasing importance for tanker owners going forwards”, the shipbroker said.

Gibson noted that “the good news for the tanker market is that in the short term, petrochemical demand is growing strongly over the next five years. In fact, according to the IEA, 30% of demand growth between 2018 and 2024 will be driven by demand for plastics and petrochemicals. If more projects are announced in the short term, then the demand growth could be even stronger come 2024”.

 According to the shipbroker, “beyond the next 5 years however, the forecast for growth is more uncertain. BP stated in its recent ‘World Energy Outlook’ that the ‘single-largest projected source of oil demand growth over the next 20 years is from the noncombusted use of liquid fuels in industry, particularly as a feedstock for petrochemicals, driven by the increasing production of plastics’, but, the oil major also notes that regulatory developments may threaten this growth. If new regulations are introduced to eradicate the use of single use plastics, then demand growth for petrochemicals could slow drastically. However, even with regulatory threats in the future, companies are stepping up investment in petrochemicals. Indeed, before worrying about slower demand growth for plastics, which may take more than 20 years to materialise, refiners and major industrial players are focusing on the greater threat from a slowdown in gasoline demand, which is likely to be squeezed by the rise of electric vehicles and more efficient engines. In the IEA’s most recent World Energy Outlook, under it’s ‘New Policies Scenario’ the Agency predicted that whilst there is increasing regulatory action around the use of single use plastics and higher recycling rates, oil use as a petrochemical feedstock would still grow by 5 million b/d by 2040. Even in the IEA’s ‘sustainable development scenario’, which assumes policy interventions to address climate change, the petrochemicals sector still registers demand growth, whereas demand for transportation fuels and other sectors declines. Industrial players appear to be aligning their long-term strategies to this view. Indeed, Reliance Industries recently announced its ambition to invest in Jamnagar to produce only jet fuel and petrochemicals in order to extract maximum value from every barrel. Saudi Aramco has also sought to expand its petrochemical operations through new projects, joint ventures and most notably, its pending acquisition of SABIC”.

Gibson concluded that “in short, the tanker market still has some way to go before it is likely to be impacted by the ‘War on Plastics’. However, at some point over the next 20 years demand for gasoline, and perhaps other liquid fuels is expected to slow. With petrochemicals taking a more important role driving future oil demand, shipowners will need to ensure their investment decisions align with the production strategies of the major industrial players”, the shipbroker concluded.

 

Brexit: The Impact on Tanker Trade (02/09)

Another potential factor of negative impact in the tanker market can come from the aftermath of a no-deal Brexit. In its latest weekly report, shipbroker Gibson said that “if Boris Johnson gets his way, the ever-impending event that is Brexit will soon be upon us. Little has been said about the impact on the wider international tanker market, with the UK being a relatively small piece of global tanker trade; however, Brexit will have an impact, most notably on regional trade between the UK and EU”.

According to Gibson “for 2019 to date, 57% of UK clean petroleum product (CPP) exports have gone to the EU, currently subject to zero tariffs. However, if the UK crashes out of the EU without a deal, British CPP exports to the EU would be subject to non-EU country tariffs of 4.7%. For imports, the UK may consider placing 0% tariffs on fuel imports; however, if it elects to do so for one country, under WTO rules it must do for imports of the same product from all countries. With tariffs being placed on product exports to its biggest market (the EU) and 0% imports likely on fuel imports, the UK refining industry would be placed at a competitive disadvantage, with this likely to impact trade flows. For example, Valero’s Pembrokeshire based refinery has exported just under a quarter of all its products so far this year to Ireland. With tariffs being introduced, it may be more competitive for Ireland to source these volumes from the EU. However, subject to the implementation of bilateral trade deals between the UK and other counterparties, it may prove more economical to push UK CPP exports further afield, for example to the US or West Africa. In effect these inefficiencies of supply could create increased tanker demand”.

 “However, alternatively, a scenario may also evolve whereby the UK reduces both its exports and imports. Whilst currently much of the UK’s own product supply is retained, some areas, such as the Thames region tend to get most of their supply from the Belgium and the Netherlands. If tariffs are placed on UK exports, then it may prove more profitable to ship barrels coastally, rather than export. A leaked government document recently stated that the implications of a no-deal Brexit could force two UK refineries to shut down if tariffs were imposed because it would make them non-competitive compared to facilities within the EU. Although some refineries such as Total’s Lindsey refinery sell most of their product straight back into the UK. Analyst views are mixed; however, reduced trading flexibility would almost certainly impact margins, and potentially force refining runs lower”, Gibson said.

The shipbroker added that “between now and October 31st, there remains a great deal of uncertainty. Will there be a deal, or no deal? Without a deal, UK refineries will be impacted, to what degree is unknown. Tanker trade will be impacted. However, whilst it may be significant for smaller vessels trading regionally across North West Europe, the impact for the global tanker market will likely be muted”.

Meanwhile, in the crude tanker market this week, Gibson said that “a drip fed VLCC market has allowed rates to ease and allowed the established upward trend of last week to make a U-turn. Rates have taken a hit as the rate of fixing has slowed, allowing Charterers to achieve below last done numbers. Rates in the area have now adjusted to mid – low 60’s for East and high 20’s for West, with the list remaining healthy. For any gains, the market will need to see a higher concentration of cargoes next week. Suezmaxes were comparatively busy in the East this week, but a consistent supply of ballasters has kept rates more subdued than could have been. West rates have crept up to 140 x ws 35 with the East steady at 130 x mid 70’s. Little change is expected next week”, the shipbroker concluded.

 

Tanker Demand to Suffer Venezuelan Blow (27/08)

The tanker market is set for another blow emanating from the latest developments from the Venezuelan oil crisis. In its latest weekly report, shipbroker Gibson said that “in January 2019 the Trump administration announced tough sanctions against PDVSA, designed to halt US imports of Venezuelan crude. The US government also blocked access to its financial system for PDVSA transactions. Overall, sanctions have had the desired effect. Crude trade to US refineries came to a halt since February, down from approximately 0.5 million b/d in 2018. US also stopped exporting clean petroleum products (CPP)to Venezuela, most notably naphtha, used to dilute extra heavy grades to make synthetic crude for exports. Venezuela was largely unable to find a replacement for US clean products, with the volume of CPP imports into the country down by more than 50% compared to levels in 2018. Meanwhile, the economic and political situation in the country continued to deteriorate, while the mounting shortage of skilled personnel, financing and badly needed repairs/maintenance for oil installations translated into a further decline in the country’s crude production. The IEA estimates that Venezuela’s output declined between January and July by 470,000 b/d, down to 0.81 million b/d, its lowest level in decades”.

The shipbroker added that “despite the decline in absolute volumes, long haul crude shipments to Asia (mainly to China and India) have continued, being backed by debt to Chinese and Russian companies. In fact, long-haul trade has somewhat increased in recent months. Preliminary results from ClipperData show that the country’s crude exports to the East averaged around 675,000 b/d during the 1st half of 2019, up by nearly 100,000 b/d versus the same period last year. However, these volumes are still below the levels seen in 2016/17. It also appearsVenezuela has made some progress in adapting to challenges faced. In July Argus reported that PDVSA started the transition of its inactive heavy crude upgraders, used to produce synthetic crude mainly for US sales, into blending sites to maximise production of Merey blend, which is in demand for Asia buyers. AIS data supports this statement, with shipments of the grade up this year versus the historical trend. More recently, it has also been reported that PDVSA signed an agreement with a Chinese engineering company to repair Venezuela’s refineries. Venezuela will repay in oil products”.

Gibson also noted that “taking into account these developments, it is perhaps not surprising to see fresh US sanctions, with the Trump administration freezing all Venezuelan government assets in the US. The latest sanctions do not explicitly sanction nonUS companies that do business with the US; however, the order threatens to freeze US assets of any entity determined to have “materially assisted” the Venezuelan government. Most likely, it is up to the US authorities to decide what “material assistance” actually means and so the willingness to sanction directly Russian and Chinese companies is yet to be tested”.

The shipbroker concluded that “all in all, the position of the Maduro government appears increasingly uncertain, with the latest sanctions only adding to a long list of problems faced. Reuters has already reported that China National Petroleum Corp (CNPC) has halted August loadings from Venezuela, as the company worries that it could be hit by secondary US sanctions. Potentially, Venezuela’s crude output could decline further and with it, long haul trade to the East. On its own, this undoubtedly is a negative development for tanker demand; however, with rising output out of the US, Brazil and robust prospects out of neighbouring Guyana, this will simply slow but not stop the growth in long haul trade from the Americas to the East”.

 

Tanker Owners Could Have a New Market Soon (12/08)

The market for ship tankers could soon welcome a new member in Guyana. In its latest weekly report, shipbroker Gibson said that “there may be few new frontiers left in the oil market, with most regions having been tested, even if deemed to be uneconomical in the current oil era. However, from next year there will be a new kid on the block – Guyana. Throughout history, Guyana has hardly made it onto the tanker map. Despite sharing a boarder with Venezuela to the north and Brazil to the south, the country has never produced oil on a commercial scale. Even from a demand perspective, the country imports only minimal volumes of refined products and has no domestic refining capacity”.

“However, Guyana is now gaining international focus as exploration and production (E&P) activity ramps up. Major companies have joined the E&P efforts in the country, including ExxonMobil, HESS, CNOOC, Tullow, Repsol, Total and Qatar Petroleum, among others. By the end of 2020, oil production capacity is expected to reach 120,000 b/d as the Liza Phase 1 field starts up. Currently the FPSO Liza Destiny is en route to Guyana from Singapore and due to arrive on site later this month. Liza crude will load directly from the Liza Destiny FPSO and will be relatively light and sweet with an API of 32.1 and sulphur content of 0.51%. This FPSO will be followed by another two firm units, when the Liza Phase 2 field (220,000 b/d) and Liza Phase 3 (180,000 b/d) are due to come online in 2022 and 2023 respectively. Another two FPSOs could follow, taking production up to 750,000 b/d by 2025, subject to the final investment decision (FID) being sanctioned”, Gibson noted.

According to the shipbroker, “with a population of just 780,000, the country’s oil production is likely to prove transformative for the country. In 2018 the country’s GDP was estimated at $3.6 billion according to the World Bank, with its stake in the various fields worth potentially $13-15 billion in revenue by 2025. However, it may not all be plain sailing for the country. Given its proximity to Venezuela, Maduro’s regime has launched several bids to claim sovereignty over some of the oil fields and even sent its navy to harass E&P activity, albeit with limited success. The country is also preparing for elections following a vote of no confidence against the incumbent government, whilst many have called for a review of oil contracts after suggestions that the country sold off its oil too cheaply. E&P companies may therefore hold off on another further FID until the political environment becomes clearer”.

Gibson added that “nevertheless, barring any unanticipated delays, tanker owners can expect a new load area to open up from 2020. Whilst the volumes will be small at first, they will gradually increase up to 2025 and perhaps beyond. More importantly, although production of 750,000 b/d still puts the nation well down the list of top oil producing countries, the lack of domestic refining capacity and local demand means that exports wise, the country will make it into the top 20 crude oil exporting countries”.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “VLCCs maintained a brisk early pace that complemented solid Atlantic interest and allowed owners to score new highs that hadn’t been revisited since the Spring. The August programme is entering it’s final phase however, and widespread holidays in the East from late this week will both combine to create a drag anchor to any material further gain over the short term, at least. Currently rates operate at up to ws 55 to the Far East for modern units with runs to the West marked in the mid ws 20s via Cape. Suezmaxes showed little rate variance over a rather flat footed week – 130,000 at around ws 75 to the East and to ws 32.5 to the West currently, and little change forecast though early next week either. Aframaxes kept to a slow bell through the week and just about hung on to an average 80,000 by ws 100 to Singapore with another testing phase to come”.

 

Tanker Charters a Very Complex Affair (09/08)

On the back of the past couple of months’ turmoil in the Gulf Arab region, fixing a tanker on a charter basis is no easy task. In its latest weekly report, shipbroker Intermodal commented that “on the 12th of May four tankers were attacked near the coast of Fujairah. The tankers hit were waiving international flags such as that of Norway. A month later a second attack took place, involving 2 tankers passing near the straits of Hormuz. The above incidents were followed by the detention of an Iranian VLCC in Gibraltar by the British Royal Marines, the “Grace 1”, which was carrying crude oil to be discharged in Banyas, Syria. It should be noted that the discharging of crude oil cargo in Syria is a breach of EU Sanctions. Following this, British ships were threatened when passing the Straits of Hormuz /Gulf of Oman, thus resulting in many tankers which were supposed to load inside Arabian/Persian Gulf, not proceeding with loading/discharging ops. In other instances, British naval ships have been escorting ships, as happened with BP’s ship the MT British Heritage & the MT Pacific Voyager. To date the situation in the area remains volatile, while Iran’s official position is that there is no involvement from their side in any of the attacks whatsoever. Meanwhile the market remains under pressure without any signs of significant improvement”.

According to Intermodal’s, Dimitris Kourtesis, Tanker Chartering Broker, “throughout the above-mentioned period the Joint War Committee listed the Persian Gulf and Gulf of Oman as high-risk areas, and concurrently war risk premiums for ships trading in the area have rocketed. The present situation should have owners with ships trading in the area, double checking their contractual rights and protective clauses in their time charter parties”.

Kourtesis added that “during the negotiations of fixtures, Owners/Charterers negotiate and mutually agree the trading areas, though if the specific area has not been excluded then it’s something that needs to be renegotiated/reviewed on a case by case basis. War Risk clauses depending on how they are drafted, may offer protection to owners, by giving the option of terminating the TC/P in the event of a war risk i.e. Shelltime 4, 1984, or enabling the master to refuse charterers orders and timely request new voyage orders”.

Intermodal’s broker added that “another important point to stress is the “Safe/Unsafe Port” situation. If the TC/P lacks a clause targeting directly to the situation of safe/unsafe port or berth, then it’s solely down to Owners/Masters’ discretion. Below there is a good example of how this situation can be complicated, and therefore needs to be assessed on a case by case basis according to the UK Defense club”.

“The Saga Cob [1992] 2 Lloyd’s Rep. 545, there had been an attack on a ship at an Eritrean port within the previous three months and there had also been other attacks, yet the port was deemed not unsafe and the charterers were not in breach of the safe port warranty by ordering the ship there. By contrast, in The Chemical Venture [1993] 1 Lloyd’s Rep. 508, there had been three attacks on ships in the previous eleven days at a single port. The court held that the port was unsafe and that it was negligent for charterers to send a ship there. To put it briefly, the present situation is not straightforward, before Owners/Charterers order a ship to enter a high war risk area/port/berth they have to timely asses their already agreed contractual agreement, and discuss with their clubs and legal associates before taking any decisions, on how to treat the situation. A cautious and patient approach could prevent claims/disputes with the contractual parties of the TC/P in the near future”, Kourtesis concluded.

 

Ship Owner Optimistic About Tanker Market Recovery (06/08)

With the first half of 2019 plagued by increased net tanker fleet growth and a higher than expected refinery maintenance, things weren’t going to be all that rosy for tanker owners. However, ship owner Teekay Tanker remains optimistic on the future. The ship owner said in a recent analysis that “crude tanker spot rates declined during the second quarter of 2019 compared to the first quarter of 2019 primarily due to seasonal factors, as well as some near-term headwinds which have continued into the beginning of the third quarter. Lower OPEC oil production has impacted crude tanker demand during the first half of 2019, with OPEC crude oil production down by around 2.5 million barrels per day (mb/d) since November 2018. This reduction is due to both over-compliance with the 1.2 mb/d of supply cuts announced in early-2019 and reduced volumes from Iran and Venezuela due to U.S. sanctions. In addition, the elimination of Venezuelan oil shipments to the U.S. has resulted in a reduction in shipping activity in the U.S. Gulf / Caribbean Aframax market. Furthermore, at its most recent meeting, OPEC decided to extend production cuts through to March 2020 in an effort to reduce global oil inventories and support oil prices”, says Teekay Tanker.

The shipowner added that “tanker rates have also been impacted by heavier than normal refinery maintenance in the first half of the year as refiners prepare for the upcoming IMO 2020 regulations. According to the IEA, global refining throughput fell by 0.7 mb/d year-on-year in the second quarter of 2019, the largest annual decline in 10 years. This led to reduced crude tanker demand, which has carried over into the early part of the third quarter. Finally, the first half of 2019 saw relatively high tanker fleet growth of 20.5 million deadweight tonnes (mdwt), or 3.5 percent, which was the highest level of fleet growth in a six-month period since the first half of 2011. This high fleet growth was a result of a heavy newbuilding delivery schedule since the start of the year and a lack of tanker scrapping, with just 2.7 mdwt of vessels removed in the first half of the year compared to 21.5 mdwt for the full year of 2018”.

“Despite some near-term headwinds, the tanker market fundamentals continue to support a market recovery in the latter part of the year and into 2020. First, refinery throughput is expected to increase significantly in the coming months as refiners ramp up activity in order to produce sufficient low sulphur fuels ahead of the impending IMO 2020 regulations. According to the IEA, global refinery throughput is estimated to increase by over 3 mb/d in the third quarter of 2019 compared to the second quarter, which is expected to be positive for crude tanker demand. The new IMO 2020 regulations could create additional volatility for the tanker market through new trade patterns and arbitrage movements, floating storage demand, and a potential increase in port congestion as the market adjusts to the change”, Teekay Tanker noted.

It added that “the second half of the year is also expected to see an increase in U.S. crude oil exports as new pipeline infrastructure is brought online that will allow more Permian Basin shale oil to reach the U.S. Gulf coast. U.S. crude oil exports have averaged 2.8 mb/d in 2019 to date, up from 2.0 mb/d last year. However, further increases are being hampered by a lack of pipeline capacity to the Gulf coast. This is expected to be alleviated in the coming months when three large pipelines with a combined capacity of around 2 mb/d are planned to come online, allowing U.S. crude exports to increase significantly. This is expected to be positive for mid-size tanker demand due to both direct exports to Europe on Aframax and Suezmax tankers, and increased Aframax lightering demand for transportation on Very Large Crude Carriers (VLCCs) to Asia”.

“Finally, the tanker fleet is set for a period of much lower fleet growth over the next two years due to a relatively small orderbook. The tanker orderbook currently totals 53 mdwt, or 8.7 percent of the existing fleet size, which is the lowest tanker fleet-to-orderbook ratio since early-1997. Fleet growth could be further offset by an increase in vessel off-hire time in the coming months as ships are taken out of service for scrubber retrofitting in anticipation of IMO 2020 regulations. As a result, lower fleet growth levels are expected in the second half of the year, with continued low fleet growth during 2020. In summary, the tanker market is currently at a seasonal low point, which is compounded by some near-term factors. However, the fundamentals continue to point towards a stronger tanker market during the latter part of 2019 and into 2020 due to a tighter tanker supply / demand balance”, Teekay Tanker concluded.

 

Tanker Market In a Tight Spot (05/08)

The tanker market is in a perilous place, as the US/China trade war is alive and kicking and world oil demand growth is trending downwards. Product tankers could suffer more, given that a number of oil products are directly correlated to global economic activity. In its latest weekly report, shipbroker Gibson said that “historically, there has been a strong correlation between tanker spot and time charter rates, with period rates tracking (with some time lag) developments in the spot market. However, this year TC and spot values have moved in opposite directions. Spot earnings on benchmark trades gradually cooled over the course of this year, with returns in the clean tanker market reaching in July their lowest level this year. Crude has performed somewhat better, but TCE returns have been weak nonetheless. In contrast, time charter rates have firmed, reaching in July their highest level since 2016/17. The biggest uplift has been seen in 1 and 3 year period assessments for eco VLCCs and LR2/Aframaxes”.

According to Gibson “the downward trend in the spot market has been underpinned by OPEC+ production cuts, extended refinery maintenance, weakness in product demand and plentiful deliveries. In contrast, the ongoing upward movement in the period market has been driven by robust chartering enquiry and positive near term fundamentals, such as a limited tanker orderbook (beyond the 2019 schedule), anticipation of major increases in US crude exports and the approaching IMO 2020, which is expected to lead to incremental trading demand as well as stronger interest for fuel efficient tonnage due to higher bunker costs. Rates for a 3-year TC have also been supported by expectations of notable increases in tanker demolition due to the requirement to retrofit tonnage with approved BWT systems when the deadline comes. Combined, these factors suggested a strong possibility of a market uplift, with limited downside risk”.

The shipbroker added that “during the first five months of 2019 the same positive trend was witnessed in the tanker forward curve. This year’s fourth quarter $/tonne quotes for TD3C increased by 25% between January and early May, while over the same period a 16% gain was seen in the TC5 forward freight assessment. Thereafter, both TD3C and TC5 were negatively impacted by the breakdown in US/China trade talks and growing concerns about the global economy. Although a partial rebound was seen in VLCC forward assessments since mid-June, $/tonne values for Q4 2019 on TC5 continued to decline, erasing most of the gains observed earlier in the year. As forward freight assessments are a good barometer of the prevailing market sentiment, this suggests that industry participants are generally maintaining a bullish near term view for crude tankers (albeit at a slightly lower level), but forward sentiment for larger product carriers is starting to look increasingly shaky, at least for Q4 2019”.

Gibson added that “without doubt, there are some good reasons for concern. The US/China trade dispute shows no signs of abating. Growth in world oil demand in 2019 has been revised down several times, with product tanker demand more directly exposed to economic indicators. Naphtha, for example, is mainly used as a feedstock in the petrochemical sector and hence there is a direct link with global economic activity. Demand for diesel/gasoil is also largely driven by industrial uses. However, stronger demand for gasoil is still seen due to IMO 2020. Other fundamentals also have not changed. The ramp up of commercial operations at new export orientated refining plants in the Middle East is nearing, although perhaps the start up dates could be pushed back. In terms of fleet supply, the vast majority of the LR2/Aframax and LR1/Panamax tonnage scheduled for delivery this year has already been delivered, while just a few tankers are yet to start trading. As such, there still remains a solid foundation for the market to firm, regardless of the economic turbulence. It remains to be seen what will happen in the end but … the jury is almost out”, the shipbroker concluded.

 

Asian Oil Imports and the Crude Tanker Market (30/07)

With Iran’s oil exports under immense pressure, it’s worth taking a look at how Asian countries, like Japan and South Korea, are finding ways around the problem and how this is affecting the tanker market. In terms of Japan’s crude oil market, Banchero Costa said in a recent weekly analysis that “Japan is a global leading importer of crude oil because of its minimal domestic crude production. Japanese crude oil imports peaked around 202 million tonnes in 2008 before stabilizing just below 180 million tonnes in the following 5 years, while between 2014 and 2017 imports averaged 165 million tonnes. In 2018, imports decreased by 5 percent to around 150 million tonnes, according to data released by the Ministry of Economy, Trade and Industry (METI). The year-end stats from METI show that as much as 88 percent of imports were sourced from the Middle East, with Saudi Arabia ranking as the top supplier with around 57.4 million tonnes (equivalent to 38 percent of total imports), followed by the UAE and Qatar, which accounted for 25 percent (38.3 million tonnes) and 8 percent (12.2 million tonnes) respectively, and then by Kuwait (11.5 million tonnes – 8 percent), Russia (6.7 million tonnes – 4 percent) and Iran (6.3 million tonnes – 4 percent). During the same year, the US re-imposed sanctions against Iran from November 2018 and granted 6 months waivers to the eight largest buyers of Iranian crude oil (including Japan, China, India, South Korea, Taiwan, Italy, Greece and Turkey), which expired in May 2019”, said the shipbroker.

It added that “consequently, Japan’s crude oil imports from Iran were suspended from November 2018 to January 2019 and then halted from May 2019. In order to compensate the sour light and affordable Iranian grade, Japan has increased its crude oil imports from other countries including the UAE, Russia and the US. In the first five months of 2019, Japanese crude oil imports totaled 63.8 million tonnes, with imports from Saudi Arabia and the UAE reaching around 23.9 million tonnes and 16.7 million respectively, followed by Qatar and Kuwait (around 5.3 million tonnes each), Russia (3 million tonnes) and the US (1.6 million tonnes). In May 2019 Japan’s crude oil imports rose 2 percent m-o-m to 12.75 million tonnes. In the same month, the UAE ranked first in the list of Japanese crude oil supplier thanks to 4.3 million tonnes (+48 percent m-o-m and +66 percent y-o-y), by surpassing Saudi Arabia which exports to Japan totaled 4.13 million tonnes (-5 percent m-o-m and -13 percent y-o-y). In May 2019, imports from the US were roughly 32-times those of May 2018, according to METI”, Banchero Costa concluded.

Similarly, “South Korea is one of the largest consumer of oil in the world, relying almost exclusively on abroad imports as a result of its minimal production. According to Korean Customs Service, South Korean crude oil imports rose by 10.6% in 2015 to 137.8 million tonnes before reaching 143.9 million tonnes in 2016 (+4.4% year-over-year) and peaking at 148.7 million tonnes in 2017. In 2018 imports totaled 148.6 million tonnes of which 29% was sourced from Saudi Arabia that came first before Kuwait and Iraq, which accounted for an additional 15% and 13% respectively. South Korea has always depended heavily on imports from Middle Eastern countries, to such an extent that starting from 2014 the government, in order to ease this reliance, granted freight incentives to South Korean oil refiners buying crude oil from other regions than Middle East”, said Banchero Costa.

The shipbroker also noted that “Washington’s decision to re-impose sanctions against Iran from November 2018 had a huge impact on South Korean crude oil supply patterns. Nevertheless, as one of the 8 major Iranian crude oil buyers, South Korea has benefited from a 180 days waiver to keep on buying crude from Iran until May 2019. As a result, imports from Iran were suspended between September and December 2018 and resumed during the first 4 months of 2019 before being halted from May 2019. In 2018, total crude oil imports from Iran dropped by 60% to 7.1 million tonnes. If freight incentives were originally due to last until the end of 2018, following the end of US sanctions waivers they were extended for further 3 years. In order to compensate the loss of Iranian barrels, South Korea has increased crude oil imports from other sources including UK, Kazakhstan, West Africa and especially US. In 2018, following also the Sino-American trade war, South Korea surpassed China to become the largest destination of US crude oil seaborne exports. Last year imports from the United States, which typically involve VLCC via Cape of Good Hope, grew 343% y-o-y to around 7.9 million tonnes; that boosts ton x mile demand with a 15,000 nautical miles journey compared to around 6,200 nautical miles one from Iran. Compared to the same period in 2018, in the first half of 2019 South Korean crude oil imports decreased by 2%, imports from Middle Eastern countries fell by 12%, while imports from the US rise by an impressive 327%”, Banchero Costa concluded.

 

Tensions in Gulf Region Haven’t Impacted Tanker Rates (29/07)

Tensions in the Gulf region haven’t had any particular impact in the tanker market, at least until now. In its latest weekly report, shipbroker Gibson said that “during the first week of July, the well documented arrest of the 300,000 dwt ‘Grace 1’ by the British government caused tensions to spike between Iran and the West. Iranian retaliations to arrest a British flagged vessel, the Stena Impero, in the Straits of Hormuz have seen numerous statements calling for calm amidst the mayhem of political games. The current state of affairs has sparked tales of the Suez Crisis and the Gulf War, so why has there been minimal impact on freight rates and crude prices?”

According to Gibson, “firstly, there hasn’t actually been any major disruption to flows through the region. The reported inspection of the 2,000 dwt MT Riah would barely have been newsworthy had it not been for the current media hysteria, but the recent seizure of the Stena Impero has made owners nervous. Furthermore, those looking to operate in the region that are not British linked may feel the current tit for tat measures between Iran and Britain, poses a lower risk to them to trade. If that is the case, when we take all British flagged product and crude carriers out of the total trading tanker pool, we lose only 2% of the global fleet. However, the British managed VLCC ‘Mesdar’ spooked markets when it seemed to change course abruptly to Iran before heading back into the Gulf. Although there were attacks on five non-British operated vessels in the Gulf, Iran has denied any involvement in these incidents”.

“Secondly, global demand growth has slowed. The IEA has reported that Q1 2019 global oil demand growth slumped to 310,000 b/d, the lowest figure recorded since the end of 2011. Although factors in the market such as limited output from Iran and Venezuela and OPEC+ led production cuts should suggest a bullish tone, slower global economic growth and trade wars between major economies present a downside demand risk. However, the IEA has estimated a stronger second half of 2019 due to economic activity output improving and new plants ramp up, which could support prices later in the year”, Gibson said.

The shipbroker added that “lastly, the world remains oversupplied, hence the extended cut in OPEC+ production. In June, world oil supply topped the 100 mb/d mark for the first time since January, according to the IEA. There have been calls for OPEC+ to cut crude production to 28 million b/d – the lowest since 2003 – down from current levels of approximately 30 million b/d in an attempt to rebalance markets. Global inventories and stocks are still deemed too high. The benchmark Brent crude price briefly reached a yearly high of $74/bbl in April, but recent events in the Middle East Gulf have affected crude price volatility by only 4%, with prices barely moving from the mid-$60/bbl levels throughout. In comparison, when OPEC announced their first round of production cuts back in December, Brent moved 8% overnight. Production cuts have had a knock on effect for tanker rates. The benchmark VLCC rate – TD3 – has fallen 6 WS points to WS42 ($1.21/mt) since the start of July despite tensions in the Middle East Gulf”.

Gibson concluded that “the current situation has arisen from a backdrop of threats from Iran that they will retaliate for the arrest of Grace 1, with the attitude of ‘if we cannot export, no one will’. The increasing presence of the US and British navy in the Gulf has done little to ease tensions. However, at the moment owners have a sit and wait policy whilst acting with precaution throughout the region. The global knock on effect for the tanker market at the moment seems to be fairly muted: at present it seems business as usual. This may be one for Boris Johnson and new foreign secretary Dominic Raab to rescue”.

 

Product Tanker Market Heading for a Solid Recovery (20/07)

The product tanker market’s fundamentals, both demand and tonnage supply, have been showing signs of steady improvement of late.
In its latest weekly report, shipbroker Allied Shipbroking said that “having entered into the second half of the year, all eyes (on the MR segment) have turned towards the refineries and the anticipation that they will further boost their upcoming production for low sulfur products in order to be ready for the upcoming IMO 2020 regulation. Demand figures have already started to reflect the prospects that were being expressed earlier on in the year, with key players such as China posting significant increases in their trade. According to official sources, the Asian giant exported 5.43 million MT of oil products during June, rising by around 13.5% compared to last year, while total exports in the 1st half of the year surpassed the 32.5 million MT mark (7.3% y-o-y rise)”.

According to Mr. Yiannis Vamvakas, Research Analyst with Allied, “two new refineries began operations during the previous weeks in China, adding more potential to the total production figure and exports for the following months. However, it is worth mentioning that the Chinese government has announced a new batch of export quotas on petroleum products, which reached the 45.29 million MT on annual basis, a figure increased from 43 million MT that was being implemented last year”.

“Meanwhile, positive information has been flowing from the US as well, with EIA data showing that demand for gasoline climbed to record levels of 9.93 million bpd in the last week of June, while combined crude and refined products exported reached an all-time high on weekly basis (676,000 barrels). At the same time, local refineries have started to build inventories of low sulfur fuel so as to be prepared for an uptick in demand. Specifically, stockpiles have risen by 9% compared to last year. In the interim, US East coast supply of gasoline and diesel has been disrupted from the closure of the Philadelphia Energy Solutions refinery due to the fire accident that occurred last month. This is likely to cause improved trade figures, as the US will need to balance this deficit with imports. Forecasts depicting gasoline imports for the US and Canada, from Northwest Europe has reached 1.4 million MT. On the supply side, the total MR fleet (including Handysize product tankers) has recently reached 2,480 units, approximately 1.81% higher compared to the beginning of the year”, Vamvakas said.

Allied’s analyst added that “this is a relatively reasonable rise, as new ordering has remained limited during the year, following the slow new ordering activity noted in the last couple of years. The current orderbook stands at 198 vessels, with 77 of them being anticipated for delivery during this year. The figure has followed a declining trend, boosting confidence amongst owners, with the data showing that the orderbook has decreased by 10.4% compared to the same period in 2018 and 7.2% compared to the beginning of the year. Meanwhile, consistent scrapping has also helped keep a balance, with 23 units being recycled in the year so far, while there are another 219 units that can be considered as potential candidates for demolition (aged more than 20 years old). With the current trend pointing to a more moderate fleet expansion for the rest of the year, demand growth is likely to surpass, at least temporary the supply growth, working in favor of owners. All in all, current supply and demand conditions and forecasts paint a fairly positive picture for the product tanker segment. MR freight rates, despite the most recent slack, have posted an increase of almost 40% compared to the same period in 2018 and as we move forward into the final quarter of the year, it is expected that we will see further improvements take place”, Vamvakas concluded.

 

Tankers’ Perilous Strait of Hormuz: Caught Between a Rock and a Hard Place (19/07)

Things aren’t all that rosy when it comes to the tanker market these days. Besides the issues surrounding the long-term viability of older vessels, as a result of the new set of environmental restrictions, owners will have to think twice about which part of the sea world is currently risk-free.

In its latest weekly report, shipbroker Intermodal commented that “the Strait of Hormuz is one of the most important waterways in the world, connecting crude producers in the Middle East with key markets in the rest of the world. It also plays an essential role for the Asian economies that are dependent on oil imports from the Middle East. Even when considering that the daily flows of oil through the channel account for around 30 percent of all petroleum products, the Middle East has never been entirely safe. The recent tanker attacks have brought even bigger concern”.

According to Intermodal’s Tanker Chartering Broker, Mr. Apostolos Rompopoulos, “since May, six tanker vessels and one U.S. drone have been attacked near the Strait of Hormuz which is a strategically important waterway separating the United Arab Emirates, Oman and Iran. Fujairah, which is a trading center for refined products and crude is facing big challenges. War-risk premiums have increased significantly while freight rates remained more or less the same and as a result, oil tanker owners have started avoiding sending their ships to the region”.

One of the biggest ones, Frontline Ltd, even temporarily stopped trading from the Gulf. “We have people of every nationality and vessels of every flag transiting that crucial sea lane,” the chairman of the International Association of Tanker Owners, Paolo d’Amico, told the New York Times after the second attack. “If the waters are becoming unsafe, the supply to the entire Western world could be at risk. As a shipping company and part of the global shipping industry, we are taking the threat to our crew and ships very seriously,” Anthony Gurnee, chief executive of Ardmore Shipping, told CNBC this week. “At the moment, it is business as usual (but) insurance to transit the Strait of Hormuz has actually increased 10-fold in the last two months as a consequence of the attacks.” After the attacks, insurers start upping their premiums for tankers passing through the Strait of Hormuz and also oil prices spiked. Particularly, concerns regarding a possible military confrontation increased when Iran shot down a U.S drone and were further exacerbated after the US president’s tweet “Iran made a very big mistake!”. Following these we saw oil prices moving substantially up”, Intermodal’s analyst said.

Mr. Rompopoulos laid out 3 scenarios:
“The Optimistic Scenario, is for the Strait of Hormuz to be closed for only a few days. In this case, the impact on global oil supplies would be minimal; however, we would still probably see a brief spike due to the initial uncertainty surrounding its outcome. Crude prices would possibly fall back to pre-crisis levels. The capacity of pipelines and in United Arab Emirates and Saudi Arabia should be effective in bypassing the Strait of Hormuz.

The Pessimistic Scenario, is for the Strait of Hormuz to be fully closed for the first 45 days, and straight-line resumption in oil tanker traffic over the next 45 days will lead to historically high crude oil prices on an inflation-adjusted basis for an extended period.

Finally, the Doomsday Scenario would be for the Strait to be closed for three-months. We cannot even imagine how high Crude oil prices would go and last but not least , they would not begin to fall back until the global economy collapses into deep recession”, Rompopoulos concluded.

 

Tankers: The Latest Estimates on Crude Oil Production and Trade Could Spell Good News for Ship Owners (15/07)

This past week saw the latest reports from OPEC, EIA and IEA alike. In its latest weekly report, shipbroker Gibson noted that “it is official. After weeks of speculation and some minor reshuffling in terms of meeting dates, in early July OPEC+ announced the extension of their production cuts for another nine months until the end of the 1st quarter of 2020. On its own and keeping everything else equal, OPEC output cuts, particularly those coming out of the Middle East, are bad news for the crude tanker market, most notably for VLCCs. In the 4th quarter of last year, nearly 68% of all spot VLCC trade originated out of the Middle East Gulf and Red Sea, compared to 14% out of West Africa and nearly 15% out of the US Gulf and Latin America. According to the IEA, between November 2018 and March 2019, Middle East OPEC crude production (excluding Iran) declined by over 1.6 million b/d, while only a marginal uptick in volume has been seen thereafter. Not surprisingly, such a dramatic drop in production applied a considerable downwards pressure on sector earnings”.

According to Gibson, “dark clouds are also gathering over the growth in oil demand in 2019, with the IEA reducing its estimates for growth in global consumption twice already this year, down to 1.2 million b/d. With this in mind, the concern of course is that ongoing production constraints will only prolong the pain currently faced by owners. However, Iran complicates the overall production/export picture out of the Middle East. Iranian crude output declined by nearly 0.7 million b/d between November 2018 and June 2019, down to 2.28 million b/d, while further falls could not be ruled out. We have long argued that per se Iranian trade carried out entirely on the Iranian fleet does not impact the international tanker market due to the closed nature of this trade. However, right now should there be a wish to maintain the overall Middle East crude exports at levels similar to those seen earlier in the year, output by other Middle East OPEC producers actually needs to increase to compensate for the loss of Iranian barrels. It remains to be seen what will happen. On one hand, Iran is exempt from the production deal; on the other, Saudi Arabia is over complying, with the country’s crude production in June assessed some 0.54 million b/d below its target. If efforts are made to compensate for the decline in Iranian exports, this will create additional trading demand for international owners”.

Meanwhile, “refining data also suggests that demand for crude will increase. The latest IEA monthly report indicates that global refining runs could rise by over 3 million b/d in the 3rd quarter of this year versus the previous quarter, with Europe and Asia alone needing an extra 0.8 million b/d each. With production cuts in place, where will this crude come from? Some of the additional demand is likely to be met out of stocks, but mostly refineries will need to rely on increases in crude production/imports”.

Gibson added that “although global trade is complex, the obvious place to fill the net deficit is the US. In recent weeks, the country’s crude exports hit a new record high. Prospects are for further gains. The EIA expects domestic production to increase by 0.47 million b/d by September from June levels and by another 0.26 million b/d by December. Plenty of new pipeline capacity to the US Gulf is also expected to come online in the 2nd half of the year, enabling further growth in exports. Incremental volumes are likely to flow to Europe and long haul to Asia, more than offsetting ongoing restraint out of the Middle East. If that is the case, then OPEC+ production cuts could actually be good for business”, the shipbroker concluded.

 

Tanker Rates Flat During June (13/07)

Average dirty tanker spot freight rates were broadly flat in June, with ample tonnage availability dampening the impact of increased activity as refineries returned from maintenance, said OPEC in its latest monthly report. In June, Very Large Crude Carriers (VLCCs) edged higher, benefiting from the ramp-up in refinery capacity in China. The Suezmax spot freight rates firmed in June, reversing the losses seen the month before, supported by gains on the West Africa-to-US East Coast (USEC) route. Meanwhile, spot freight rates in the Aframax sector reversed direction with declines on most routes. Clean spot tanker freight rates generally moved lower in June, with only the Northwest Europe (NWE)-to USEC route showing gains. However, with refineries coming out of maintenance, particularly in Asia, the clean market should start to improve into the second half of the year as preparations for IMO 2020 begin to pick up steam.

Spot fixtures

Global spot fixtures recovered somewhat in June following two consecutive declines in the previous months, rebounding 17% m-o-m, or 2.8 mb/d, but remained 6% lower than the same month a year ago. The pick-up came as refineries continued to come back from maintenance season, particularly in the Atlantic Basin. In the first half of the year, the strong performances seen in February and March have kept y-t-d levels for global spot fixtures some 13% higher compared to the same period last year. The improvement seen in the first six months of 2019 has been driven by the steady increase in China crude imports, averaging above 10 mb/d over the first half of this year, driven by ongoing refinery expansions, among other factors.

OPEC spot fixtures experienced a recovery in line with global spot fixtures in June, increasing by 15%, or 1.78 mb/d. In the first half of 2019, OPEC spot fixtures were some 10% higher than the same period last year. Turning to the individual routes, fixtures from the Middle East-to-East averaged 6.85 mb/d in June, broadly consistent with the previous month. In the first half of the year, fixtures on the route were 16% higher compared to the first half of 2018. After three months of declines, rates on the Middle East-to-West route rebounded to 1.92 mb/d in June, a gain of 67%, or 0.8 mb/d, but were still below the levels seen last year. This is consistent with the performance on this route in the first half of the year, which was some 22% lower than the same period last year. The drop in crude flows to North America has been one of the key contributors to this decline. Outside of the Middle East fixtures averaged 4.62 mb/d in June, an increase of 0.94 mb/d, or 26%, over the previous month, but were broadly in line with the same month last year. Once again, a high level of activity in February and March – when fixtures reached as high as 6.8 mb/d – resulted in the 1H19 averaging some 15% higher than the same period last year.

Sailings and arrivals

OPEC sailings declined by 0.5% in June, averaging 24.22 mb/d, and were down 1.2% y-o-y. Sailings from the Middle East rose 0.9% m-o-m, representing a gain of around 0.16 mb/d, but were still 1.0%, or 0.18 mb/d, lower compared to the same month last year. Crude arrivals were mixed across regions. Arrivals in West Asia saw the biggest gain, with an increase of 8.7% or 0.39 mb/d. West Asian arrivals showed a similar increase y-o-y. Arrivals in Europe were also higher, up 2.7%, or 0.32 mb/d, but were 1.1%, or 0.13 mb/d, lower y-o-y.

In contrast, arrivals in the Far East fell 4.3%, or 0.4 mb/d, in June, down from the high level seen in the previous month; however, they showed a marginal increase y-o-y. In North America, arrivals fell 3.5%, or 0.36 mb/d, but were 0.7% higher y-o-y.

Dirty tanker freight rates

VLCCs
VLCC spot freight rates edged up in June as the end to spring maintenance across various jurisdictions helped lift activity. However, ample availability kept a lid on rates. Freight rates registered for tankers operating on the Middle East-to-East route rose 12% compared to the previous month to stand at WS44 points in June. Rates benefited from a ramp up of new capacity in China, as well as the gradual return of refineries from maintenance. Middle East-to-West routes in June experienced a gain of 5% m-o-m to stand at WS20 points. West Africa-to-East routes in June also showed gains, increasing 10% from a month ago, to average WS45 points. Despite these increases, VLCC freight rates in June were 12% lower than the same month a year ago.

Suezmax
Suezmax average spot freight rates in June recovered the losses seen in the previous month. The increase came mainly from tankers operating on the West Africa-to-US Gulf Coast (USGC) route, which saw an 18% rise in spot freight rates to average WS65, the same level seen in the same month last year. Despite the increase in activity, the ample tonnage list is likely to weigh on any upward momentum heading into July. Meanwhile, NWE-to-USGC rates declined for the second month in a row; this time by 6% to average WS47 points.

Aframax
The Aframax sector in June reversed direction, showing declines on most routes. Both the intra-Med and Med-to-NWE fell by 14%, as increased activity was still no match for the ample tonnage list. The Caribbean to-USEC route declined 3%, falling back from a short-lived rally in May. Meanwhile, the Indonesia-to-East route was unchanged from the previous month.

 

Extended production cut by OPEC+ and dwindling Iranian exports threaten to negate seasonal firmness in tanker market (12/07)

The oil market has been highly volatile in 2019 on account of uncertain supply. Although Drewry expects growth in non-OPEC oil supply to be higher than growth in global demand in 2019, US sanctions on Iran and Venezuela and OPEC’s market management have made oil prices very unstable.

The price of Brent crude, which started 2019 in the early 50s, surged past the $70 per barrel mark in late April after the US decision to end waivers on Iran sanctions. The price then again dipped below $60 per barrel due to global economic concerns before bouncing back to the mid-60s after the decision by OPEC to extend its production cut of 1.2 mbpd until March 2020. Heightened tension between the US and Iran after the recent attack on oil tankers near Strait of Hormuz has also helped to underpin prices.

Nevertheless, the current backwardation in oil prices suggests that despite the supply cut by OPEC, supply glitches in Venezuela and the US sanctions on Iran, the global oil market will be well supplied in 2H19. According to crude oil futures prices, the anticipated surge in non-OPEC production, along with the negative impact of the ongoing US-China trade war on demand, will keep the market well supplied, which bodes well for the tanker market.

However, according to Drewry’s analysis, despite strong growth in non-OPEC production, the oil market could be in short supply in 2H19 if US sanctions reduce Iranian crude exports to zero. In June 2019 Iranian crude exports were 0.3 mbpd, compared with 2.5 mbpd in April 2018 just before the imposition of the sanctions.

According to the IEA’s latest forecast about 30.9 mbpd and 30.0 mbpd of OPEC crude will be required in 3Q19 and 4Q19 respectively to keep the market balanced. However, if the 11 members of OPEC which have agreed to cut production, keep their collective output around the agreed 25.8 mbpd levels in 2H19, and Venezuela and Libya maintain their output around current levels of 0.8 mbpd and 1.16 mbpd (recorded in May 2019) respectively, the oil market will be in short supply in 2H19.

Our estimates suggest that in these circumstances the oil market would see a drawdown in crude oil inventory to the tune of 1.2 mbpd in 3Q19 and 330 kbpd in 4Q19. Therefore, the tightness in supply and the corresponding inventory drawdown would have a negative impact on tanker demand (especially VLCCs) and would go some way to negate the normal seasonal upturn.

 

New Tanker Plays Emerge After Philadelphia Refinery Explosion (08/07)

Product tanker owners could be set for a new tanker play, with US reportedly resorting to gasoline imports, on the back of the recent events with the explosion at Philadelphia Energy Solutions’ (PES) 335,000 b/d Philly refinery. This has come at an opportune time for product tankers trading in the Atlantic, whilst the decision to permanently shut the facility will have longer term implications for product supplies into the US Atlantic Coast.

According to shipbroker Gibson, “freight markets were initially quick to react, with the benchmark UK Continent – US Atlantic Coast 37,000 tonnes gasoline (TC2) route jumping from WS117.5 to WS160 in just two days. However, the sharp increase in freight at the time started to impede arbitrage economics, forcing freight back down to WS140 a few days later. Interestingly, the US-Europe gasoline arbitrage followed a similar trend, peaking last week before settling lower this week as traders took a more measured approach to addressing the shortfall. Since then, TC2 freight has settled in a WS140 to WS145 range, tracking a slightly narrower arbitrage. In short, the outage has helped lift TC2 to a higher level, but has not transformed $/day earnings on the route”.

“Fundamentally the outage is positive for product tankers, particularly MRs in the Atlantic. According to Platts, the refinery was producing approximately 150,000 b/d of gasoline and blending components prior to the outage and this volume will need to be sourced from elsewhere, as will the 100,000 b/d of middle distillates and 25,000 b/d of low sulphur fuel oil that was being produced by the refinery. Domestic supply and stocks will of course provide some cover. However, inventories are at their lowest levels for this time of year since 2015, whilst peak gasoline demand season will continue to weigh on stocks, supporting import activity”, said Gibson.

The shipbroker added that “underlying gasoline demand in the United States also remains strong, having recently set a new record before easing back to hold close to record highs. Pump prices over the summer may prove to be key, however regardless of this, import volumes should remain supported. The PES outage is therefore another support factor in the short term, however, for the market to move to, and then maintain at higher levels, export volumes from Europe to West Africa, and the US Gulf to Latin America will also need to strengthen simultaneously. Once the summer driving season ends, import demand will of course wane, with the impact of the disappearance of PES less noticeable. It seems ironic that just before Independence Day, in the city where the Declaration of Independence was signed, the closure of the US Atlantic Coast’s largest refinery has now created increased dependence on gasoline imports”, it concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “quite solid VLCC enquiry through the first half of the week, but availability was never challenged and equally solid competition began to chip rates lower to ws 45 to the Far East on modern units and back into the high ws 30’s for older vessels, with rare runs to the West marked at little better than ws 20 via Cape. If the pace continues at no more than ‘steady’ into next week, then further compression will be the likely result. Suezmaxes drifted lower upon very modest volume, and easy availability. Rates now move at down to ws 65 to the East and to ws 35 West, with no relief in near sight. Aframaxes traded at down to 80,000mt by ws 115 to Singapore but enquiry became spasmodic and the trend line looks somewhat southerly over the near term”, the shipbroker said.

 

Tankers: Strait of Hormuz, Oil Prices and Marine Insurance Premiums (06/07)

Tanker owners are having to deal with a multitude of external factors having an impact on rates and trading. In its latest weekly report, shipbroker Intermodal said that “the global shipping industry is facing numerous challenges at a time when geopolitical turmoil has escalated in view of the recent tension in the Middle East. The latest attacks on vessels and the downing of a US drone have profoundly advanced the cost of shipping oil from the Middle East. The Joint War Committee of Lloyd’s Market Association insurance body has reported in May, the addition of Persian Gulf and surrounding waters along with the Gulf of Oman to the list of areas under risk of “Hull War, Piracy, Terrorism and related perils”. The risks on stake have urged insurance companies posing high insurance premiums on maritime companies that operate through the Strait of Hormuz. Accordingly, war risk underwriters are charging additional premiums for vessels trading in the Middle East Gulf and the Gulf of Oman”.

According to Ms. Katerina Restis, Tanker Chartering with Intermodal, “as known, it is the privilege of the insurers to invoice premium to shipowners, who may then endeavor to pass it on to charterers if the market situation and charter terms warrants so. For example, after the incidents, for an Aframax calling one port in the MEG, the premium could range from USD 40 to 50k. Thereafter, underwriters instead of insuring the entrance in the area are providing owners an offer basis the specific voyage to be performed in the area which may then be further negotiated”.

estis added that “almost 30% of all crude oil supplies shipped pass through the thin canal of the Strait of Hormuz. Many argue that the threat to commercial shipping is obvious and hasn’t been seen in the region for decades. As reported by the chairman of Intertanko, “if the waters are becoming unsafe the supply of the entire Western world could be at risk”. Historically, escalations that disrupt MEG oil supplies are infrequent and thus as analyzed freight rates could increase due to owners avoiding the region. As known the oil-supply countries in the MEG area including Kuwait, Saudi Arabia, Iraq and Iran are accommodating close to 20% of the world’s oil demand that passes through the Strait of Hormuz”.

She also noted that “the oil markets have overall remained relatively calm, although the fact that there was a second series of incidents since May, has definitely intensified concerns. During the days of the incident prices for Brent crude rose almost 4% to $61 a barrel, a level still much lower though compared to the $72 a barrel in mid-May. Thus, we did not view great increase in oil-prices and one of the reasons is that traders are possibly betting that the fiery tensions will not burst into a full-scale conflict. Additionally, worries on global growth on the back of the trade war together with US shale oil production growing at a fast pace have also kept the oil price increase in check. The OPEC meeting at the beginning of this week came at a significant and unstable time for the oil market and as a further extension of the cuts did take place as it was anticipated by most investors, it will be interesting to see how strong the support on prices will be going forward”, Restis concluded.

 

Tankers Bear the Brunt of Geopolitical Uncertainties (01/07)

2019 has proven to be just as hard as 2018 for tanker owners, but for a whole new set of reasons. While last year was characterized by shipping’s own shortcomings, as a result of an imbalance between supply and demand, 2019 is proving to be the year of geopolitical uncertainties, which are having a diverse impact in various trades around the world. In its latest weekly report, shipbroker Gibson said that “2019 so far has proved to be a year dominated by geopolitical events. The US Administration has placed sanctions on both Iran and Venezuela in a bid to reduce crude exports to zero. Tanker sabotage and disruption in the Middle East Gulf has pushed insurance premiums up and led to some shipowners to avoid the region. Potential disruptions to Libyan supply remain. The US-China trade war has threatened to generate an economic slowdown, adding further market uncertainty. Crude prices have ebbed and flowed, touching highs of $74.57/bbl in April and lows of $54.91/bbl in January as both supply, demand and geopolitical signals vie for supremacy”.

According to Gibson, “OPEC production cuts have remained a challenge to tanker demand throughout the year and subject to the outcome of next weeks meeting are set to remain in place. However, supply is rising from the US. Total US production was over 12 million b/d at the end of May according to the IEA, an increase of almost 14% from the same period last year. Latest data shows US crude production is up 1.5 million b/d as of the end of May compared to the same period last year. The US shale revolution has continued to surge on with some analysts predicting production growth in 2019 could climb an extra 1.2 million b/d – or 16% – for the full year. Much of this has flowed down to the US Gulf via new pipeline capacity with over 500,000 b/d of extra pipeline capacity now reportedly flowing in the first half of 2019 and an additional 2 million b/d of further new capacity due to come online in the second half of this year. US Gulf exports are also up with over 2.5 million b/d loaded in May, over 1 million b/d more than the same period last year according to Clipper Data. Much of the growth in production has covered the emphatic fall in Venezuelan and Iranian barrels. According to the IEA, Venezuela produced just over 800,000 b/d in May – down from 1.4 million a year ago, moreover Iran’s production fell to 2.4 million b/d in May, a fall of almost 1.5 million b/d from the same period in 2018”.

The shipbroker added that “June also saw an improvement in VLCC tanker earnings after briefly dipping to lows for the year. TD3C fell to WS36 in May before tensions in the Middle East saw several vessels sabotaged over the space of a few weeks. The unease in the region meant some shipowners were unwilling to do business in the region whereas insurance premiums saw an increase that were passed onto the charterer pushing rates up to WS52 and TCE’s to almost $25,000/day, up from lows of around $9,500/day in April and May. Another unforeseen event saw the 335,000 b/d Philadelphia Energy Solutions refinery explode, briefly pushing up June TC2 rates from yearly lows of WS100 by 60 points to WS160”.

Meanwhile, “on the vessel supply side, 2019 has seen 39 VLCCs already delivered, the highest number Gibson has on record in a 6-month period. So far only 26 tankers above 25,000 dwt have been sent to recycling yards this year, significantly lower than 2018. Scrap prices remain relatively firm, however the potential for better returns and a stronger market have tempted owners to retain tonnage in anticipation for 2020”, Gibson said.

“As we enter the second half of the year, many are gearing towards new IMO 2020 regulations. Many shipowners have made their intentions known as to whether they will fit scrubbers or not. Presently it is estimated that up to 3,500 vessels will be fitted with scrubbers by 2020, with VLCCs potentially having 30% of their total fleet scrubber fitted. Many refineries have been preparing to start supplying compliant bunker fuel from H2 2019, although it is expected that gasoil will be the dominate bunker choice heading into 2020, with uptake of low sulphur fuel oil set to increase over time. Most regions are expected to supply a 0.5% fuel by 2020, however the quality and quantity remain uncertain. Heading into the second half of the year many challenges and opportunities remain. Navigating IMO 2020 is perhaps the biggest unknown. However, deliveries should start to slow down into 2020 as the orderbook is falling and scrapping starts to increase. If the global economy weathers current headwinds and US crude production fails to disappoint we could – as mentioned in our end of year 2018 report – be in for another rollercoaster ride, currently we are on the waltzer and we’re mid spin”, Gibson concluded.

 

Tonne Miles From US Crude Oil Exports Drop Dramatically In April (28/06)

April was a disappointing month for the crude oil shipping industry with a dramatic fall in US crude oil exports which caused tonne mile demand to fall disproportionally.

This was because exports to Asia dropped to 3.7 million tonnes from 5.5 million tonnes in March.

Due to the much shorter sailing distances, the increase in exports to North and Central America meant demand for shipping fell by more than volumes would suggest. Volumes fell by 6% from March to April, whereas tonne mile demand dropped by 25.1%.

Tonne mile demand, which had been above 85 billion tonne miles in the previous two months, fell to its lowest level since August 2018, namely 64 billion tonne miles.

In the first four months of 2019, exports to Asia generated 12.2 times as many tonne miles as those to North and Central America, despite exporting only 2.7 times as much crude oil to Asia than to North and Central America. This is because in this period a tonne of crude oil generated on average 12,097 tonne miles when it was sent to Asia and only 2,674 tonne miles when it sailed to South or Central America.

“The longer the sailing distance, the more valuable the trade is to the shipping industry with demand for shipping measured in tonne mile demand rather than just tonnes.

Whether crude oil is sold to South Korea of Canada makes little difference to US exporters, but a huge difference to the shipping industry,” says Peter Sand, BIMCO’s Chief Shipping Analyst.

Exports at 10 month low

This was the first month on month decline of US crude oil exports since August 2018. After exporting over 10 million tonnes of crude oil in both February and March, April saw a disappointing 8.8 million tonnes exported.

In August 2018, US crude oil exports dropped as Chinese buyers completely stopped their imports in response to the trade war.

Since November, Chinese buyers have slowly resumed their purchases of US crude oil, albeit at much lower levels than at the start of 2018. In the first four months of 2018, the equivalent of 17 VLCC loads (300,000 DWT) of crude oil were sent from the US to China, in the first four months of 2019 that number has fallen to just 4.

In January, a slump in tonne mile demand was especially driven by a dramatic reduction in exports to South Korea with political sanctions and trade war tensions playing out on the trade lanes. US exports went from 2.25 million tonnes in December to 0.86 million tonnes in January.

The future of the US-China trade

The future of this trade depends on the status of the relationship between the US and China. Trade talks are now back on the table with the two leaders set to meet at the G20 meeting taking place in Japan between 28 and 29 June. A breakdown of talks in May led to increased tariffs on Chinese exports to the US and US exports to China.

“The Chinese import of US crude oil has been hit hard even though there are no tariffs. In the first four months of 2018, 22.4% of US crude oil exports were sent to China. This number fell to just 3% in the first four months of 2019.

US crude oil exports to China could be an important part of any trade deal the countries reach given President Trump’s focus on improving the trade balance between the two nations. Perhaps the G20 will provide new answers,” says Peter Sand.

Net imports falling fast

Despite the drop of exports in April, US crude oil exports in the first four months of 2019 are 69.3% higher than they were in the first four months of 2018, with tonne miles up 90.2%, at 303.3 billion tonnes.

Despite increasing its exports, the US remains a net importer of crude oil. In the first four months of 2019 it imported 55.7 million tonnes, meaning that net imports of crude oil came to 16.9 million tonnes. This is however down from the 46.9 million tonnes of net imports in the same period of 2018, with imports falling by 14 million tonnes and exports rising by 15.9 million tonnes.

“Since the crude oil export ban was lifted at the end of 2015, US crude oil exports have grown massively, and in 2018 accounted for around 7% of total tonne miles generated by crude oil transport, with this figure expected to rise in 2019,” says Peter Sand.

 

Tankers: Middle East and US at the Forefront of Rates Moving Forward (25/06)

With geopolitical factors coming into play in the tanker market once more, ship owners are anxiously looking for ways to trade their assets. Rates could be headed higher on the Middle East market, but much of this rise isn’t finding its way back to ship owners’ “pockets”, since it’s mostly down to increased insurance costs. In a recent note, shipbroker Banchero Costa said that “nearly one month after the attack to four tanker vessels in the Strait of Hormuz, two tankers were hit in the Gulf of Oman while transiting waters near to Fujairah on Thursday 13 morning. With regard to the critical relevance of the Middle East Gulf (MEG) for the shipping sector, below we trace last year MEG crude oil numbers in terms of oil reserves, productions and exports, retrieved from the latest OPEC Annual Statistical Bulletin. According to OPEC, the Middle Eastern countries accounted for 54 percent of global proven oil reserves and over 34 percent of global crude production in 2018 – making the MEG the largest crude producing region globally”.

The shipbroker added that “looking at crude oil reserves in the MEG, Saudi Arabia holds 33 percent, followed by Iran and Iraq with an additional 19 percent and 18 percent respectively. In terms of output, the countries produced in total approximately 26.61 million barrels per day (bpd) in 2016; over the next two years and mainly as a result of OPEC decisions to cut production at the end of 2016 and then set new levels by mid-2018, yearly output dropped to around 25.69 million bpd in 2017 and reached around 25.74 million bpd in 2018. Thanks to a crude oil production of around 10.32 million bpd in 2018, Saudi Arabia is by far the largest producer in the region – accounting for 40 percent of the total, before Iraq (4.41 mln bpd – 17 percent), Iran (3.55 mln bpd – 14 percent), UAE (3.01 mln bpd – 12 percent) and Kuwait (2.74 mln bpd – 11 percent). As already mentioned in our previous weekly report comment, Middle Eastern countries dominated the list of 10 top global crude oil exporter in 2018 that shows Saudi Arabia leading with around 7.37 mln bpd, Iraq in third place with 3.86 mln bpd), and then UAE (2.30 mln bpd), Kuwait (2.05 mln bpd) and Iran (1.85 mln bpd) in the 5th, 6th and 9th place respectively. In terms of regions, the Middle East accounted for around 42 percent of global exports, while the next largest exporting region was Eastern Europe and Eurasia (mainly Russia) accounting for 16 percent, as well as Africa (14 percent)”, Banchero Costa concluded.

Meanwhile, in a separate note of interest to tanker owners, Banchero Costa commented on US crude oil exports and their potential as a “driver” of freight rates. The shipbroker noted that “for over 40 years, due to the Energy Policy and Conservation Act, the US had effectively a ban on crude oil exports, save for very low amounts towards Canada, and has heavily depended on imports. But as President Barak Obama lifted the ban in late 2015, U.S. crude oil sector have changed since. U.S. crude oil exports have soared in the past few years, boosted by the surge in domestic crude oil production and by a number of factors including changes in U.S. midstream assets – which led to a flip in crude oil flows as old and new pipelines have been reversed to ship crude to the U.S. Gulf – and by investments in export facilities like the Louisiana Offshore Oil Port (LOOP), modified in early 2018 and become the sole U.S. facilitate to accept fully-laden VLCCs”.

The shipbroker added that “in 2018, according to OPEC’s 2019 Annual Statistical Bulletin, the U.S. became the seventh largest crude oil exporter country, with an annual average of 2 mln bpd, almost double the 2017 volumes. The ranking shows Saudi Arabia in first place with around 7.4 mln bpd, followed by Russia (5.1 mln bpd), Iraq (3.9 mln bpd), Canada (3.2 mln bpd), UAE (2.3 mln bpd), and Kuwait (2.1 mln bpd) before the States. According to U.S. Energy Information Administration (EIA), more than 90 percent of crude oil exported from the U.S. in 2018 was shipped from the U.S. Gulf Coast. China used to be the second largest buyer of U.S. crude oil, after Canada. But last year, following the Sino-American trade war, U.S. crude oil exports to China dropped to zero from August to October, while in the first quarter of 2019, overall U.S. exports to China represented around 5 percent of total volumes – down from the 23 percent share recorded in the same period of 2018. In the first 3 months of 2019, Canada was the leading U.S. crude oil exports destination, amounting of 17 percent of total exports, before Korea (13 percent), Netherlands (11 percent) and India (10 percent). Otherwise, in 2018 and for the second consecutive year, the U.S. ranked still as the second-larger global importer averaging around 7.7 mln bpd, after China, leading with 9.3 mln bpd, as OPEC’s 2019 Statistical Bulletin data shows”, Banchero Costa concluded.

 

IMO 2020: Fundamentals to Rule Product Tanker Market Soon (24/06)

The turmoil in the shipping and fuel markets from the IMO rule is bound to settle down, sooner, rather than later. This will allow for the fundamentals to take over again and determine the future course of the freight rate market. In its latest weekly note, shipbroker Gibson said that “as we noted in our report dated 7th June, the slowing global economy, partly driven by the ongoing US-China trade war is starting to impact on world oil demand. An increasing number of agencies are factoring in an increased risk of an economic downturn into their projections. In May, the OECD lowered its forecast for global economic growth to 3.2%, whilst the Netherlands Bureau of Economic Policy Analysis recently claimed that world trade had fallen back to its slowest growth rate since the financial crisis. Fitch Ratings Agency was even more bearish, trimming its 2020 growth rate to 2.7% owing to persistently weak Chinese consumer spending and the impact of the US-China trade war. The Agency has warned that growth could be as low as 2.4% if President Trump follows through on his threat to place tariffs on a further $300 billion of Chinese imports, further undermining trade growth. America is not immune either; the New York Federal Reserve’s gauge of business growth in New York State posted a record fall this month to its weakest level in more than 2.5 years, suggesting an abrupt contraction in regional activity. As a result of these headwinds, the IEA has again revised down its assessment for world oil demand, which is now estimated to grow by 1.2 mbd in 2019, with further downside expected if the US-China trade war escalates”.

According to Gibson, “slower demand is evident in the persistent weakness in crack spreads as fears of an economic slowdown grow. Naphtha has had a torrid year so far. Seasonality has of course played a role, with cracker maintenance impacting on short term demand, whilst competition from abundant LPG supply is also weighing on demand. But it is now evident that the persistently bearish economic news is now impacting on forward demand for petrochemical products, keeping naphtha cracks under pressure. Some recovery in naphtha demand will emerge, particularly considering peak cracker maintenance is nearing its end and new capacity is currently being brought online. However, whether cracks can move to more sustainable levels may well depend on the outcome of trade talks and whether the economic headlines improve. It is also worth noting that most of the petrochemical projects set to start next year have been designed to process LPG or Ethane, limiting the demand growth for naphtha as a petrochemical feedstock”.

The shipbroker added that “unsurprisingly, the distillate market is also feeling the pressure. Given the fuel has mostly industrial uses, it is also sensitive to similar economic factors as naphtha. However, distillate demand will find support from seasonally strong demand for jet fuel during peak travel season. The diesel market is expected to receive a boost in the later stages of 2019 and into 2020, giving the market a more positive near term outlook. Indeed, the IEA forecasts that distillate demand will increase by 1.2 million b/d in 2020 as the shipping industry shifts to cleaner fuels, which should support crack spreads”.

Gibson concluded that “the potential impact on shipping demand could be significant. Although crude runs are still expected to rise substantially in the second half of 2019, they have already been revised lower by the IEA. For naphtha, demand will remain constrained by economic factors, potentially impacting on long haul runs from the West and the Middle East into Asia. Distillates trading should prove to be one of the few bright spots, with IMO2020 giving a booster shot just as industrial demand cools. However, as the 2020 dust settles, the underlying fundamentals will emerge as the dominant factors once again. The Trump-Xi meeting at G20 next week will be a key gauge of the future commodity market direction”.

 

Crude Oil Tanker Freight Rates From The Arabian Gulf To China Double On The Back Of Tanker Attacks (22/06)

Spot freight rates for a Very Large Crude Carrier (VLCC), carrying 2 million barrels of oil, between the Arabian Gulf and China reached USD 25,994 per day on 20 June, their highest level since March and significantly above the May average of USD 9,979 per day.

Despite this increase, freight rates on this route only narrowly exceeds the daily break-even costs of a VLCC, that on average amounts to USD 25,000 per day.

The latest attacks which happened on 13 June 2019 have further increased uncertainty which was already high following explosions on four tanker vessels off the coast of the United Arab Emirates on 12 May 2019.

Measured against global oil demand, around a fifth of global oil consumption sails through the Strait of Hormuz, making the strait a critical chokepoint for global energy markets. Considering only seaborne transportation of crude oil, the 19.7 million barrels per day transiting the Strait of Hormuz represents 49% of the 40.5 million barrels transported in total.

Freight rates on one of the attacked routes remain stable

Although spot freight rates for crude oil tankers out of the Arabian Gulf have risen sharply, those for LR2 tankers carrying clean oil products like naphtha, have remained much more stable. Spot freight rates for an LR2 carrying ½ million barrels of naphtha condensate from the Middle East Gulf to Japan, rose by only 4% between 13 and 20 June 2019. The ‘Front Altair’ was sailing on this trade when it was attacked on 13 June.

Freight rates for an LR2 were down in the week of the attacks from the previous week, in stark contrast to the development in crude oil tanker earnings.

“The unchanged rates for oil product tankers compared with the jump in freight rates for crude oil tankers, illustrate the differences between the two markets as well as the effects of sentiment on crude oil freight rates,” says BIMCO’s Chief Shipping Analyst, Peter Sand.

Tanker owners continue trading ships in the Arabian Gulf

Immediately after the attacks, safety concerns led several tanker owners to question whether they would continue trading in the Arabian Gulf, there has however been no major exodus from the market.

“The vast majority of tanker owners are more or less going about with business as usual, although they have ratcheted up their safety and security precautions when trading their ships in the Arabian Gulf,” Sand says.

These additional measures include speeding up while sailing through the Strait of Hormuz, as well as avoiding sailing through it at night at which point watchkeeping becomes more difficult.

The added costs of safety measures as well as higher insurance premiums, which rose sharply following the news of the attacks mean that ship owners will not only face higher risks but also higher costs when trading in the region.

“To avoid major disruption, it is vital for global energy trade that the Strait of Hormuz remains accessible and safe for ships to sail through. As long as tensions aren’t escalated the attacks are unlikely to have a more profound effect. However, the risks that the conflict will escalate remains very present and a great worry to everyone involved with oil trading in the region,” says Sand.

BIMCO has urged all nations to do what they can to de-escalate the situation and allow ships to pass safely through the Strait of Hormuz.

 

Testing times in the Gulf of Oman (22/06)

Little over a month after four tankers were damaged by explosions in the Middle East’s Gulf of Oman, another two tankers have been rocked by blasts in the same area. Last week, on 13 June, the methanol-carrying, Panama-listed Kokuka Courageous and the naptha-carrying, Marshall Islands-flagged Front Altair were both travelling south-eastwards through international waters — having gone through the strategically-important Strait of Hormuz — when damaging explosions took place.

Back on 12 May, four oil tankers — the Saudi-flagged Amjad and Al Marzoqah, the Norwegian-flagged Andrea Victory and the Emirati-flagged A Michel — had been attacked near the strait while at anchor off the UAE’s Port of Fujairah, with the blasts blowing holes in the hulls of the vessels. While early findings concerning the May explosions demonstrated a great likelihood of four limpet mines having been used in the attacks, the US military has put out a video it claimed shows Iran’s Revolutionary Guard removing an unexploded mine of this sort from one of the June vessels hours following the initial explosions. There were no deaths as a result of all the explosions.

Positioning key

Location is key in all of these incidents. Both sets of explosions took place close to the Strait of Hormuz, a critical oil chokepoint. It might only have a width of 21 nautical miles at its most narrow, but the waterway sees 20% of global oil exports — nearly 19m barrels of oil daily — pass through it. Sufficiently deep and wide to cope with the biggest crude oil tankers in the world, the passage connects Middle Eastern crude oil producers to key markets across the globe. Additionally, the strait serves as the main route for Iran’s oil exports.

At the moment there is heightened tension around the waterway, with potential for Iran to block all oil leaving through the strait. Following the US’ withdrawal last year from an international nuclear deal with Iran, the two countries’ relations have been increasingly tense. Last November, US President Donald Trump made sanctions against the Middle Eastern nation tighter, and in April, he told countries that they could also face sanctions if they kept purchasing oil from Iran.

The waterway’s role as the primary route for oil exports from Iran is “a big deal” for the economy of the Western Asian nation — oil constitutes about two-thirds of Middle East exports. Iran has made it clear that it is unhappy about a ban on its oil sales, and claims that it can stop all oil exiting through the strait.

“If one day, [the US] tries to stop Iran’s oil exports, then no oil can be exported from the Persian Gulf,” Iran’s President, Hassan Rouhani, has stated.

A lack of oil route stability will lead to a rise in oil prices around the globe. “Any instability in oil routes means higher oil prices across the world, having huge effects on any industry dependent on oil,” the US military said in its video. “One tangible example could be your car’s petrol price, 70% of which is dependent on the price of crude oil.”

The shipping reaction

Following the second set of blasts, insurance rates have spiked and some captains have reportedly refused to sail in the region threatening one of the biggest disruptions to crude oil trading in the Strait of Hormuz for many years. News of the explosions triggered steep oil price hikes on the day of the incidents. Shipowners reported that after the first set of explosions, premiums had gone up by 5% to 15% depending on cargo and size.

Commenting on the attacks, BIMCO chief shipping analyst Peter Sand said: “This will likely cause shipowners and operators to ask for a premium on freight rates for trading in the area, as risk is now clear and present.”

International Maritime Organization (IMO) secretary general Kitack Lim expressed his concern over both sets of explosions during the 101st session of the body’s Maritime Safety Committee, held 5-14 June: “IMO has developed a comprehensive regime of regulation through the [International Ship and Port Facility Security] Code and the SUA Conventions and Protocols to prevent and respond to unprovoked, unlawful attacks on merchant shipping,” he noted. “The threat to ships and their crews, peaceably going about their business, is intolerable. I urge all member states to redouble their efforts to work together to find a lasting solution to ensure the safety and security of international shipping around the globe and protection of the marine environment. I will carefully review the results of the investigations, once they are completed, to consider if additional IMO action is warranted.”

The Strait of Hormuz now has a higher risk premium than any other seaborne trade route. Speaking to Wall Street Journal, Karatzas Marine Advisors chief executive Basil Karatzas said that there will be a significant rise in freight rates for crude oil tankers, adding that as insurance rates go up and vessel operating expenses grow to cover more compensation. “It could be a déjà vu of the Gulf War days in the early 1990s, when tankers in the Gulf were earning a multiple of the average market,” he said.

BIMCO is advising its members doing business in the area to exercise extreme caution and instruct their vessels to take precautions. Mr Sand advised considering telling vessels to avoid the area or to keep as far away as possible — to the extent operations permit and depending on a firm’s risk-acceptance levels.

 

Ship owners Snap Up Product Tankers, as Transactions are Up by 27% in 2019 (20/06)

Product tankers, and more specifically those of the MR class, have been in high demand throughout 2018 and during the first half of 2019. In its latest weekly report, shipbroker Allied Shipbroking said that “for more than 6 months now, we have repeatedly mentioned the sensational activity being noted by the MR segment in the Sale and Purchase market. In an environment of tighter earnings, stringer availability of capital and funding and the continuous signs of conservatism and skepticism towards the overall shipping market, how does one explain this behavioral trend. It looks as though the MR is “the new black” in terms of asset play for the time being”.

“Let’s start by taking a look at the fundamentals for this size segment over the past 5 years. From the side of earnings, in this year so far, the MR – TCE average figure is currently at US$ 12,659/day, roughly US$ 550/day less than the average of the previous 5 years (2014-2018), but higher by nearly 13.5% than that of last year. Moreover, to better visualize the current state, if we shift the analysis to a more risk-reward approach, we can see that the standard deviation has dropped by 46.8% year-on-year, clearly showing an overall convergence towards a more stable market state”, said the shipbroker.

According to Mr. Thomas Chasapis, Research Analyst with Allied, “furthermore, given that average earnings have increased, and the standard deviation of earnings has dropped, it is self-evident that the degree of variation relatively to the mean has also decreased, further supporting the impression of an improved state in the freight market that is currently being expressed. Note on top of this the fact that we are seeing an 8.4% orderbook to fleet ratio and for the year so far, a 10.78% decrease in the orderbook and a mere 1.48% increase in the fleet, we may well say that supply side of things also supports a sense of optimism looking forward. So far, we have established that the MR market seems to be on the “right” orbit, with most of its core indicators building a rather bullish sentiment. However, the important argument here is as to whether these points mentioned above are enough to support the acceleration noted in secondhand market activity since the start of 2019. In 2018 we witnessed a 53% increase in the annual SnP volume, while in 2019 thus far, we have experienced an 26.9% growth when comparing the same time frame period as that of 2018. If this excessive pattern isn’t evident yet, it might be interesting to point out that activity in MRs has held top position in the overall activity seen in the SnP market (including all main shipping sectors) second only to the Panamax dry bulkers (which some could argue are mainly driven by a plethora of sales candidates)”, Allied’s analyst noted.

“All-in-all, this buying spree for MR units seems to be a bit over the top. In addition, if anyone considers the fact that current asset prices across all age groups are holding at slightly higher than their respective 5-year average figures, its hard to see a case of “bargain hunting” taking place and driving this trend. Some would argue that the plethora of purchasing structures in SnP deals (leaseback, bareboat, TC or TC options attached) has helped to increase the overall volume of deals being concluded (in a struggling financial appetite). Others may make claim that interested parties have started taking their position based on their expectations of how the refinery map and oil products trade matrix will be shaped soon. Many perspectives and many questions at this point. As in most cases, the answer most probably lies somewhere in-between, while we will have to wait and see who is proven right and how things will develop as we slowly enter the second half of the year”, Chasapis concluded.

 

Tanker Newbuilding Orders Pick Up, While Bulkers Dominate the S&P Market (19/06)

Newbuilding activity has picked up over the course of the past couple of weeks, while the S&P market has been dominated, mainly, by dry bulk carriers. In its latest weekly report, shipbroker Banchero Costa said that in the newbuilding market, “in the drybulk, a substantial order was placed by Chinese Owners Shandong Shipping for 4 x Newcastlemax around 208,000 dwt at Qingdao Beihai, China. Price is $55.5 mln each (Tier-III, scrubber fitted) and deliveries in 2021. NB contract is supported by 5 years COA with Vale, Brazil. In the tankers, Avin International of Greece has ordered 2 x 158,000 dwt Suezmax tankers at Hyundai Heavy Industries, Korea for deliveries 1H 2021. Price is region $60 mln each, vessels will be tier III and scrubber fitted. Chinese New Times Shipbuilding has received an order for 4+2 Aframax tankers with options to convert them to LR2 from Chartworld Shipping. Deliveries are set as from 2Q 2021. Gas sector has also registered new orders with Korean shipyards in the highlights. Daewoo has received an order for one 169,500 cbm LNG carrier for delivery in 2022 from Maran Gas of Greece (price undisclosed), whilst Hyundai Heavy Ind has agreed for 1+1 x 86,000 cbm LPG carriers with compatriots KSS Line. Price is $74 mln (scrubber fitted). Vessels will have 5 year t/c at $830,000/month”, Banchero Costa noted.

In a separate note, Clarkson Platou Hellas said this week that “New Times have now finalized contracts with c/o Chartworld for four firm plus two option Aframax (with option for coating) with delivery from 2Q 2021. Seatankers have also finalized contracts in China, placing an order at SWS for two firm plus two option coated 115,000dwt LR2 with delivery similarly from 2Q 2021. In gas, DSME announced a further order from c/o Maran Gas for a 174k cbm LNG carrier with delivery in 2022. KSS Line announced an order at Hyundai for one firm plus one option 84,000cbm VLGC with the firm vessel due for delivery in early 2021. One RoPax order this week, with Moby Lines finalizing contracts with GSI for two firm plus up to two option 2,500pax/3,800lm RoPax”.

Meanwhile, in the second hand market, Banchero Costa said that “in the drybulk, two Post-Panamax resales ‘AGTR Ambition’ and ‘AGTR Blossom’ around 99,999 dwt (Loa is 240 m and Beam is 39 m) were resold enbloc to European buyers at region low$30 mln each. Deliveries are within the year. Kamsarmax ‘Key Navigator’ around 82,000 dwt 2014 (but non-eco) was sold within Japan at $23.25 mln, price is also reflecting BWTS fitted. Finally a very modern, eco-design ultramax ‘Ultra Innovation’ around 61,200 dwt 2016 built Tadotsu, Japan was privately sold to undisclosed buyers with 1 year T/C back to Owners at index linked rate. In the tanker segment, a clean LR2 ‘EVER RICH N 18’ of around 105,000 dwt Sumitomo 2003 built achieved a strong $14.5 mln. The MR2 sector keeps busy, last week a Japanese owned ‘High Efficiency’ around 46,500 dwt 2009 built Naikai was sold to European buyers at region $16.2 mln basis BWTS installed during last dry-dock passed recently. Three Formosa Plastic MR2 (one zinc coated, STX 2010 and 2 epoxy coated 2009 Jinling) were sold enbloc to European buyers. Price $45 mln in total”, the shipbroker concluded.

 

Shipping To Adopt “Wait-and-See-Mode” After Tanker Attacks in the Gulf of Oman (17/06)

In the aftermath of the shocking attack on two tankers in the Gulf of Oman, shipping analysts and brokers are expecting the maritime industry to sit tight and wait for further developments and reports on the incident in the days to come, before deciding its future stance on the issue. In its latest weekly report, shipbroker Gibson said that “with US sanctions on Iranian crude exports now in full flow, Iran’s oil revenues are in quick decline, with sources quoting that they are already lower than under previous sanctions in 2012. As such, the policy to choke Iran of exporting crude seems to have had the desired effect. However, attempting to track any Iranian vessel movements has become very challenging, with most tankers having AIS transponders completely switched off”.

Gibson added that “statistics from Kpler show that Iran loaded for export over 0.8 million b/d in May, down from over 1.2 million b/d in April. Previously, most of the country’s crude was shipped to China, with the commodity tracking company reporting that over 900,000 b/d was discharged into China in April but just 330,000 b/d was unloaded in May as sanctions came into effect. However, these are just the statistics that we know of and can make a reasonable assumption due to vessel tracking. The latest AIS data shows that approximately 33 Iranian VLCCs have their AIS trackers completely switched off, a massive increase from just 12 units in April, just before the expiry of the US waiver program. The vessels with their transponders off could be just sitting idle or involved in storage or may well continue trading. On a few occasions in the past, we have observed NITC tankers offloading their cargoes via the STS transfers. However, as US ups the pressure to block Iranian crude trade, it is highly likely that Iranian tanker floating storage is on a rise. Others share a similar view. Argus Media has recently estimated that floating storage jumped from 7 million barrels to 20 million barrels last month. An increase in floating storage generally is a positive development for the tanker market. However, Iranian crude trade is a closed market, with the NITC tankers shipping only Iranian crude and absent from the international trade”.

According to the shipbroker, “beyond current trade issues with Iran, the latest tanker incidents in the Gulf of Oman took center stage not only amongst those in the shipping community, but internationally, putting the world on alert about possible supply disruptions coming out of the Middle East. Speculations are running high that tensions between Iran and United States could stoke further after the US Administration again pointed the finger at Iran for the alleged attack. Reuters reported that two prominent tanker owners stated that they will reject any bookings for the time being for vessels loading in the Middle East Gulf. However, so far tanker markets have failed to react. The benchmark VLCC route from the Middle East to China (TD3C) closed on Baltic Exchange yesterday at WS38.65, just one WS point higher versus the previous day. In the product tanker market, freight rates actually fell, with charter costs for 75,000 tonnes and 55,000 tonnes clean shipments from the Middle East to Japan down by 1-2 WS points over the same period of time”, Gibson said.

“However, the current situation is likely to evolve in the days ahead and the picture will become clearer. As one of our brokers has so eloquently put it – “If in doubt – do nothing”. A strategy which it seems likely will be commonplace amongst the shipping community over the coming days. Nonetheless, the latest events without doubt do affect us all”, Gibson concluded.

 

Tankers: VLCC Market on the Slide During May (15/06)

VLCC spot freight rates edged down further in May. Rates were pressured by ample availability, as the tonnage list remained in excess due to limited scrapping and relatively steady new tanker deliveries. As a result, all routes experienced losses, but well below those seen in the previous month, which saw declines of as much as 33% on some routes. Suezmax average spot freight rates also edged lower in May, declining by 7% m-o-m. Limited cargoes and a long tonnage list weighed on Suezmax rates in May, although initial data for June points to a firmer market going forward, led by West African activity. In contrast, the Aframax sector experienced a recovery in May, gaining 18% m-o-m, with increases across all routes except Indonesia-to-East which remained flat.

Clean spot tanker freight rates were 10% lower m-o-m on average in May, but remained slightly above the same month last year. To the East of Suez, clean tanker freight rates were 5% higher in May over the previous month, boosted by strength on the Middle East-to-East route. In the West of Suez, average spot freight rates continued to move lower in May, declining by 24%, with losses seen on all routes.

Spot fixtures

Global fixtures continued to decline in May, averaging almost 10% lower and following a much stronger 33% drop the month before. However, y-t-d, global fixtures have been around 17%, or 3.25 mb/d, higher in the first five months of this year compared to the same period last year due to the exceptionally strong performances seen in February and March of 2019. In comparison, OPEC spot fixtures experienced a slightly stronger 11%, or 1.5 mb/d, decline m-o-m in May, to average 11.7 mb/d. Y-t-d, OPEC fixtures were 13%, or 1.8 mb/d, higher compared to the same period last year.

Fixtures on the Middle East-to-East route averaged 6.83 mb/d in May, broadly unchanged from the previous month and just 4% lower than the same month last year. The Middle East-to-West route experienced an accelerating decline, falling 35% in May, to average 1.15 mb/d and was 47% lower y-o-y. Outside of the Middle East, fixtures averaged 3.69 mb/d in May. This represents a lower m-o-m decline of 19% compared to a 33% drop last month and was down 13% compared to the same month last year.

Sailings and arrivals

OPEC sailings erased the previous month’s gains, declining 1.3%, to average 24.33 mb/d in May. However, this was broadly in line with the level seen last year. Sailings from the Middle East edged up marginally to 17.5 mb/d, but remained about 1% lower compared to the same month in 2018.

Crude arrivals to North America declined by 4%, or 0.5 mb/d, in May after recording strong levels over the previous two months. Y-t-d, arrivals were just 2% higher in the first five months of this year, compared to the same period last year. Arrivals into West Asia were 3%, or 0.1 mb/d, lower m-o-m and were broadly flat compared to the same month last year. In contrast, arrivals into the Far East were sharply higher, gaining 6%, or 0.5 mb/d, in May and were more than 0.2 mb/d higher than the same month last year when arrivals experienced a similar surge. Meanwhile, arrivals into Europe were broadly flat m-o-m, but were 0.2 mb/d lower y-o-y.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
VLCC spot freight rates in May edged down further in May. Rates were pressured by ample availability as the tonnage list remained in excess due to limited scrapping and relatively steady new tanker deliveries. As a result, all routes experienced losses, but well below those seen in the previous month, which saw declines of as much as 33% on some routes. Freight rates registered for tankers operating on the Middle East-to-East route edged down 3% from the previous month to stand at Worldscale (WS) 39 points in May. The Middle East-to-West route experienced a decline of 9% m-o-m to stand at WS19 points, while the West Africa-to-East route slipped by 5% m-o-m to average WS41 points. Compared to the same month last year, VLCC freight rates were 8% lower in May.

Suezmax
Suezmax average spot freight rates also edged lower in May, declining by 7% m-o-m, and were 12% lower compared to the same month last year. The decrease came mainly from tankers operating on the West Africa-to-USGC route, which declined 8% to average WS55 points. The NWE-to-USGC route edged down 2% to average WS50 points. Limited cargoes and a long tonnage list weighed on Suezmax rates in May, although initial data for June points to a firmer market going forward, led by West African activity.

Aframax
The Aframax sector experienced a recovery in May, gaining 18% m-o-m, with increases across all routes except Indonesia-to-East, which remained flat. The Med-to-Med route jumped 30% to average WS103 points, while the Med-NWE route rose 28% to average WS96 points.

The Caribbean-to-US East Coast route gained 15% m-o-m. However, all routes were lower compared to the same month last year, a month which also saw strong gains.

Clean tanker freight rates

Clean spot tanker freight rates were 10% lower m-o-m on average in May, but remained slightly above the same month last year. To the East of Suez, clean tanker freight rates were 5% higher in May over the previous month, boosted by the strength on the Middle East-to-East route that experienced a gain of WS20 points, or 20%, to average WS116 points. In contrast, rates on the Singapore-to-East route edged 6% lower m-o-m to average WS137 points in May.

In the West of Suez, average spot freight rates continued to move lower in May, declining by 24%, with losses seen on all routes. Both the Med-to-Med route and Med-to-NWE routes declined by WS26 points or around 15%. Clean spot freight rates for tankers operating on the NWE-to-USEC route experienced even stronger losses of 24% m-o-m, representing a decline of WS37 points, to average WS117 points.

 

Tankers: Ships’ Values Expected to Trend Higher (12/06)

The market for tankers is expected to trend higher moving forward, according to experts. In its latest weekly report, shipbroker Intermodal said that “this year’s tanker S&P activity keeps edging higher compared to the same period in 2018. Year to date we have seen some 143 ships, ranging from MRs to VLs, changing hands, an increase of around 21% compared to the same period last year. After a strong start in the first quarter, the freight market went through a significant softening particularly in the case of the crude carriers while the smaller/clean sizes performed significantly better. Overall sentiment remains bullish for the rest of the year, both in terms of freights as well as asset values. On the chartering side we see owners having high ideas for long term period charters and on the S&P front we see most ships being sold at a premium over last done”, Intermodal said.

According to Mr. Ilias M. Lalaounis, SnP Broker with Intermodal, “firm interest can be observed in the MR tanker segment, with a lot of ships changing hands during the past couple of months. Recently, we had the sale of MT High Sun (Hyundai Vinashin 50k 2014) for $28.7m to Ditas from Turkey; a firm price compared to the March reported sale of the same age/quality Korean built MRs that Glencore sold to JP Morgan for $27.5m (MT Alpine Mary & Alpine Maria, SPP 50k 2014). On the 10-year old ships, after the sales of the MT Unique Explorer (Onomichi 50k 2010) that was sold to Palonji Shipping from India for $17.5m and the Japanese owned MT Fidelity II (Iwagi 47k 2011) that was sold for $18.25m to Maersk Tankers last month, we see a handful of buyers that are looking for similar units and willing to go the extra mile to put their hands on fresh tonnage”.

He added that “hence we expect the bullish buyers to remain active and asset values to move further north as a result. On the Japanese 15 year old pumproom ships with surveys due, we also had the sales of the MT High Power (Naikai 47k 2004) and the MT Uacc Strait (Shin Kurushima 46k 2004) for $8.6m and $8.75m respectively and expect to see more vessels being sold soon. Finally we note that Sinokor’s Korean deepwell ships, the MT Security and the MT Tenacity (Hyundai 47k 2004) were sold for $9.75m basis surveys passed”.

Lalaounis added that “regarding Aframax and VLCCs, what depicts the bullish sentiment in today’s S&P market is the lack of 10 year old or younger quality tonnage available for sale with several buyers waiting to compete over the next candidate. We note the sale of the MT Maersk Jeddah and the MT Maersk Jamnagar (Sumitomo 105k 2011) committed at a firm price of $30.3m each, potentially to Greek buyers whose main interest is in the dry bulk shipping market. The auction of the MT Brightoil Lion (Tsuneishi 107k 2010) and the MT Brightoil Grace (Hyundai 320k 2013) that were recently under the hammer also drew a lot of attention. What is noticeable is that although auction sales usually attract interest due to the nature of the sale being distressed, several large tanker owners offered healthy prices, with the VLCC being sold for $61.5m, while 10 parties offered on the Aframax that is rumored sold at region $26m. All in all, activity is high, sentiment remains bullish and many owners argue that the healthy SnP market we experienced in 2019 is just the beginning of the so called “IMO Story” that has started to play out and will come in full effect coming into Q4 2019”, Intermodal’s analyst concluded.

 

Tankers Are Facing the Trade War “Music” (10/06)

The tanker is always vulnerable to geopolitical shifts, but owners will now have to contend with the “drums of trade war” coming from the US and directed towards China. In its latest weekly report, shipbroker Gibson said that “China officially increased tariffs up to 25% on $60 billion of US products from 1st June, following the US decision to increase tariffs on $200bn/year of imports from China to 25% from 10th May. Chinese imports of nearly every US energy commodity now face a tax of up to 25%. Crude is exempt, but China’s imports of US crude have fallen dramatically anyway since the 2nd half of 2018. Despite the trade conflict, US crude exports continue to grow. The loss of trade to China is being offset by higher shipments to other Asia Pacific countries and Europe. Similarly, Chinese crude imports continue to increase, with US barrels being replaced from multiple sources. As such, up until now the impact of US-China trade conflict on the crude tanker market has been very limited, although undoubtedly there would have been stronger long haul VLCC demand, if China had continued buying US crude”.

According to Gibson “however, trade tensions are translating into significant volatility in oil prices as fears of a global economic slowdown intensify. China, of course, is exposed the most, with the GDP growth already down from 6.8% during 1H 2018 to 6.0% in 2H 2018, according to the International Monetary Fund (IMF). China’s trading partners also have been negatively affected. Global manufacturing and trade volumes have been decelerating since the 3rd quarter of 2018 and the slowdown is starting to show up in sluggish consumption of middle distillates such as gasoil and diesel. Global manufacturers have reported falling export orders for eight months since September 2018, according to the new export orders component of the JP Morgan global purchasing managers’ index. Furthermore, the Netherlands Bureau of Economic Policy Analysis showed that trade volumes peaked in October and have since been contracting at the fastest rate since 2009. The latest round of tariffs will undoubtedly apply further downward pressure on global economy. The IMF anticipates that US – China tariffs could reduce global GDP rates by 0.3% in the short term from 3.3% in 2019 and 3.6% in 2020. Due to the obvious link between economic growth and oil demand, there is of course a growing risk of slower growth in global oil demand. Argus media suggested that if the growth in world GDP slows to 3%, this potentially could reduce growth in global oil demand by 130,000 b/d this year and by around 250,000 b/d in 2020. Of course, it remains to be seen by how much demand will actually be affected, as China has introduced stimulus measures to reduce the impact of new tariffs. Separately, the shipping industry also has rapidly approaching global sulphur cap on marine bunkers, which will offer a big boost to demand for diesel regardless of economic developments”, said the shipbroker.

“However, we should not forget about other threats. Could we see a further retaliation by China that will directly affect tanker demand? There has been a suggestion that one “weapon” China has at its disposal is the country’s ability to increase oil product exports by granting additional export quotas. If Chinese products flood international markets, refining margins could come under pressure, translating into lower crude throughputs and hence demand for shipments. Beyond China, the conflict is escalating between US and Mexico, with US threatening to impose tariffs on all Mexican exports. Should these go ahead, the negative impact on global economy and hence tanker trade is likely to be even bigger. However, the alternative scenario is that if trade disputes are resolved, the eventual outcome will be very different to the situation we are facing right now”, Gibson concluded.

 

Tankers For Newbuildings and Bulkers for Second Hand Acquisitions (05/06)

Ship owners are looking for tankers when it comes to newbuilding investments, and bulkers when it comes to second hand ships. At least, this has been the main trend over the course of the past few weeks. In its latest weekly report, shipbroker Banchero Costa said that “Avin International of Greece has placed an order for 2 Suezmax tankers of around 158,000 dwt at Hyundai Heavy. Price level is around $64 mln including Tier III and Scrubber fitted for delivery early 2021. Two Suezmax options were declared by Kyklades Maritime at the same yard. On the Aframax/LR2 segment, Pantheon Tankers agreed 2+2 Aframax tankers at SWS for delivery during first half 2021. Price is region $45 mln. Same yard also signed LOI for newbuilding order from two John Fredriksen’s led Seatankers Management and Frontline for 2+2 115,000 dwt LR2 and 2+2 320,000 dwt VLCC tankers respectively. Prices were not immediately available but we understand these were region $46.5 for the LR2s and $84 mln for the VLCCs. Furthermore, Maersk Product Tankers declared 4 x 115,000 dwt LR2 options at Dalian Shipbuilding”.

In a separate weekly report, Clarkson Platou Hellas said that “in tankers this week, clients of Alpha (Pantheon) have signed contracts with SWS for two firm plus two option 115k Aframax for delivery in 2021. Otherwise the focus of ordering has been in the ropax/ferry market with a number of orders to report. Norled announced orders for two 299pax/80 car ferries at domestic yard Westcon for delivery in first half 2021 – the vessels will be hydrogen powered. Sunstone added the 7th vessel to their orderbook of cruise expedition vessels at China Merchants – the first in the series is due to deliver later this year. Barreras Shipyard in Spain announced the declaration by Ritz-Carlton of a second 300pax luxury cruise vessel with delivery due in 2021”.

Meanwhile, in the second hand market, Banchero Costa said that “in the dry market, during the week it was reported that Star Bulk acquired all Delphin Shipping fleet (1 x Ultramax and 10 x Supramax). Deal was done at $139.5 mln via a combination of cash (around $80 mln) and shares. Cash portion will be financed by China Merchant Bank Leasing. Furthermore, one Kamsarmax “GRM Princess” (around 82k dwt built 2011 Tsuenshi Zhoushan) was sold to Greek buyers at $ 17.7 mln basis SS/DD due towards end of the year, and a Mitsui 56 “Darya Brahma” built 2009 was sold at $ 10.8 mln to Indonesian buyers. In the tanker market, movements were recorded both in the crude and product segment. Two modern Japanese Aframax “Maersk Jamnagar” and “Maersk Jeddah” around 105k dwt built 2011 Sumitomo were sold en bloc at $ 30.3 mln each to Greek Buyers. Last modern Japanese Aframax reported was the “Singapore River” around 114k dwt built 2009 Sasebo sold at $ 23.5 mln during last year. In the product segment, buying interest was focused on MR2. An IMO II MR (12 tanks) “Kastav” around 52k dwt built 2009 3 Maj went to Turkish buyers at $ 15.1 mln basis SS/DD due. In addition, it was reported that c.of Kassian are behind purchase of “Mariposa” around 50k dwt built 2010 Onomichi at $17,8 mln; two weeks ago “Leopard” around 47k dwt built 2010 Iwagi was done at $16 mln with T/C attached”, the shipbroker said.

In a separate note, Allied Shipbroking added that “on the dry bulk side, an interesting week was due, with plenty of transactions coming to light during the same time frame. Inline somehow with the overall recovery mode that the market is seemingly under, an amazed volume of deals started to take shape, reversing the sluggish mood of the weeks prior. The highlight of the week was the massive en bloc deal from Star Bulk, which came as huge “breather” to the market right now. On the tanker side, for yet another week we have witnessed an overall boosted market, with many vessels changing hands the last couple of days. The trending here remains the same, MR size segment taking a leading role. Notwithstanding this, we see some sort of firm interest slowly creeping up for the larger size segments as well (mainly for Aframaxes). With buying appetite easily moving around different age and size regions, we can expect this positive trend to continue on for the time being”, Allied concluded”.

 

Product Tankers: Will the Market Rally During the Second Half of 2019? (30/05)

Many question marks still linger regarding the expected rebound of the product tanker freight rate market as we approach the second half of the year, when many ship owners are predicting a rally on the back of the IMO 2020 rules. In its latest weekly report, shipbroker Intermodal said that “reflecting on the first quarter of 2019, the product tanker market was healthy, with average earnings significantly up compared to the first quarter of last year. However, the strong start of the year has been followed by a seasonal softening. Despite the 10% fall of the clean spot MR earnings in January (m-o-m basis), the earnings averaged at mid teen levels. The opening of some arbitrage windows, like the East to West movement of naphtha cargoes, healthy trade patterns in general and a solid growth in US exports were the main driving factors”.

According to Mr. Stelios Kollintzas, Tanker Chartering Broker with Intermodal, “during February, the market eased back with the Chinese New Year holidays rendering a very quiet market in the East; however, average earnings for the first two months were still a lot higher compared to the same period in 2018. In March, unplanned refinery outages in the US, led to increased gasoline imports to the East and West Coast US, while West Africa’s demand growth also contributed in what was a strong earnings’ month in the western hemisphere. In the East, Middle East’s and India’s improvements stand out, with demand for Indian coastal business opening up to non-Indian flag ships”.

Kollintzas added that “indicatively, below are the earning figures of some major product tanker owners in all sizes combined, for the first quarter of 2019. SCORPIO achieved average rates of $18,570/day, TORM achieved average rates of $17,949/day while Damico’s blended TCE was $14,057/day. Being always a good indicator for spot market expectations, the one-year-time charter rates for the MR size have been gradually improving, settling at the end of Q1 at around $14,000/day and $15,500/day for conventional and Eco MRs, respectively”.

“As far as Q2 is concerned, April and May saw a slowdown for most of the product tanker markets, while LR2 earnings have remained relatively flat. A major factor of this slowdown has been the seasonal refinery maintenance in Europe, US, Middle East and Asia, which is currently at its peak. The remaining segments experienced a fall in spot earnings and with owners remaining bullish on TC rates, period business activity slowed down as charterers were assessing the earnings potential going into next year”, Intermodal’s analyst said.

According to Kollintzas, “looking forward, many tanker market participants have strong faith that certain short term and longer term fundamental developments will act as game changer for the product tanker market. Much has been said about the increase in refinery capacity and the new IMO 2020 regulations that will push the market to improved levels in the coming years, with some expecting to see this uptrend starting as early as in the second half of 2019”, he concluded.

 

BIMCO And ASBA Join Forces To Develop Gas Tanker Voyage Charter Party (28/05)

ASBATANKVOY, one of the most widely used tanker charter parties in the world, will form the basis when BIMCO and the Association of Ship Brokers & Agents (U.S.A.), Inc. (ASBA) begin to jointly develop a charter party specifically for use in the gas tanker trade.

BIMCO’s Documentary Committee endorsed that work should be undertaken jointly with ASBA to develop the standard gas voyage charter party at its meeting on 14 May in Athens. The charter party will be codenamed ASBAGASVOY. Earlier this year, ASBA’s Board gave its full support to the joint development with BIMCO of ASBAGASVOY.

“I am pleased that ASBA and BIMCO come together on this important project. BIMCO is a natural partner in our strategy to create a standard charter party for the gas tanker industry which has the potential to enjoy the same wide recognition as ASBATANKVOY,” says Søren Wolmar, chairman of ASBA’s Documentary Committee and ASBA co-chair of the subcommittee that will be developing the new charter party.

The reason for the success of ASBATANKVOY is that it was created as a balanced document, and the intention is to maintain the balanced nature also in ASBAGASVOY. The new form will maintain the clauses from ASBATANKVOY, which are generally relevant to the tanker trade, while replacing specific oil tanker clauses with clauses addressing the specialised nature of the gas tanker trade e.g. in relation to presentation of the vessel.

“A dedicated gas tanker charter party will be particularly useful for BIMCO’s membership, which includes many gas tanker operators. By joining forces with ASBA, we can make sure that BIMCO’s contracts and clauses include an updated and balanced gas tanker charter party form, which owners and charterers can easily use,” says Stephen Harper, Head of Legal, Shipping at BW Group and BIMCO co-chair of the subcommittee.

The new form is intended for use of chartering tankers for LPG, anhydrous ammonia and chemical gases. LNGVOY, a voyage charter party for the carriage of liquefied natural gas, was published jointly by BIMCO and the International Group of Liquefied Natural Gas Importers (GIIGNL) in 2016.

Representatives of Clarksons, Nordisk Legal Services, Petredec and Thomas Miller P&I (Europe) Ltd. will be part of the development work. The first meeting of the subcommittee will be held on 25 June 2019.

 

IMO 2020: Tanker Market Upswing Not So Straightforward (27/05)

The expectancy of a tanker market upswing, as a result of increased demand for low-sulphur fuels ahead of the IMO 2020 rule, while reasonable enough, isn’t going to be as simple as one might expect. In its latest weekly market report, shipbroker Gibson said that “many tanker market participants have placed significant faith that both fundamental developments and short term disruptive factors will push the products tanker market into an upcycle over the next few years. Much has been said about how new refining capacity in Asia, coupled with IMO2020 will create sizeable arbitrage opportunities from East to West, giving a substantial boost to the product tanker market. Whilst this view is certainly reasonable, the reality is not quite so simple”.

According to Gibson, “firstly, regional distillate balances are going to shift everywhere, not just in Asia. Regions such as the US, which are projected to see a growing surplus over the next five years, may, on a short term basis, see their distillate surplus shrink in order to cater for domestic bunkering demand. A similar story is true in the Middle East, where long haul flows will have to compete with shorter haul demand to key bunkering hubs such as Fujairah. In Asia, any East to West outflows will also have to bypass regional demand. Singapore for example, supplied nearly 50 million tonnes in bunker fuels last year, collectively the Asia Pacific region supplied more than three times that amount. Granted, the majority of those volumes have historically been high sulphur fuel oil (HSFO) but come 2020, gasoil is (at least initially) expected to capture the majority of the market. Ultimately, this means that there will be stronger demand for locally produced distillates, which is expected to limit outflows from Asia, which conversely is expected to see a shrinking distillate surplus over the next 5 years”.

The shipbroker added that “structurally, however, the market will be supportive of at least some increases in East to West flows in the short term. Looking at the balances last year, the East of Suez (Middle East and Asia) market had a distillate surplus of 2 million b/d. West of Suez (including West Coast Americas and Africa) had a deficit of 2.2 million b/d. This would suggest that additional supply from the East of Suez to the West will rise. However, both regions will see their gasoil balances tighten next year. Changes to the Asian surplus may be counterbalanced by new refining capacity coming online this year, although the Western market is expected to a see a steeper deficit. Ultimately, this should support wider pricing differentials between regions. However, at this stage it is difficult to predict at what level an arbitrage may or may not be open. Another challenge laying in the way of long term flows is that of freight costs. Whatever the price of compliant fuel, it is expected to drive up freight rates, so any arbitrage that does occur will need to be wide enough to compensate for higher shipping costs”.

Gibson concluded that “fundamentally, with structural imbalances in place, prices should ultimately adjust to facilitate the higher rates. Volumes from the East into the key shorts of Europe, Africa and Latin America will have to compete with producers in the US, Russia and Middle East, who are all long on distillates and also have the advantage of shorter sailing distances and thus cheaper freight, better placing them to supply the Western markets. The long and short of it is that East of Suez will be long, and West of Suez will be short. The majority of new refining capacity start-ups this year are in the East, which should support incremental flows between regions and support tonne mile demand. Yet, the volumes will be capped by the fact that the East of Suez bunkering market is bigger than that of the West, coupled with the fact that initially, gasoil is expected to be the dominant bunker fuel before 0.5% blends gain traction”, the shipbroker said.

 

Tankers: Near-Term Headwinds Ahead (25/05)

The tanker market is bracing for a tumultuous period ahead, according to ship owner Teekay Tankers. However, a slowdown in fleet growth and a potential rise in US crude oil exports could offer some respite in the long term. Teekay Tankers said in its market outlook that “average crude tanker spot rates moderately increased during the first quarter of 2019, as some of the positive drivers from late 2018 continued into early 2019. These included high seasonal oil demand, the impact of winter weather delays, and relatively high global oil production prior to the full implementation of OPEC supply cuts. However, spot tanker rates weakened as the quarter went on, and the market faces a number of near-term headwinds during the second quarter of 2019”.

According to the ship owner, “global crude oil production has fallen by approximately 2.5 million barrels per day (mb/d) since the start of the year, primarily due to a reduction in OPEC supply. Lower OPEC production is a result of both high adherence to the 1.2 mb/d of cuts announced at the start of the year, and additional unplanned outages in Iran and Venezuela due to the impact of U.S. sanctions. Tanker demand has also been dampened by heavier than normal refinery maintenance during the second quarter of 2019. This comes as refiners look to complete maintenance and upgrade programs early this year in anticipation of much stronger demand in the second half of the year, when they will need to operate at high throughput levels in order to produce sufficient distillates to meet the new IMO 2020 regulations. Finally, the start of 2019 has seen relatively high tanker fleet growth, with total growth of 12.6 million deadweight tonnes (mdwt), or 2.1 percent, since the start of the year. The high fleet growth at the start of 2019 has been driven by a front-heavy newbuilding delivery schedule and just 0.8 mdwt scrapped in 2019 year-to-date”.

Teekay added that “underlying global oil demand remains firm with forecast growth of 1.3 mb/d in 2019 (average of IEA, EIA and OPEC forecasts). More importantly, refinery runs are expected to increase during the second half of the year as refiners prepare for the upcoming IMO 2020 regulations and the resultant increase in distillate demand that these regulations are expected to bring. Demand is also expected to be boosted by a significant increase in global refining capacity during the second half of the year, with the IEA forecasting a 4.6 mb/d increase in global refinery throughput between the seasonal low point in March 2019 and the anticipated seasonal peak in August 2019. This should generate significant demand for both crude and product tankers from the third quarter of the year”.

It also noted that “tanker demand should be further boosted by an increase in U.S. crude oil exports later in the year as new pipeline capacity comes online linking the Permian Basin to the U.S. Gulf Coast. It is expected that U.S. crude oil exports may reach 4 mb/d by the end of the year, increasing mid-size tanker demand for direct exports to Europe as well as Aframax lightering demand for exports to Asia on VLCCs. In addition, the Company expects that OPEC may start returning barrels to the market in the second half of the year in order to keep the market well supplied as demand rises. However, the political situations in Iran, Venezuela and Libya remain as wild cards”.

Supply-wise the shipowner said that “tanker fleet growth is expected to slow down considerably from the second half of 2019 as the orderbook rolls off. The tanker orderbook currently stands at 59.4 mdwt compared to a total fleet of 600.7 mdwt, or 9.9 percent of the existing fleet. This is the lowest orderbook-to-fleet ratio since 1997 and paves the way for relatively low levels of fleet growth over the next two years. Fleet growth could be further dampened in the coming months due to an expected increase in off-hire time as vessels are taken out of service to be fitted with scrubbers in advance of the IMO 2020 regulations”.

“In summary, the tanker market faces headwinds which may impact earnings in the near-term. However, the Company believes that these headwinds are temporary in nature and will reverse in the second half of the year, leading to a firmer tanker market from the second half of 2019 and into 2020”, Teekay concluded.

 

Tanker Market: India crude oil imports outlook amid U.S. Sanctions (21/05)

The Iranian sanctions is yet another factor to be considered in the tanker market these days. The repercussions are far and beyond, especially after the latest move by the US to end all waivers, in an attempt to achieve its goal of zero Iranian oil exports. Among the nations most affected is India.

In a recent weekly report, shipbroker Banchero Costa started its analysis on the matter, by noting that “Govt has put in place a robust plan for adequate supply of crude oil to Indian refineries. There will be additional supplies from other major oil producing countries; Indian refineries are fully prepared to meet the national demand for petrol, diesel & other Petroleum products” . This was the tweet of the Indian Petroleum Minister Dharmendra Pradhan coming after the Trump administration’s announced it will not renovate U.S. Iran sanctions waivers granted to the 8 largest Iran crude oil buyers– including India – which came to an end on May 2, 2019, as scheduled when firstly introduced. India and Iran hold long-established cultural and business relationships”.

According to Banchero Costa, “in 2018 Iran, ranking as the world’s fourth largest reserve holder of oil according to U.S. Energy Information Administration (EIA), was the third largest crude oil supplier to India, accounting for 11 percent of Indian crude oil imports after Iraq and Saudi Arabia, which accounted for 21 and 18 percent respectively, and followed by Venezuela (8 percent). In terms of crude oil supply, India is facing a challenging 2019: in addition to the Iran sanctions waivers expiry, U.S. imposed sanctions against the Venezuelan oil sector in January 2019. And following these two events, some 732,000 bpd of crude oil were effectively removed in April 2019, according to Lloyd’s List Intelligence data. Even if no names were shown in the above-mentioned tweet, Indian efforts to diversify its crude oil supply can be seen by comparing the 2018 and 2019 first quarter imported volumes”.

“According to the Directorate General of Commercial Intelligence and Statistics (DGCIS) data, imports from Mexico, UAE and Saudi Arabia increased by 58, 47 and 11 percent respectively – with UAE passing from the 8 th source of crude oil in Q1-2018 to the forth in Q1- 2019 – while U.S. shipped around 1.82 million tonnes of crude to India in Q1 2019, around 6.6 times Q1 2018 volumes. Data shows that the total quantity of crude oil imported from Iran plunged from around 5.95 million tonnes in Q1-2018 to around 4.15 million tonnes in Q1-2019 (-30 percent)”, said the shipbroker.

Banchero Costa concluded that “to stop buying crude oil from Iran puts India in front of many concerns, including refiners’ crude oil grade related issues: “It is not possible to suddenly convert those refineries (to run) some other form of crude,” said in this respect the Indian Ambassador Harsh Vardhan Shringla at Carnegie’s event in late April and reported by Reuters. But the largest problem lies on crude oil prices. “We are apprehensive that that impact can translate into inflation, (and) higher oil prices“ that could affect the common person in India, to quote again Shringla. Moreover, India purchases crude oil from Iran at cheaper freights, free of cargo insurance and with a longer credit period (60 days) compared to other suppliers. But United States cannot help on this matter: “Oil is owned by private people, so government cannot force people to make concessionary price“ said U.S. Commerce Secretary Wilbur last week while in India”.

 

Tanker Markets In Geopolitical Peril (20/05)

Tanker owners are having to cope with one of the most tense and complex geopolitical situations of recent times, when it comes to trading their fleet of vessels. Needless to say that uncertainty is prevailing at the moment. In its latest weekly report, shipbroker Gibson said that “not in a long time has the geopolitical situation in many of the worlds largest crude providers been so precarious. At the time of writing, many are still trying to understand the rationale behind the sabotage of vessels at Fujairah and drone attacks on Saudi Arabian pumping stations. With supply concerns in Iran, Libya and Venezuela already causing headaches and continued uncertainty over Russian crude shipments via the Druzhba pipeline, could potential supply disruptions put further pressure on prices?”

According to Gibson, “the latest IEA monthly oil report has suggested that concerns about supply could be offset by other producers who have indicated that they are willing to replace lost barrels (particularly Iranian) now the US waiver program has ended. Iranian seaborne exports in April dropped over 500,000 b/d from the previous month to just over 1.2 million b/d, down over 1.75 million b/d from the same period last year. Latest IEA figures also show that Venezuela is now producing under 850,000 b/d, the lowest figure ever seen on any database recording such figures in the past 20 years. The large drops in production from Iran and Venezuela have briefly been offset by greater output coming from Nigeria and Libya, despite ongoing unrest. However, no coordinated effort has been made to replace Iranian barrels as of yet. Current IEA figures show that OPEC alone has 3.19 million b/d in spare capacity, of which 2.21 million b/d comes from Saudi Arabia. However, despite the turmoil that seems to be escalating globally, crude prices have remained relatively stable, with Brent around $73/bbl. The biggest issue here of course is that the spare supply currently available is located where most of the geopolitical tensions currently lie”, the shipbroker said.

Gibson said that “alongside OPEC supply being tight, Non-OPEC production also fell 360,000 b/d in April to 63.6 million b/d. Despite this, Brazilian and US production increased. Brazil’s production was up to record levels at 2.8 million b/d, with China being their main export partner. Estimates are placing their end of year production to hit 3.2 million b/d. Strong growth from the US will also be needed in the 2nd half of the year to ensure the market remains adequately supplied in the absence of any OPEC increases”.

The shipbroker added that “with supply issues coming from some of the OPECs largest producers and non-OPEC supply growth predicted to slow to 1.8 million b/d in Q2 2019, production concerns could continue to drive up prices throughout 2019. Backwardation in crude futures has increased significantly, with front month prices $3.40/bbl higher than for 6 months out according to current ICE Brent contracts. Potential supply disruptions could mean major importers such as China look further afield for crude if traditional routes become too expensive or disturbed. Iranian exports have clearly taken a huge hit but continue to be exported under the radar, global crude supply is predicted to slow, and demand has been estimated to grow at a faster pace than supply. All eyes will be on the next OPEC meeting which is scheduled for June. Regardless of the outcome, current tensions in the Middle East will do little to comfort market participants. As it stands, markets seem to be teetering on a knife edge”, Gibson concluded.

Meanwhile, according to the shipbroker, in the crude tanker market this week, in the Middle East, “with May VLCC cargoes being finalized, and fresh June programmes entering the marketplace, there was just enough volume to allow Owners to nudge rates a little higher. It remains a marginal gain; however, and Owners will need sustained, and concentrated, activity to engineer a more meaningful improvement next week. Currently, rates to the East operate at up to ws 41, with rare movements to the USGulf at little better than ws 18 via Cape. Suezmax availability continued to swamp modest demand and rates again stayed flatline at around ws 62.5 to the East and to ws 26 to the West. Aframaxes had hoped to continue last week’s upward move but demand faltered and rates quickly retreated to 80,000mt by ws 112.5, with further slippage likely”.

 

Tanker Market In April Still in Decline (18/05)

Average dirty tanker spot freight rates in April continued to decline from the high levels seen at the end of last year. Fixtures were lower on seasonal factors with the start of refinery maintenance particularly pronounced this year as refiners gear up for the implementation of IMO 2020. Fleet growth weighed on the market as healthy freight rates in recent quarters discouraged scrapping and deliveries were concentrated in the 1H19, boosting availability. In April, dirty tanker freight rates for VLCCs and Aframax fell on average by 30% and 13%, respectively compared to March, although this was partially offset by a 13% rise in Suezmax rates supported by West Africa-to-US Gulf Coast (USGC) activity. Clean tanker spot freight rates continued to show mixed performance in April, resulting in an average 1% decline in rates compared to the previous month. East of Suez, clean spot freight rates weakened due to declines on the Middle East-to-East route, while West of Suez rates showed some improvement, supported by gains within the Mediterranean and Mediterranean to Northwest Europe (NWE).

Spot fixtures

After a strong first quarter, global fixtures fell back in April by 33.2% m-o-m, or 9.5 mb/d, from the high levels seen in the previous two month. However, the drop was only 3.1% from the same month a year ago. OPEC spot fixtures saw a proportional decline of 33.4%, or 6.60 mb/d, from the high levels in February and March, to average 13.18 mb/d.

Fixtures on the Middle East-to-East route averaged 6.86 mb/d in April, broadly in line with last year, but down almost 38% m-o-m from the high levels seen in the previous two months. The Middle East-to-West route continued the decline seen in the previous month, down around 11%, to average 1.79 mb/d. This was 28% lower y-o-y. Outside of the Middle East, fixtures averaged 4.53 mb/d in April. This represents a decline of 33% from the high levels seen in the previous month, albeit a gain of almost 8% y-o-y.

Sailings and arrivals

OPEC sailings were 1.1% higher m-o-m in April, averaging 24.67 mb/d, which represents a similar increase y-o-y. Sailings from the Middle East fell 5.5% m-o-m, representing a decline of around 1 mb/d, but were down just 1.2%, or 0.2 mb/d, compared to the same month in 2018.

Crude arrivals increased in all areas except Europe, where they declined by 3% or just under 0.4 mb/d m-o-m. European arrivals were down 7%, or just under 0.9 mb/d, y-o-y. Elsewhere, arrivals in North America continued at the strong levels seen in March, edging up to 10.7 mb/d. Arrivals in Far East and West Asia ports increased by 1.7% and 3.7%, respectively, from a month ago. Arrivals in the Far East recovered after falling over the previous two months, while it was the thirdconsecutive monthly build for arrivals in West Asia.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
After a tentative recovery in March, VLCC spot freight rates fell back in April. Rates were pressured by a lower number of cargoes, as well as seasonal factors heading into the lower demand second quarter. Freight rates registered for tankers operating on the Middle East-to-East route declined by 33% compared to the previous month, to stand at Worldscale (WS) 40 points. Middle East-to-West routes in April experienced a decline of 30% m-o-m to stand at WS21 points. West Africa-to-East routes in April also fell back, dropping 26% from a month ago, to average WS43 points. Despite these declines, VLCC freight rates in April were broadly in line with those seen in the same month a year ago.

Suezmax
Suezmax average spot freight rates saw a slight recovery in April, after falling the previous four months from the high levels achieved in November 2018. The increase came mainly from tankers operating on the West Africa-to-USGC route, which saw an 8% increase in spot freight rates to average WS51 points. The improvement in spot freight rates out of West Africa came from an influx of cargoes, although quiet markets elsewhere weighed on sentiment. NWE-to-USGC also provided some support, with an increase of 1% to average WS98 points.

Aframax
The Aframax sector in April continued to witness the declines seen on most routes since the start of the year, with only Indonesia-to-East showing a minimal increase.

 

Oil Tanker Demand Solid, But Trade Tensions Could Change That (17/05)

As if tanker owners needed another “headache” after a torrid couple of years, shipbrokers now warn that the latest trade tensions could offset the anticipated market rebound during the second half of 2019. In its latest weekly report, shipbroker Allied Shipbroking said that “taking into consideration the much-touted market improvement that is expected during the latter half of the year as part of the previously discussed IMO 2020 implications, questions are brewing over the current status of the crude oil market. Since the start of the year, oil prices have followed a rising path, with global developments curbing oil supply, as part of the Iran sanctions, the situation in Venezuela and OPEC agreement on output cuts. However, price trends and general sentiment have changed somewhat during this past week, due to increasing concerns regarding world demand, pushing both the price of Brent and WTI a bit lower.”

According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “the latest developments in the ongoing trade dispute between the United States and China has made markets fairly nervous. These two countries were responsible for 34% of global oil consumption during the first quarter of 2019, according to data from the International Energy Agency. Meanwhile, total crude oil imports from China increased by 8.9% between January and April, compared to the same time frame last year. However, the recent decision by the US administration to raise import tariffs from China to 25%, could possibly hurt Chinese economic growth, affecting in turn crude oil demand as well”.

Vamvakas added that “in addition to this, the US president has already issued a warning of likely extending tariffs to a further US$325 billion worth of goods from China. Concerns are now hitting the US economy as well, as it is almost sure that the Chinese government will react with retaliatory measures against US products. A prolonged period of trade tensions could even push the US economy over into a recession, given that these latest tariffs placed by the US president will inevitably be absorbed by the end consumer in the US, acting as a significant dampener on the US economy as consumer prices start to rise. The total impact will not just be limited to these two nations, as other countries are likely to be indirectly affected as well”.

“Meanwhile, the US government took another significant decision during this past week, issuing new sanctions on Iran. The end of the waivers that had been granted last year to several countries for continued importing of oil from Iran, has triggered the Iranian government to issue threats that it will restart part of its halted nuclear program if these restrictions aren’t reversed within 60 days. China, which consists of the most important importer of Iranian crude oil, along with the rest of the waiver beneficiaries such as Japan, S. Korea and India have halted imports from Tehran. As a result, oil shipments from Iran, which were estimated to be around 1-1.5mbd, are expected to come to a standstill, re-shifting once again global trade patterns. Meanwhile, Iranian officials have also threated that they may proceed with the closure of Hormuz straits, as a retaliation on the waiver termination decision. It is important to note that Hormuz is one of the most important waterways in the global crude oil trade, 40% of crude oil shipments transiting through this passage way every day”, Allied’s analyst said.

Vamvakas concluded that “for now, the overall expectations regarding the crude oil market remains bullish, as demand estimates from the US EIA show a rise in demand of around 1.4 million barrels per day for 2019. However, given the recent geopolitical developments, it will be of little surprise if these estimates receive a downward correction. Given this OPEC could decide during its next meeting in June to end its 1.2-million-barrel output reduction that had been agreed on previously. Uncertainty and price volatility are expected to mount over the coming weeks, as geopolitical tensions further intensify”.

 

Tanker Market Revival Dependent on Future Tonnage Supply (13/05)

Ship owners have started to scale back on the tanker newbuilding investment over the course of the past few months, in what could be seen as a positive sign moving forward. In its latest weekly report, shipbroker Gibson said that “one of the forward looking indicators of how healthy (or unhealthy) the tanker supply/demand balance could be in a couple of years is the tanker orderbook. Limited new tanker ordering activity over the past three years has undoubtedly been a welcome development for owners. The only exception to this general trend was robust investment in new VLCCs back in 2017 and to an extent in 2018. This year also started strong for VLCC contracting, with 12 fresh orders placed in January; however, the interest in new tonnage has completely dried up since then. MRs (40,000 to 55,000 dwt) have also seen stronger investment this year, with 40 orders placed since January. This compares to just 59 MR orders for the whole of 2018. Ordering activity in other segments has been considerably more limited. This year no Panamax/LR1 orders have been placed, while the market has also witnessed just 6 firm Suezmax orders and 8 firm Aframax/LR2s orders”.

According to Gibson, “an overall lack of enthusiasm in new tonnage is not surprising. Despite a strong Q4 2018 and early 2019, cash flows largely remain constrained, following a disastrous performance during the 1st nine months of last year. At the same time, the priority for some owners, particularly those owning larger tonnage, has been securing finance for scrubber installations. Furthermore, regulatory uncertainly with regards to optimal vessel designs and specifications make the investment decision even more challenging at present. While ordering has been restricted, the pace of new deliveries has accelerated. Since the beginning of the year, 30 VLCCs, 22 Suezmaxes, 31 Aframaxes/LR2s, 6 Panamaxes/LR1s and 30 MRs have been delivered”.

The shipbroker added that “not surprisingly, a robust delivery profile coupled with limited new investment has translated into a notable decline in the orderbook. At present, the global tanker orderbook (above 25,000 dwt) stands at just 8.5% relative to the size of the fleet currently on water. VLCCs have the highest orderbook at 13.5%, while MRs have the 2nd largest orderbook – at 10% relative to its existing size. Despite having the highest orderbook, new investment in these segments is still relatively modest from a historical perspective. In early 2016 VLCC orderbook stood at 20% and back in 2011 it was assessed at a colossal 33% relative to its fleet size at the time. The orderbook size is even smaller for other segments. Aframaxes/LR2s and Suezmaxes have respectively 7.8% and 7.4% of its fleet on order, while the Panamax/LR1 orderbook is at just 5%”.

Gibson also noted that “most of the tankers on order are scheduled to start trading this year, maintaining downward pressure on industry returns. We could, of course, see some slippage in delivery dates. However, with growing optimism for improving market conditions in the 2nd half of the year evidenced in the freight forward curve, owners may be keen to avoid delays. Beyond 2019, the delivery profile is considerably lower, suggesting tightening supply conditions. The market is also expected to benefit from new regulations, which are likely to support demolition activity. While IMO2020 will make aging and inefficient tankers even less competitive, owners will also be evaluating whether it is worth investing into expensive ballast water treatment system retrofits when their deadline for installation approaches”.

“One of the key sensitivities is future ordering activity. Limited ordering so far this year has been a good indicator of current investment appetite. Newbuilding prices have also firmed notably, discouraging investment. The biggest uplift has been in newbuild Suezmax values, which have appreciated by 17% compared to lows seen back in 2017. However, the interest in new tonnage is likely to firm once we see sustainable improvements in industry returns. The question then is: will the anticipated increase in demolition be enough to keep tonnage supply in check?”, Gibson concluded.

 

Product Tanker Could Soon Be Used for Storage (06/05)

Product tankers could soon be used for floating storage units, as the market is starting to exhibit certain undeniable trends supporting the case for using ships for storage of fuel oils. In its latest weekly report, shipbroker Gibson said that “much of the current market focus is on crude supply, with sanctions, outages and unplanned disruptions impacting on supply. But with IMO2020 just around the corner, fundamental changes in the products market are afoot, with the market dynamics set to drastically shift as we move closer to the end of the year. The market for middle distillates (primarily gasoil, diesel and jet fuel) could be set for a seismic shock – in stark contrast to current market fundamentals”.

According to Gibson, “at present the forward structure for ICE gasoil shows backwardation until July, with a contango setting in from August onwards. The shape of the curve can be explained by short term fundamentals. Continued refinery turnarounds are likely to constrain short term supplies, with notably lower exports from the Baltic expected for May. European refinery runs may also see some impact from crude supply issues, owing to contamination of Russian crude, whilst colder than usual weather could support prompt demand. However, the conclusion of European maintenance season will soon see supplies boosted, whilst higher inflows from the United States can also be expected, depressing forward pricing. Beyond this, the focus shifts to positioning for firmer demand emerging towards the end of the year, justifying the contango structure which emerges in the third quarter”.

Gibson added that “of course, when talking about contango, the shipping market tends to focus on the prospects for floating storage. Given that the market structure of ICE gasoil is backwardated for the new few months, floating storage is unlikely to be a feature of the market over the next quarter. However, looking further ahead, the ICE gasoil spread between July and October shows a contango of $5/tonne. Whilst forward storage rates are uncertain, and Q3 typically sees LR2 rates firm, even at a conservative estimate, such a contango is unlikely to support storage economics at this stage. Simple calculations suggest that at a daily rate of $18,000/day, a contango of at least $11/tonnes over three months would be needed to justify such a play, considerably short of where the curve currently sits. However, the current structure is unlikely to be preserved. As refineries exit maintenance over the current quarter and runs increase into Q3, the current contango in gasoil prices may steepen as increased supply depresses prompt prices, whilst increased focus on end of year demand supports the back end of the forward curve. Whether or not the futures structure becomes steep enough to justify storage remains to be seen, with freight costs also expected to firm over the same period. LR2s will always be the obvious candidate for this; however more favourable economics may emerge for newbuild crude tankers (VLCCs and Suezmaxes), where improved economies of scale may be achievable, depending on the level of demand for fuel oil storage and crude tanker fundamentals at the time”.

Gibson concluded that “outside of Europe, forward pricing in the key trading hubs of Singapore and New York Harbour show a modest contango all the way to the end of the year, although the scale is unlikely to justify significant floating storage play in the short term. However, just as in Europe, product supplies will increase post turnaround season, putting downwards pressure on prompt prices. With Singapore being the world’s largest bunkering port, demand in the region is expected to change significantly towards the end of the year, perhaps creating storage opportunities for product tankers to capitalise on, even if the window of opportunity proves to be short”.

 

Sanctions and the Tanker Market: Where to from here? (30/04)

As the US decided to put a complete halt to Iranian oil exports, the tanker market is expected to face even more turmoil. In its latest weekly report, shipbroker Gibson said that “so, here we go again – Trump, waivers and oil prices. It feels like déjà vu, except this time there are no waivers. The US administration recently announced they will no longer grant waivers to countries importing Iranian crude in a bid to block their exports. However, if the US administration wants to lower crude prices it will rely on others to compensate after the benchmark Brent closed at its highest level in six months to $74.51/bbl on the back of this news”.

According to Gibson “fears of supply tightening were seemingly eased by comments from the administration, suggesting Saudi Arabia and the UAE would increase production to keep supply in line with current demand levels. However, Saudi Arabia’s energy minister seems to think otherwise, publicly stating they will not increase production pre-emptively, suggesting that the market is already well supplied and that they will wait to see the effect on supply first. The Kingdom is currently pumping around 9.8 million b/d, some 500,000 b/d below their agreed cut with OPEC+. Iran’s response has been somewhat muted, stating they will ignore any US action and will continue to export as much as they can regardless. Some outlets have suggested Iran could attempt to choke activity coming from the Strait of Hormuz; however, analysts have been quick to dismiss any such move”.

The shipbroker added that “the American Automobile Association has said the sanctions will have repercussions on America’s domestic market, predicting prices will rise to over $3 a gallon, up 15 cents per gallon on current levels as we enter the US ‘driving season’ and uncertainty creeps into the market. The choice to end waivers and implement sanctions comes at a time of increasing turmoil in the oil supply chain. Venezuela continues to be hampered by domestic issues and international sanctions. Libya also now looks an uncertain producer as fighting escalates in the country. Iran has exported over 1.1 million b/d in Q1 2019, over 1.3 million b/d less than during the same period last year. The EIA have now assessed the sanctions on Iran could leave a greater shortfall in world oil markets than previously estimated”.

“To make matters worse, Urals shipments through the Druzhba pipeline have been suspended due to concerns over contaminated crude, further exacerbating prices, with Brent briefly tipping over $75/bbl on Thursday morning. The crude is said to contain excess levels of chloride, potentially damaging refineries in the region. Japan and China have already started stockpiling Iranian crude in expectation that waivers would be withdrawn, with Iranian exports up in March by a fifth to 1.33 million b/d according to Argus, the highest since October, just before US sanctions were implemented”.

Gibson concluded that “it remains to be seen whether China and India will continue to buy Iranian crude, if sanctions are indeed imposed. In any case, total volumes are likely to fall. The question then is how Iranian barrels will be replaced, if Saudi Arabia decides to maintain production at current levels. In coming months, the country is also expected to increase direct burn of crude for power generation. This will only apply additional pressure on Saudi’s exports. As such, it seems likely that if none or too few additional barrels from the Middle East are forthcoming, upward pressure on oil prices will intensify. Brent, WTI and Oman are already at their highest level this year, so if the US administration plans on controlling and lowering oil prices, they may have to be careful what they wish for”.

 

Suezmax Tankers Offer Improved Fleet Prospects (15/04)

Improved fundamentals could provide an additional boost to freight rates for Suezmax tankers moving forward. In its latest weekly report, shipbroker Gibson said that “like all other crude tanker segments, Suezmax rates have been on a rollercoaster ride over the past six months. Earnings surged in the 4th quarter of last year, in part due to major Turkish Straits delays, in part due to marginal fleet growth. Of course, other factors were at play as well, such as higher Middle East/Russian crude exports in Q4 2019, prior to the re-imposition of the production constraint. The picture now is very different. Earnings on benchmark routes in the Atlantic Basin declined steadily during the 1st quarter, averaging in March close to OPEX. Once again, the decline has been triggered by a combination of factors. Transit delays through Bosporus eased gradually as the weather improved. In West Africa, exports were hit both in January and February, mainly due to lower shipments out of Angola. Cuts in crude exports out of the Middle East also had negative implications. While trading demand has come under pressure, fleet size has increased. According to our records, 19 Suezmaxes were delivered during Q1 but just one tanker was reported as sold for demolition. The picture is similar for VLCCs and Aframaxes/LR2s. There were no demolitions in these size groups in Q1; however, 20 VLCCs and 28 Aframaxes/LR2s were delivered”, Gibson said.

According to the shipbroker, “despite the poor conditions at present, fleet prospects for Suezmaxes look more balanced for the remainder of 2019. Only 12 tankers are scheduled to commence trading operations, while the market could also see some units being demolished. There are 21 Suezmaxes currently on water that are over 20 years of age, plus another 11 will celebrate their 20th birthday this year. With testing market conditions for modern tonnage, trading environment for ageing ladies must be even more challenging, increasing the appeal of demolition. In contrast, more deliveries are planned in the VLCC and Aframax/LR2 segments. Here, 54 and 27 tankers respectively are scheduled to start trading until the end of 2019”.

Gibson added that “the near-term outlook for earnings also depends on demand prospects. About half of all Suezmax spot fixtures originate out of West Africa and the Black Sea/Mediterranean. In addition, about a quarter of trade comes out of the Middle East. As the largest crude exporters in these regions are OPEC members or countries participating in production cuts, Suezmax trade prospects are largely linked to future OPEC/non-OPEC output policy decisions. Although the official OPEC rhetoric does not indicate an increase in output anytime soon, firmer oil prices due to sanctions and escalation of conflict in Libya certainly support an argument for higher production. Earlier this week, OPEC admitted that production cuts and involuntary declines in Venezuela and Iran pushed the oil market into deficit last month. More importantly, the call on OPEC is likely to intensify substantially in the 2nd half of the year, once global refinery turnaround season is complete, refiners ramp up crude runs ahead of the IMO 2020 and new refineries begin full scale commercial operations. Of course, higher demand for crude will benefit all crude tankers, not just Suezmaxes; however, healthier supply fundamentals for this size group may offer a little bit extra”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “VLCC Owners may feel that they let opportunity slip to make a more marked improvement given the relatively heavy mid-week action, but all the while their efforts were compromised by equally heavy, ongoing, availability and the slow close to the week prevented momentum taking hold. Rates did crawl a little higher to touch ws 40 to the Far East, with West runs very rare, and still under ws 20 via cape. Suezmaxes could only slide sideways upon very modest demand, but would have threatened lower if the other load zones hadn’t posted gains. Ballasting from/by-passing the area is now more viable. Aframaxes also stayed on the slow side, with 80,000mt by ws 100 still the average asking level to Singapore. Discounting on the near horizon if activity doesn’t quickly pick up”.

 

Tanker Market in March: Declines the Norm (13/04)

In its latest monthly report, OPEC noted that average dirty tanker spot freight rates declined further in March, continuing the downward trend seen in the first quarter. Lower rates were reported in most dirty classes, mainly attributed to high vessel supply, while market activities remain thin, in general. Other factors, including refinery maintenance and weather also weighed on tonnage demand during the month. Average dirty tanker freight rates saw a drop from the previous month, as Suezmax and Aframax rates dropped by 13% and 9%, m-o-m, respectively. Clean tanker spot freight rates showed some improvement in the West, supported mainly by higher rates in Northwest Europe on the back of balanced tonnage availability and occasional shortages in prompt vessel supply. In the East, lack of activity dominated different classes resulting in a drop in rates across several routes.

Spot fixtures

According to preliminary data, global fixtures inched up by a slight by 0.8% in March compared with the previous month. Compared with the same period a year earlier, global fixtures showed an increase of 48% in March. OPEC spot fixtures rose by 1.15 mb/d to average 19.86 mb/d. Fixtures on the Middle-East-to-East route averaged 11.04 mb/d in March, which is higher by 0.38 mb/d compared with the previous month, while fixtures on the Middle East-to-West route averaged 2.05 mb/d, a drop of 0.17 mb/d m-o-m.

Sailings and arrivals

According to preliminary data, OPEC sailings rose by 0.9% m-o-m in March to average 25.48 mb/d. This is an increase of 4% from the same month a year earlier. On the contrary, Middle East sailings declined by 0.17 mb/d from the previous month. Arrivals in March were mixed, registering mostly increases in North America, Europe and West Asia by 7.5%, 1.5% and 2.8%, respectively, compared to the previous month. Concurrently, arrivals to the Far East showed a drop of 4.8% from the previous month to average 8.63 mb/d.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
VLCC freight rates were the only class in the dirty sector that showed positive earnings in March, although the gains remain relatively low. VLCC average freight rates went up by WS6 points, or 14%, to stand at WS49 points over the month. Improvements were seen on all reported routes.

Stable demand for VLCCs at the beginning of March set the platform for an increase in rates; however, a decline in cargo demand following the completion of March requirements, combined with a lack of tonnage demand in the East put pressure on the freight rates and limited gains in several areas. As a result, VLCC spot freight rates for tankers operating on the Middle East to-East routes showed a slight increase, up by WS8 points from the previous month to stand at WS60 points in March. Freight rates registered for tankers on the Middle East-to-West routes went up by WS5 points m-o-m to average WS30 points, while VLCC spot freight rates for tankers trading on West Africa-to-East routes increased by 11% m-o-m to stand at WS58 points in March.

Suezmax
Average Suezmax spot freight rates declined in March. Rates for tankers operating on the West Africa-toUS Gulf Coast (USGC) route decreased by 19% m-o-m to average WS51 points. Rates on the NWE-to USGC route fell by 6% in March from the previous month, to average WS47 points. The Suezmax market had a negative start to the beginning of the month, with rates falling across all trading routes to below operational cost levels. The decline in freight rates came on the back of tonnage builds and few loading requirements, with exceptionally quiet periods in the main markets such as the USGC, North Sea and West Africa, which all showed limited tonnage demand in general and rates ended mostly flat. A short-lived tightening of Suezmax availability in the East supported freight rates temporarily, or at least prevented them from dropping further.

Aframax
Aframax freight rates mostly declined in March from the previous month, while all freight rates remained above levels registered in the same month a year earlier. Spot freight rates for tankers operating on the Mediterranean-to-Mediterranean stayed at the same level as in the previous month and averaged at WS95 points in March. Spot rates registered on the Mediterranean to-NWE route declined by WS2 points m-o-m to average WS89 points. Freight rates on both routes were higher by 9% than seen in the same month a year earlier. In the North Sea and the Baltic, average spot freight rates were not supported by demand for the ice class as the winter season is about to end, although the market did capitalise on a point when the Baltic market was firming due to lesser availability of the ice class.

In the Caribbean, freight rates for Aframax tankers operating on the Caribbean-to-US East Coast (USEC) route declined by 30% from the previous month to average WS99 points in March. Aframax freight rates in the East increased slightly from the previous month as spot freight rates registered on the Indonesia-to-East routes rose by WS4 points m-o-m, to average WS97 points.

 

From Brazil to China: Not Just Iron Ore but Crude Oil as Well (08/04)

Brazil is known as one the main suppliers of iron ore to China. However, a series of developments have led to the Latin American country fast becoming a major exporter of crude oil towards the world’s second largest economy, a trend not expected to stop anytime soon. In its latest weekly report, shipbroker Gibson said that “earlier in 2019, we published a market report into how the surge in Chinese refined product exports had a profound effect on the product tanker market. However, with significant new refining capacity coming online in China this year, it is important to assess where the additional crude supply will come from. With two of China’s key suppliers under sanctions, and many others participating in output cuts, procuring the additional volumes demanded may not be as simple as before. Where will China turn?”, Gibson said.

According to the shipbroker, “traditionally, China’s largest sources of crude have been the Middle East and Russia. West Africa and Latin America have also supplied significant volumes. However, productions cuts have put pressure on these flows. OPEC cuts have reduced production from China’s biggest seaborne crude supplier, Saudi Arabia. Saudi Arabia is still one of the top suppliers of crude to China, but import growth is slow year on year. Individual supplies from Iraq and Iran are down, with sanction hit Iranian exports to China falling from over 675,000 b/d in Q1 2018 to under 500,000 b/d in Q1 2019, with the UAE and Oman plugging some of the gaps according to Kpler. 2019 Q1 numbers also show just over 1.2 million b/d of Russian crude has flowed into China via pipeline and sea, the same level as Q1 2018”.

The shipbroker added though that “however, whereas imports from the Middle East and Venezuela look precarious, imports from Brazil specifically have surged in recent months, capitalizing on uncertainty from other countries in the region. Many modern Chinese refiners are set up to run most effectively on heavier grades of crude, but with heavy crude production suffering of late, demand from China – and globally – has soared for Brazil’s heavy grades. Petrobras stated in their annual report that 66% of their crude exports in 2018 went to China. Q1 2019 imports of Brazilian crude to China averaged over 665,000 b/d, up 67% from Q1 2018’s average of 400,000 b/d. Brazil’s production is set to increase over 350,000 b/d this year according to the IEA. However, despite substantial growth, the difficulty markets face now is that Brazilian grades – especially Lula grade – are demanded elsewhere, particularly from the US and India looking to replace Venezuelan barrels”, Gibson said.

“With significant refinery capacity due to come online in 2019 and crude production in the Middle East remaining constrained, Brazilian crude exports to China should increase further, providing a supportive outlook for VLCCs heading West to East, as we had previously reported. Uncertainty surrounding Venezuelan export volumes and the outcome of the trade war, coupled with OPEC production cuts offers a significant opportunity for Brazil to capitalise on Chinese demand, which is expected to pick up as refinery maintenance season concludes. With domestic demand growing and political turbulence, China has little choice but to continue to diversify its sources crude supply. As such, Brazil could become one of China’s critical sources for these additional barrels. But of course, IMO 2020 could change the economics of long-haul crude flows. However, with most of the supply growth in the West and demand from the East, there may be little choice but to cough up the extra expense”, Gibson noted.

Meanwhile, in the crude tanker market this week, Gibson said that “VLCCs continued their downward march, with modern vessels willing as low as ws 35 to the Far East and to ws 18.5 to the USGulf via cape. Late week activity did pick up quite noticeably, but that merely served to draw a line under the decline and Owners will need a further sustained period of heavy attention to prune weighty availability, and lead to any progressive rebound. Suezmaxes again drifted sideways upon only modest demand, and easy supply – 130,000mt by max ws 65 East, and to ws 40 West for now, and probably well into next week too. Aframaxes also found little positivity but did just about hold at 80,000mt by ws 100 to Singapore. More needed to retain that mark over the next phase though”, the shipbroker concluded.

 

Tanker Market: Where to Next After Brexit and Venezuela Sanctions? (06/04)

In its latest weekly report, shipbroker Intermodal said that “subsequently to the drop of rates in the third decade of March – last week continued pretty much with the same sentiment, with nothing fresh apart from a few sparks that did not materialize and with excess tonnage pushing/holding rates at same/lower levels. With fixing dates starting to move towards April end, first tier VLCC units still trade at WS43-45 for Far East destinations shaping the TCE down to about $15,000.00 p/d and slightly above WS20 for West. West Africa remains unchanged with last fixture ex Nigeria/ECI at USD 2,95million”.

According to Mr. Dimitris Kourtesis, Tanker Chartering Broker with Intermodal, “even with noticeable increase in Suezmax WAF inquiries last week, activity remains steady, with surplus tonnage along with nonsensical dates sustaining pressure on the market. In the MEG Owners tried to resist but the bullish attitude didn’t hold for long, letting rates slip and seeing fixtures at 65WS for EAST and 40WS for west deliveries. In MED/BSEA not much is happening at the moment and rates are expected to slip further”.

Kourtesis added that “after a fire at the Intercontinental Terminals tank farm, the US Coast Guard was working on a locking system to prevent further contamination. During that period the HSC (Houston Ship Channel) remained closed, putting as a result a smile on Aframax Owners faces which won’t last for long as the channel did not remain closed for long enough. Rates settled below WS100 at 70,000 MT for upcoast and TA routes as well. For cargoes ex MEG rates remain 100WS at 80,000MT’s, cross Med stands at 80WS at 80,000MT & and BSEA runs slightly higher”.

Intermodal’s analyst added that “entering the second quarter of 2019, it finds us facing various geo-political and economic turbulence around the world, some of which affect trading patterns / supply & demand / freight rates and oil prices either directly or indirectly. What does a no deal Brexit mean for the oil / offshore and gas industry? Certainly, the cost of energy import and electricity bill will rise, although the actual time this will happen is not yet clear. The UK frequently imports equipment from Europe for their offshore industry. It is clear that if tariffs or different tax regimes are introduced it would be extremely detrimental to their economy. Buyers of UK oil like South Korea will have to make new arrangements since UK will no longer be part of the free trade agreement between South Korea and Europe. Last but not least it is worth mentioning that 87% of UKs natural gas demand is imported from Norway and the balance from Belgium and Netherlands, which means that the flow of natural gas will not stop but it will definitely become less efficient”, the shipbroker said.

Meanwhile, “US imposed a second round of sanctions on Venezuela on 28th of January and it is estimated that by the end of this year, Venezuela oil production will fall down to 500K b/day. After sanctions and also the limited production of Venezuela, many oil traders had to look for alternative sourcing, as they had to keep supplying either their refineries or running contracts. A couple of months ago the Venezuelan government seized tankers carrying fuel for their domestic market. Even though their actions were not in line with English common law, the government managed to sidestep it and by enforcing local the Venezuelan law confiscated the cargoes. The problems for Venezuela kept mounting with a second power outage taking place on Jose, one the biggest crude export terminals, last week. This did not only affect terminal operations but also the upgraders that turn heavy crude oil to light, while despite all the adverse developments Venezuela will have to keep pumping oil as they have to ship crude to China and Russia as a part of an ongoing loan deal”, Kourtesis concluded.

 

Shipbrokers Expect More Newbuilding Orders in the Product Tanker Segment (04/04)

The slump of newbuilding orders during the first quarter of 2019 is expected to hold firm in the months to come, with a few exceptions, like for instance LNG carriers and possibly product tankers as well, on the back of improving market conditions. In its latest weekly report, Allied Shipbroking said that “activity in the newbuilding market remained subdued for another week. The dry bulk market was seeing the effects of the recent freight market developments having heavily weighted in a negative way against the interest of owners for new vessels. Given the poor current market fundamentals and minimal convincing signs showing that demand levels will rebound soon, it is not expected that we will see activity rebounding in the near term. Additionally, current price levels offered by shipbuilders are not helping boost interest, especially given the fact that there is still a fair amount of opportunity present in the secondhand market now. On the tankers side, there was an interesting turn up last week, with new emerging that New Times won two contracts for 4 LR2 and 10 MR carriers. The positive outlook currently prevailing for the product tanker market is expected to lead to an ever increased appetite for new orders in this sector”.

In a separate report, shipbroker Banchero Costa added that “it was a fairly quiet week in the newbuilding market, with not much new to report for the conventional type of ships. Headlines were taken by the struggling situation and the production stop of Hanjin Subic Bay, with relevant concerns of Owners who placed orders there. In the Dry Bulk sector, more coastal business was done in Russia where a further order for 8 up to 11 vessels was placed with Krasnoye Sormovo for specific design; delivery between 2019 and November 2020. In the tanker sector, the only noticeable info regarded the order at New Times placed by Eastern Pacific for 2 x LR2; this is to replace the same order which was awarded to Hanjin Subic and then cancelled. On a different note, it was a busy week for new container business: CMA CGM firmed 5 + 5 x 15,000 TEUs in China with the first 5 units awarded to Hudong-Zhonghua and further 5 split between ASA and Jiangnan. Leasing structure may be arranged on this deal with CSSC Shipping Lease. Hundai Mipo got an order for smaller 3 x 2,500 TEUs size from local contractor KMTC for delivery end 2020 to January 2021, price reported region $35.7 mln each”.

Meanwhile, in the S&P market, Banchero Costa said that “in the dry sector, with the big tonnage struggling to find buyers at Owners’ prices, several Handysize vessels changed hands over the last week. Two seahorse 375 “ALPINE” and “SUMMIT” around 37,500 dwt 2015 built Nanjing Dongze (ice class 1C) were sold enbloc for $30 mln to undisclosed Buyers. Japanese owned “SUNLIGHT LILY” around 36,640 dwt 2012 built Shin Kochi achieved $12.35-12.50 mln range from a Greek buyer. Finally “GLOBAL PROSPERITY” around 33,700 dwt 2006 built Shin Kochi, after failing at $8.4 mln, was fixed at $8.6 mln. In the tanker sector, the Aframax “GARDENIA” around 112,000 dwt, bought as “DHT CATHY” in November 2018 at $11.9 mln, was sold to Indonesian Buyers for $13.25 mln. In the product segment, MR2 “ISOLA BIANCA” 50900 dwt 2008 SPP was sold for $15.5 mln to undisclosed buyers whilst older “PORT MOODY” 46,100 dwt 2002 STX DPP trader sold for $7.5 mln, which seems bit softer than last done “TORM AMAZON” 46,000 dwt 2002 Onomichi, which sold in excess $8 mil to Seven Islands, India. Finally two Qatari 40,000 dwt ‘wide body’ (31 m beam) MR1 “JINAN” and “DUKHAN” found buyers in Europe at region $8 mln each”.

Similarly, Allied Shipbroking added that “on the dry bulk side, a sluggish mode is currently in effect, after a 2- week mini rally noted in terms of volume of transactions. Given the overall state of the dry bulk sector, this asymmetry and volatility in the SnP hasn’t caught many by surprise. At this point, we have witnessed a more vivid interest in the Handysize segment, with medium size segments following closely behind. Moreover, with many feeling that things are slowly recovering, we can expect buying interest to gear up again pretty soon. On the tanker side, things were sustained on the positive side, in terms of activity noted, for yet another week. This weeks volume was mainly driven by a single enbloc sale & leaseback deal. At the same time, it is important to note that buying interest is still relatively vivid and we should see a fair amount of activity take place over the coming weeks, especially in the product tanker segments which hold more optimistic views as to their future prospects”, the shipbroker concluded.

 

Strong Chinese Oil Imports Could Offer Boost to the Tanker Market (02/04)

After a dismal 2018, tanker owners could harbor further hope for a freight rate market revival, as China’s thirst for crude oil imports is stronger than ever. In its latest weekly report, shipbroker Banchero Costa said that “as recorded at the end of 2018, China’s crude oil imports still exceed previous year’s levels. In February 2019, supported by the risen demand of new private Chinese buyers and with new plants set to start commercial operations this year, crude oil imports rose 21.6 percent year-on-year to reach 39.2 mln tonnes, as per the General Administration of Chinese Customs data (GAC)”.

According to Banchero Costa, “in February 2019, Saudi Arabia became China’s biggest crude oil supplier with 5.95 mln tonnes (+28.5 percent year-onyear), representing 15.2 percent of total imported volumes. The Kingdom surpassed Russia, the no. 1 source for Chinese demand on annual basis from 2016. Russian exports to China, accounting for 5.75 mln tonnes last month, recorded a 18 percent decrease on January 2019 but still 13.7 percent growth compared to February 2018”.

The shipbroker said that “the increases in imports from Saudi Arabia reflect not only the still strong Chinese crude oil thirst, but also the Kingdom’s commitment to consolidate its position into the Chinese energy market share and its new marketing strategy towards Chinese private entities. In February, Saudi Aramco – the national petroleum and gas company — actually boosted its investments in private Chinese refiners by signing agreements to acquire a 9% stake in Zhejiang Petrochemical’s 800,000 bpd refinery in Zhoushan and to form the Huajin Aramco Petrochemical Co., a 10 billion USD worth joint venture with NORINCO Group and Panjin Sincen in order to develop a 300,000 b/d refining and petrochemical complex in Panjin, according to the company website”.

Banchero Costa added that “China saw its crude oil imports from the two OPEC countries sanctioned by the U.S. and supplier of heavy crude oil grades, Iran and Venezuela, rise in February 2019. Imports from Iran, on which China was granted a waiver of 360,000 bpd due to expire early May, grew 22.1 percent month-on-month to 1.95 mln tonnes (+7.4 year-on-year), while volumes from Venezuela, on which sanctions concern only flows to the U.S., increased 17 percent on previous month and have almost doubled as compared to those in February 2018. According to Bloomberg calculations, both Venezuela and Iran crude oil shipments to China averaged their lower prices since late 2017, thus China is likely building strategic heavy crude oil reserves ahead of a potential price rise. While Chinese crude oil imports from the U.S. were null in December 2018 and January 2019 amid the Sino-American trade war, in February China imported 85,541 tonnes from the States, according to GAC, meaning around one-tenth of February 2018 volumes”, the shipbroker concluded.

 

Product Tanker Rates Facing More Volatility Moving Forward (01/04)

A number of factors have been coming into play, when it comes to determining freight rates in the product tanker market. In its latest weekly report, shipbroker Gibson said that “over the past few weeks, MRs trading out of Europe have continued to outperform expectations. In recent years, such volatility has typically been driven by erratic buying from West Africa, or stronger demand in Latin America. Volumes destined for the United States have rarely been a driver of volatility, generally ticking over at a steady and predictable pace. However, a combination of both anticipated and unanticipated events has temporarily shifted the dynamic in the Atlantic product tanker market”.

According to Gibson, “although US refinery maintenance season had already been factored into most forecasts, the support given by unplanned outages to the US gasoline market was not. Crude runs in March were down 0.5 million b/d YOY as refinery upsets significantly impacted crude runs. Last week, refinery utilisation in the United States dropped at a time when seasonally it should be rising as maintenance programmes conclude ahead of driving season. At the same time, US gasoline stocks fell by nearly 3 million barrels to the lowest level seen this year. Added to this, flooding in the Midwest impacted on the production of ethanol (which makes up 10% of the US gasoline pool), whilst closures of the Houston ship channel disrupted refinery operations, causing a tighter gasoline supply/demand balance to emerge. Combined, these factors supported US gasoline prices, incentivising traders to increase import volumes, with wider arbitrages justifying higher freight levels. Further price support has been found from the switch to more expensive summer grades, whilst gasoline demand in the US is looking stronger than anticipated, underpinning firm buying activity in a tighter market”.

Gibson added that “a short term distortions in tonnage supply have of course played a role, however, a stronger European product tanker market has attracted more vessels into the region, easing tonnage supply for the weeks ahead, which has already taken some heat of out of the market. Another risk factor for demand for product tankers loading out of Europe is that demand for shipments to Latin America (excluding Venezuela) is likely to ease following the end of US maintenance season”.

“Looking forward, two opposing forces need to be considered. US refinery runs are expected to increase over the coming weeks as maintenance programmes conclude and unplanned outages ease, increasing domestic product supply. However, whilst driving season is no longer a major driver of product tanker demand, higher import volumes are likely to emerge in line with seasonal trends. Yet, over the past few years, this alone has not be enough to generate any meaningful volatility in freight rates. Therefore, if we are to see the current level of volatility maintained, other demand drivers, such as from West Africa or Latin America will need to emerge. With elections now settled in Nigeria, this is far from guaranteed”, Gibson concluded.

 

Scrubber installation to ease supply pressure in crude tanker market (30/03)

The deadline for implementing the IMO’s 2020 low-sulphur bunker fuel regulations is just three quarters away, and the shipping industry is still uncertain over the use of scrubbers.

Although most shipowners are expecting tight availability of compliant fuel to widen the price differential between heavy-fuel oil (HSFO) and low-sulphur fuel oil (LSFO) in 2020, estimates for the premium in price vary significantly, ranging from $200 to $600. It goes without saying that the price differential between the two fuels is critical for determining the economic viability of scrubber installation, as greater the difference, the shorter the payback period.

Apart from the price differential between LSFO and HSFO, other factors such as sufficient availability of high-sulphur fuel in the long term and recent decisions by some ports to ban ships from discharging wash water from open-loop scrubbers are also adding to the dilemma shipowners face. Finally, availability of slots at yards to fit scrubbers ahead of the IMO deadline is yet another factor impacting the use of scrubbers.

Despite these issues, the number of crude tankers which have opted to fit scrubbers has increased significantly over the past six months. Although only 3% of the crude tanker fleet (in terms of dwt) is fitted with scrubbers, about 16% of the existing crude tanker fleet is pending retrofit, and more than 50% of crude tankers in the orderbook will be fitted with scrubbers.

As bunker consumption of large crude tankers is higher, it makes better economic sense for the owners of these vessels to fit scrubbers when compared with smaller crude ships. Therefore, the share of scrubber-fitted vessels in the VLCC and Suezmax segments is higher than Aframax and Panamax.

The 16% of the crude tanker fleet which is pending retrofit will take tonnage out of the market – typically it takes about six to eight weeks to retrofit each vessel – so we estimate supply could be reduced by 2.0-2.5% over the next year as retrofitting takes place. So, with most ships heading to the yards for retrofitting in 2019, it will improve the supply-demand balance in the market, especially in 2H19 when demand will be seasonally firm.

With ships out for scrubber retrofitting and an expected increase in demolition supply pressures will ease. At the same time demand for diesel and rising refinery runs will boost demand for crude tankers. As such, the stage is being set for a much tighter supply/demand balance in 2020.

 

Tanker Market: Tracking Future Cargoes Supply (25/03)

Where will the future oil supply come from? It’s one of the questions that tanker owners are looking to answer adequately, as it can provide them with a competitive advantage. In its latest weekly report, shipbroker Gibson said that “earlier this month the IEA released its medium-term outlook for the global oil markets, which provides analysis and the forecast of the key issues in demand, supply, refining and oil trade through to 2024. The report portrays a positive outlook for oil demand growth, which is expected to continue to increase at a healthy pace, in line with the average growth rate seen since 2000. The gains in oil consumption are projected to average 1.2 million b/d per annum between 2018 and 2024, driven by the expansion of the petrochemical industry and the fast-growing aviation sector. Asia Pacific will see the fastest growth in consumption, accounting for 62% of the total increase in demand”.

According to Gibson, “in terms of oil production, the US is forecast to become a dominant supplier of incremental barrels. The country’s output is anticipated to grow by more than 4 million b/d by 2024, accounting for 70% of the total increase in global production capacity. Expectations also are for a 1.2 million b/d growth in Brazilian oil output and a 0.6 million b/d production gain in Norway. Prospects also are strong for major output growth in Guyana, a country that currently does not produce any oil. Overall, indications are for a largescale increase in the Atlantic Basin crude availability, despite expectations for declining production in Mexico and Columbia, a highly uncertain outlook for Venezuela and a forecast for a major drop in crude exports out of Nigeria (and to a lesser extent out of other African countries) towards the end of the forecast period, following the start-up of new refineries, most notably the 0.65 million b/d Dangote oil refinery”.

Meanwhile, the picture is very different in Asia Pacific. “Oil production is expected to decline in China, Indonesia and Malaysia as output at maturing fields continues to fall, while there are just a few new projects coming online over the forecast period. Although the expectations are for some modest increases in Australian output and marginal gains in production in India, cumulatively oil supply in Asia is projected to fall by 0.6 million b/d by 2024. At the same time, expectations are for a notable growth in regional refining capacity, which is expected to increase by 5.3 million b/d over the forecast period. China accounts for most of the growth, with the country’s capacity projected to increase by 3.6 million b/d, as several mega projects are scheduled to come online. Regional refining throughput is likely to see slower growth in order to avoid a product oversupply; however, coupled with an anticipated decline in oil production, Asia’s net crude shortage is still forecast to grow by 3.4 million b/d between 2018 and 2024”, Gibson said.

The shipbroker added that “where will this crude come from? An additional 1 million b/d is likely to be sourced from the Middle East, despite planned increases in regional refining capacity and throughput. The IEA points out to efforts being made by several Middle East countries, most notably Saudi Arabia to expand downstream operations overseas, mainly in Asia. Critically, even with more Middle East crude, Asia will still need to source the vast majority of its incremental crude demand from somewhere else. As most of additional oil production is expected to come from the US and Latin America, Asia is highly like to rely on these barrels to meet rising demand. Some incremental volume is also likely to be imported from the Former Soviet Union (FSU), but with limited new crude pipeline capacity connecting FSU countries to the East, most of this trade is forecast to be sourced from export terminals in the Baltic and the Black Sea”.

Gibson concluded that “all in all, the latest IEA medium term report offers a bullish outlook for crude tanker demand, despite the threat of expanding refining capacity in some key crude exporting countries. The emphasis is clearly on long haul trade, with VLCCs the biggest winners”.

 

Tankers: A Positive Trend is Taking Shape, Boostin Ton-Mile Demand (18/03)

Tanker owners have experienced the lows of the market, but 2019 is a different story, as a number of factors are contributing to improved market sentiment. Most recently, a series of shifts could shift ton-mile demand in favor of ship owners. In its latest weekly report, shipbroker Gibson said that “OPEC crude production fell by 240,000 b/d in February to 30.68 million b/d, its lowest level in 4 years. February numbers show a significant over compliance, with Saudi Arabia leading efforts to implement cuts with a 153% compliance rate, some 170,000 b/d already below their overall target. Iraq and Saudi Arabia alone contributed 170,000 b/d in additional cuts between them in February alone. However, having already cut production close to their original 2019 target, they may now be missing the opportunity to capture market share in the face of rising demand”.

According to Gibson, “the impact of sanctions on crude supply may soon increase. Although Iran is exempt from Opec’s cuts, in just 7 weeks waivers for Iranian crude are set to expire. Some of Iran’s biggest customers – China, India, Japan and South Korea – are all partially exempt from the current oil sanctions the US placed on Iran, however this may soon change. IEA data this week showed Iranian crude production had fallen to 2.85 million b/d in February, its lowest level since Q1 2015, when Iran was under previous sanctions. In 2018 Iran exports averaged of almost 2.5 million b/d, with over 1 million b/d of that going just to China and India. The US Administration has not yet revealed whether any of these waivers will be extended, leaving those countries potentially having to substitute over 1 million b/d of replacement barrels from elsewhere. However, looking elsewhere may not be as easy as it sounds. Obvious sources such as Venezuela and Iraq are already under sanctions or participating in Opec cuts. This may now leave Opec wondering whether deeper cuts are appropriate, considering many refineries in the region are optimized for heavier crudes. The tightness in the heavy crude market is also exacerbated by greater US appetite, who will need to replace Venezuelan barrels with those heavy grades already in short supply. Incremental supplies from Canada are also limited, owing to government enforced production cuts”.

Meanwhile, the shipbroker noted that “recent reports from Reuters state that the US aims to cut Iran’s exports by a further 20% to below 1 million b/d, citing that they were unwilling to cut anymore over price hike fears, backtracking on previous statements to cut their exports to as close to zero as possible. However, analysts have indicated that India could be willing to cut all imports of Venezuelan crude to satisfy US sanctions in return for further waivers on importing Iranian crude. This would potentially starve Venezuela of their last major ‘cash’ buyer although simultaneously it would cause a headache for some Indian refiners that prefer Venezuelan grades. However, the situation in Venezuela looks like it will get worse before it will get better”.

Finally, Gibson concluded that “the heavy crude market is already incredibly tight and production cuts come at a time when demand for heavy grades is rising. This is significant as greater demand for heavy grade crudes will have to be sourced from elsewhere, especially when we start to exit the Asia-Pacific maintenance season and new refineries come online. With production cuts coming from the main heavy grade producing regions, refiners may have to look West to replace their missing barrels supporting tonne mile demand from West to the East. With US production posting strong growth this year, Opec cuts are to be largely offset, perhaps justifying Opec’s current stance even if there’s a mismatch on the grades”.

 

Tanker Spot Market Declined by 18% in February: Aframaxes Took the Biggest Hit (16/03)

The Aframax tanker market seems to have taken the biggest hit during February, when it comes to average spot rates, as per the data from the latest monthly report from OPEC, issued this week. According to the report, following the same trend seen in the tanker market in the previous month, average dirty tanker spot freight rates continued to decline in February, dropping by 18%. Lower rates were seen in all reported dirty classes during the month for most of the reported routes. The drop in rates came on the back of holidays in the East, reduced port and transit delays, thin market activity in general, as well as an increase in prompt vessel supply. Dirty tanker freight rates for VLCC, Suezmax and Aframax classes declined by an average of 5%, 20% and 22%, respectively. Clean tanker spot freight rates were equally affected by the weakening trend as they were impacted by general bearish sentiment prevailing in the tanker market in February. A lack of activity was seen dominating different classes, with average clean tanker spot freight rates declining by 12% from the month before, affected mostly by low tonnage demand in the East.

Spot fixtures

According to preliminary data, global fixtures increased by 12.8% in February compared to the previous month. OPEC spot fixtures were up by 9%, or 1.24 mb/d, to average 14.98 mb/d. Fixtures on the Middle East-to-East route averaged 8.29 mb/d in February, up by 0.39 mb/d from a month ago, while those on the Middle East-to-West route averaged 1.81 mb/d. Outside of the Middle East, fixtures averaged 4.89 mb/d, rising by 0.43 mb/d m-o-m, and showing an increase of 19.3% compared with the same period a year earlier.

Sailings and arrivals

Preliminary data shows OPEC sailings were 0.3% lower m-o-m in February to average 25.25 mb/d. This was 0.78 mb/d above the same month a year ago. Middle East sailings increased by 0.1% from the previous month and by 4% compared with the same period a year earlier. February crude arrivals saw a mixed performance, with an increase of 6.9% in Europe m-o-m, while arrivals in other regions showed declines. North American, Far Eastern and West Asian ports decreased from the previous month by 3.5%, 0.5% and 1.5%, to average 9.87 mb/d, 9.15 mb/d and 4.38 mb/d, respectively.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
Following the drop in January, VLCC freight rates saw a further softening in February as rates weakened on average by 5% m-o-m. The decline was mainly driven by a lack of cargo requirements, mainly in the East, while tonnage availability was extensive. Slow movement in the VLCC chartering market was seen across different routes.

Freight rates registered for tankers operating on the Middle East-to-East route declined by 7% from the previous month to stand at WS52 points. Similarly, West Africa-to-East routes dropped by 7% from a month ago to average WS52 points, impacted by the downward pressure in the region. On the other hand, Middle East-to-West routes rose by 6% m-o-m to stand at WS26 points, as the market in the West – mainly the US Gulf Coast (USGC) – was relatively balanced and rates started to pick up, mostly in the second half of the month. Overall, the VLCC freight rates were pressured by fewer cargo loading requirements and a sustained tonnage list. Nevertheless, VLCC average freight rates in February remained 29% above the levels seen in the same month a year before.

Suezmax
In line with the general downward trend, Suezmax average spot freight rates experienced an even larger drop than VLCCs in February. The Suezmax market was mostly quiet with few inquiries and limited tonnage demand. Chartering activities in several areas were bearish, with the Mediterranean and Black Sea mostly quiet, as inquiries were met with many offers. Similarly, the North and Baltic Sea regions showed an excess in vessel supply and prompt ship availability increasing in the area. Therefore, Suezmax rates dropped in February, despite owners’ repeated attempts to resist the drop in rates. However those attempts were not supported by market fundamentals and ample tonnage availability. Moreover, Suezmax rates were negatively affected by reduced delays at the Turkish Straits and a declining Aframax market. As a result, rates for tankers operating on the West Africa-to-USGC route decreased by 18% m-o-m to average WS63 points in February and rates on the Northwest Europe (NWE)-to-USGC route fell by 22% m-o-m to average WS50 points.

Aframax
Average Aframax spot freight rates saw the highest drop among tankers in the dirty tanker market, declining by 22% in February from the previous month, to average WS105 points.

Freight rates on all reported routes showed declines from the previous month, despite some scattered gains during the month. Like the larger ships, the Aframax class suffered from depressed tonnage demand, holidays in Asia and reduced transit delays, which supported spot tonnage availability. Nevertheless, Aframax benefited from some improvements in trading volumes in NWE and the North Sea, however these increases were short-lived and thus rates dropped on average.

Rates in the Mediterranean continued to decline dramatically as seen in the previous month. Spot freight rates for Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes declined by 27% m-o-m each to stand at WS95 points and WS91 points, respectively, in February. The Caribbean’s Aframax charter market dropped on average as tonnage demand remained depressed, hence Caribbean-to-US East Coast (USEC) average rates dropped by WS28 points from the previous month to stand at WS141 points. Aframax freight rates in the East dropped on the Indonesia-to-East route by 17% m-o-m to average WS93 points partially on the back of holidays in the East.

Clean tanker freight rates

Clean spot tanker freight rates also weakened in February and on almost all reported routes. The drop in rates was mainly driven by slow activity in the market, which could partially be attributed to the holidays in the East. On the other hand, reduced weather delays also led to the drop in rates, by supporting increasing prompt tonnage availability.

In the East of Suez, average clean tanker freight rates in February dropped by 20% from the previous month, as holidays in the East created a general slowdown in tanker movement in different classes. Rates for tankers trading on the Singapore-to-East route dropped by 17% m-o-m, and rates for the Middle Eastto-East route showed a decline of 23% m-o-m to stand at WS154 points and WS113 points, respectively. In the West of Suez, average spot freight rates experienced a drop of 7% m-o-m to average WS154 points in February. In the Mediterranean, lower tonnage demand, mainly for medium-range tankers in the Black Sea, drove the drop in rates, as average freight rates for clean tankers trading on both the Mediterranean to-Mediterranean and Mediterranean-to-NWE declined by 10% and 9% m-o-m, to stand at WS160 and WS170 points, respectively. The drop in the West of Suez rates was stabilized by a steady market in NWE, where freight rates on the NWE-to-USEC route remained broadly flat compared to the previous month and stood at WS133 points in February.

 

Ships’ Demolition in 2019: Dry Bulkers Head to the Scrapyards, While Tankers are Being Kept in Service (12/03)

The tide has shifted when it comes to demolition activity so far in 2019. While 2018 was marked by the record breaking scrapping of tankers, this year the trend is opposite, as bulkers have emerged as more likely candidates for demolition. In a recent weekly report, shipbroker Allied said that “the ship recycling market constitutes a crucial leaver in alleviating any excess pressure that may arise in the demand/supply balance of shipping markets. As such it is always of interest to gauge the current interest noted amongst owners to send any of their vintage tonnage to the breakers”.

According to Mr. Yiannis Vamvakas, Research Analyst with Allied, “during the first two months of the year, we have already seen 20 dry bulk carriers having been beached, an encouraging number when compared with 2018, which saw a total of 70 vessels being scrapped during the whole year. More specifically, 15 dry bulk carriers were scrapped within the first two months of 2018, further supporting the view that we have seen an increase in activity in the year so far. Going into deeper detail, we can see that 9 of these dry bulk ships were Capesize vessels, while the remainder was comprised by 1 Panamax, 2 Handysize and several smaller vessels. The number of scrapped Capesize vessels was up by 5,44% year-on-year, with the developments in the freight market during the last few weeks having played a crucial role. Even more impressive is the comparison with the total number of Capesize carriers that were recycled last year, with activity in the year so far having already surpassed the half way mark of the 16 Capesize vessels in total that were taken out of the global fleet last year. At the same time its noteworthy to point out that there are still 76 vessels in this segment that are above 20 years old, leaving room for further recycling activity to take place this year. Another interesting figure is that the average age of Capesize vessels scrapped this year is 22.6, while last year it was 23.3, further pointing out the increased interest noted this year to retire older tonnage. In contrast to this, in the first two months of last year we had already seen 5 Supramax vessels being sent to be beached, while this year owners seem much less keen, despite the ample number of vessels in active service that are more than 20 years old (more than 250 vessels)”, he noted.

“Moving on to the tankers market, and the picture is sharply reversed. Activity in the year so far has plummeted when compared to 2018, with only 15 tankers haven been recycled in the year so far, against the 53 tankers beached during the same period last year, depicting the considerably more robust market conditions prevailing in the market right now. From the 15 vessels noted this year, the vast majority of them were product tankers (MR and LR1 mainly). In the crude oil carrier front, we had a mere 2 Suezmax and 1 Aframax vessels being sold to the breakers, portraying the increasing optimism noted amongst owners with regards to the crude oil trade. In contrast to this, during the same period last year we had already seen 7 VLCC being beached, 2 Suezmaxes and 11 Aframaxes, while the total for the year for all three of these vessel sizes reached 113 vessels. Declined figures are also being observed in the product tanker space as well, with interest being slightly higher compared to the crude side, but still lower than last year. With more than 200 MR and LR1 product tankers being more than 20 years old, there is room for further activity to take shape. However, with demand for oil products expected to improve significantly as we reach closer to the IMO 2020 deadline, this should play a significant role in holding demolition activity to more subdued levels than would have otherwise been expected”, Vamvakas concluded.

 

Newbuilding Tonnage Supply and Lower Oil Volumes To Keep Rates Under Pressure (11/03)

Tanker owners could be faced with increased downward pressure exerted on the freight rate market in the coming months. In its latest weekly report, shipbroker Gibson said that “refinery maintenance season is well underway. Scheduled turnarounds in North America may have peaked, but globally planned outages will peak this month, whilst works in Asia stay elevated through to May. High turnaround activity has already impacted both the crude and product tanker markets this quarter, however, evolution in global crude trade flows appears to be supporting tonne mile demand during what is typically a weak period. In the products sector, export volumes are now falling in line with seasonal trends but should be set for a strong rebound in the second half of 2019 as post maintenance export volumes increase”.

According to Gibson, “with OPEC strictly adhering to its output agreement, refiners are increasingly having to look to the Atlantic Basin to fulfill their feedstock requirements. Given that a voyage from the US Gulf to North Asia takes 6-8 weeks, with charterers typically fixing 1 month forward of loading, Asian refineries sourcing post turnaround supplies have to act now, partly underpinning the recent strength of the VLCC market. Forward buying activity may also be stoked by paranoia about crude supplies in the second half of the year. Even those with term commitments appear to be showing some concern over whether or not they will receive their full contractual volumes this summer when domestic demand in the Middle East rises. Furthermore, new refinery start-ups (of which several Middle East producers have signed supply contracts with), coupled with higher global run rates, will further serve to tighten the crude oil market in the second half of the year. Assuming OPEC maintains its production discipline, refiners will be forced to increasingly turn to the Atlantic Basin for incremental supplies”.

The shipbroker added that “for product tankers, January earnings held up better than expected, primarily on the back of strong Middle East and Chinese export volumes. However, barring any non-fundamental factors, the market is expected to remain under pressure from lower volumes until Q3, when product supplies will increase post turnarounds, particularly East of Suez. In the West, turnarounds conclude earlier, but will remain elevated through until April, which potentially signals an improvement in fundamentals sooner than the East market. Much will depend on demand from West Africa and Latin America. Mexico (see report dated 1st March 2019) should remain a supportive demand outlet this year. Venezuela of course remains uncertain, whilst other countries such as Brazil should see modest import demand growth. What is uncertain, however, is how much product West Africa, particularly Nigeria will absorb, now that elections have passed”.

“Against these demand side factors, fleet supply will remain a bearish factor for much of the year. The crude market is yet to fully feel the force of 2019’s newbuild programme, with a number of newbuilds still involved in the gasoil trade. However, as the year progresses, new tanker deliveries will present more of a challenge to both the crude and products markets. Indeed, whilst the demand side fundamentals look strong moving forwards, fleet growth is expected to place a ceiling on the market’s potential for much of the year”, Gibson concluded.

 

Potential Threat to Product Tanker Market from Mexico’s Refining Plans (05/03)

While the IMO 2020 regulations bode well for the product tanker market, other factors can come into play, which can have a negative impact. In its latest weekly report, shipbroker Gibson said that “the US product export market has been transformed over the past decade. Exports of clean petroleum products (CPP) averaged 2.5 million b/d last year, up from just 0.8 million b/d in 2008. Rising trade has been underpinned by rapid growth in US crude production and refiners’ access to cheaper crude feedstock. Refining margins in the US Gulf have generally been stronger in recent years, compared to those seen in other regional markets”.

According to Gibson, “due to this competitive edge, further growth in refining runs could be seen. Although utilisation rates are already high, averaging at 92.3% last year, they have been higher in the past – back in 1998 throughput averaged at 95.6% of operating capacity. Increases in capacity are also planned. The biggest addition is by ExxonMobil, who intends to build a new 250,000 b/d crude distillation unit at its Beaumont facility by 2022. There are also plans for smaller additions: for example, Meridian Energy Group plans to build a grassroots 60,000 b/d refinery in Winkler County in the Permian Basin. As the EIA expects to see just modest increases in domestic demand for gasoline, jet fuel and distillates, higher refining runs could translate into incremental product exports. In addition, the approaching IMO 2020 is likely to make US refineries even more competitive. US Gulf refiners have significant capacity to process heavy sour crude and unfinished oils in comparison to much of the world and as such are well positioned to become one of the key providers of compliant bunker fuels, following the implementation of the global sulphur cap”.

The shipbroker added that “in contrast, refining landscape in Mexico is very different. The country’s crude throughput averaged in 2018 at just 0.62 million b/d or at around 40% of operating capacity, its lowest level since 1990s. The collapse in refining runs is largely attributable to years of underinvestment, although natural disasters in 2017 also played a role. Crude runs are also challenged by the ongoing decline in domestic production of light crude, needed to produce larger quantities of gasoline. With this in mind, it is unsurprising that Mexico is the single largest buyer of US products. Last year, the country’s seaborne imports of clean products from the US averaged over 0.7 million b/d, accounting for 28% of all US CPP exports”.

Gibson said that “going forward, Mexican product imports largely depend on the country’s ability to restore its refining capabilities. The recently elected government has ambitious plans to modernise existing plants and to build a brand new 340,000 b/d oil refinery. According to local media, somewhere between $3.5 to $4 billion has been allocated in the 2019 national budget towards a sector overhaul. However, a considerably bigger financial commitment is needed to achieve visible results. A new refinery alone could cost $8 billion, while the cost of modernising and upgrading the existing plants has been estimated at a price tag of $18 billion. Financing is likely to be an issue. Pemex’s budget is heavily constrained, with the company’s debt recently assessed at $107 billion. Structural changes are also needed to make operations more efficient. According to the Mexican Energy Secretariat (SENER), the count of Pemex’s refinery staff is considerably higher in comparison to similar size facilities in the US. The global sulphur cap on marine bunkers represents an even bigger problem. Pemex refineries yield considerably more fuel oil in comparison to US refiners. SENER data shows that historically the overall fuel oil yield at Mexican refineries has been at 34%, compared to 3% for US Gulf plants”.

“Without doubt, efforts to modernise the Mexican refining sector represent a major threat to clean tanker trade. Only time will tell how successful these attempts are. One thing is clear though – the problems faced are quite significant and there is no quick fix solution. Also, the close proximity to a highly complex refining hub in the US Gulf makes it even more challenging for Mexican refineries to compete successfully”, Gibson concluded.

 

VLCC Owners Holding Out For Further Rate Increases (26/02)

Things are heating up in the crude tanker market, with VLCCs reaping the benefits so far. In its latest weekly report, shipbroker Charles R. Weber said that “last week’s influx of USG inquiry buoyed rates across the globe on the VLCC sector, as eastbound rates from the region approached year-to-date highs. This increased activity made the ballast option to the Atlantic more attractive, further reducing the over-supply of tonnage in the AG. In line with the rising USG activity, the most recent EIA numbers had crude exports from the USG reaching a record high of 3.607 mil bbls per day for the week ending February 15th. The March program for VLCC cargoes is already outpacing the highs seen in January and February and we are starting to see inquiry for April develop, keeping the pressure on for the moment”.

According to CR Weber, “even though there has been an end week pause of fresh inquiry, resistance from Owners persists, on expectations of a busier period ahead; both in the AG and Atlantic sectors. Rates on the AG-CHINA route were up almost fifteen percent from last week, increasing from the low to high ws50’s, the latest fixture at ws57.5; yielding a tce return of about $35,000 pdpr. The returns basis ballasting directly to the USG remains higher ($38,700 pdpr), but the delta is much closer than the $10,000 present a week ago. Rates on the AG-USG adjusted higher in line with the overall market strength, moving closer to the ws30 level. The March program saw Charterers progress through most of the first decade and as eastern tonnage continues to look at greener pastures in the Atlantic, the oversupply of available tonnage reduced from 20 to 15 vessels. This still leaves sufficient supply, but if USG exports continue at the fervent pace from March it will bring the supply-demand equation into greater balance”.

Meanwhile, in the Suezmax market, “West Africa rates remain under downward pressure as current tonnage avails outweigh the expected inquiry remaining for the balance of 2nd decade March. Unless excess tonnage is absorbed in elsewhere in other regions, expect charts to continue to test TD20 into mid w60’s going into next week. USG export rates remain dates sensitive as adverse weather continues to hamper turnarounds keeping rates elevated for early March liftings”, said the shipbroker.

Similarly in the Aframax segment, CR Weber commented that “with a relatively quieter week of enquiry, the US-Gulf/Caribbean Aframax charterers were finally afforded a small amount of breathing space, resulting in being under less duress than in previous weeks. Fog has still been intermittently a nuisance (to Charterers), but not enough to counterbalance the slower pace of cargoes. With exports still dominating the news cycle, and a blasé Mediterranean market, tonnage on the other side of the Atlantic has embraced the ballast in, allowing charterers to significantly reduce the trans-Atlantic rates, which have been at a minimal differential to the Up-coast rates. As we close out the week, and for normal lay/cans, we could confidently call TD9 at around WS 150 levels, and trans-Atlantic at around WS 125-130 levels; with the latter showing more signs of surface cracks. Owners will inevitably hope for a busy Monday, filled with weather disruptions and other helpful factors, but ceteris paribus, it looks like charterers will have the better playing hand”, the shipbroker concluded.

 

Tanker Demand Will Be Supported in The Near Term Claims Shipbroker (25/02)

While a scenario, under which oil prices are elevated, is bearish for tanker prospects in the long run, it’s expected that, at least in the short-term, demand will be supported thanks to elevated crude runs from new refineries coming online. In its latest weekly report, shipbroker Gibson said that “after falling to $50/bbl in late December, Brent and heavy sour Oman crude prices have recovered to over $67/bbl. OPEC’s decision in December to cut production by almost 800,000 b/d for an initial period of six months seems to have had the desired effect of lifting flailing crude prices, which traded at $85/bbl in October. Although prices are still considerably lower compared to those recent highs, it is so far an encouraging sign. IEA numbers released last week showed a decrease in OPEC production of just under 1.2 million b/d from October levels, an overcut of almost 400,000 b/d due to over compliance from producers such as Saudi Arabia. When taking ‘non-OPEC’ production cuts into consideration, the total cut for January totalled over 1.3 million b/d”.

According to the London-based shipbroker, “the actual cut in production has been larger than many analysts expected, leading to cautious belief that crude prices could continue to rise in 2019. Production cuts and US sanctions, coupled with the escalating crisis in Venezuela all are helping to support sour grade prices. Shortage of heavy grade crudes coming out of the Middle East and Venezuela have already seen Oman crude surpass the price of Brent, with a tighter sour market forcing refiners to look towards Atlantic basin crudes to plug the gap”.

“The world has managed to absorb certain geopolitical uncertainties surrounding crude production and demand throughout 2018 to now, however, recent events and indications from producers and refiners may be a bridge too far. Last week Saudi Arabia’s energy minister stated that production would fall below 10 million b/d in March, more than 500,000 b/d below the target it had initially agreed to. When this is considered with surprising news that last week US crude inventories fell by almost 1 million barrels instead of the 2.7-million-barrel build predicted, crude prices have shown their sensitivities to market fundamentals”, said Gibson.

The shipbroker added that “pressure on supply at the back of 2019 could potentially also affect prices. As 2.6 million b/d of new refinery capacity coming online will drive extra demand for crude. Furthermore, refineries pushing hard to produce middle distillates ready for IMO 2020 are expected to produce a large build of light end products to chase anticipated strong middle distillate margins. Any overhang in supply of light ends could mean refinery throughput will have to ease in order to dwindle stocks. However, potentially bullish distillate margins could mean that refineries may not plan cuts anytime soon. US refiners have already stated they will not slow down refining due to current generous diesel and jet cracks, even though gasoline stocks sit at record highs. Current US Gulf Coast ULSD has a $27/bbl premium over WTI, compared to a $7/bbl gasoline premium. This, plus new refining capacity, means that global refinery runs in Q3 2018 are predicted to surge to 84 million b/d”.

“Aside from the obvious increase in bunker prices, higher prices could of course have negative consequences for oil demand growth. Such a move would have a bearish impact on the tanker market in the long run. However, uncertainty over whether enough compliant fuel oil will be produced in time for 2020 and new refineries coming online should see a strong rebound in crude runs, supporting tanker demand in the short term. This could cause refineries to push even harder should substantial margins be offered. Indeed, a catch 22”, Gibson concluded.

 

 

Ship Owners Splurge on Tanker Newbuildings so far in 2019 (18/02)

Tanker owners have returned to shipyards for more orders in 2019, with VLCCs and MRs the most popular options. However, whether this trend continues or not for the rest of the year, will depend on a number of factors. In its latest weekly report, shipbroker Gibson said that “2019 has already started out as a busy year in terms of tanker ordering activity with VLCCs and MRs once again appearing to be in vogue. So far this year, at least 12 VLCCs and 11 MRs have been contracted. Both asset classes also received the most interest in 2018, with 42 and 49 units being ordered respectively. Now, the question is, was the start of 2019 just a blip or a sign of things to come?”

According to Gibson, “many factors will play a role in the investment decision. From fleet renewal programmes and regulatory developments, to speculative investment based on anticipated future demand. But other influences, such as prices and yard slot availability will also play a role. Precisely determining shipbuilding capacity can be a tricky game, with different vessel types occupying slots for different periods of time, depending on their complexity. However, some conclusions can be drawn from what we know, and what we think might logically take place”.

The shipbroker added that “looking at historical activity, overall, ordering across all shipping sectors declined in 2018 and remained low compared to the busier periods of ordering seen between 2013 – 2015, and prior to that the 2006 – 2008 boom. This implies that there is plenty shipbuilding capacity to see higher ordering activity in 2019. Yet, there are other factors to consider. Firstly, the shipbuilding industry has hardly been in good health in recent years, many yards that were active during the last shipbuilding boom remain idle, whilst offshoot yards such as Hanjin’s Subic Bay facility have struggled, having recently filed for rehabilitation following loan defaults. At the same time, consolidation is increasing, with Hyundai Heavy Industries (HHI) taking control of Daewoo Shipbuilding & Marine Engineering (DSME). Secondly, whilst investment in 2018 was well below record levels, contracting of complex LNG carriers and containerships roughly doubled year-on-year, suggesting that newbuilding slots at premium yards could be a little scarcer over the next few years. This may be particularly true if, as widely reported in the press, a large LNG order (of up to 60 vessels) is placed by Qatar. The timing of this deal may be unclear. But, with the final investment decision now taken on the joint Exxon/Qatar Petroleum Golden Pass LNG project and Qatari aspirations to increase domestic capacity, the requirement is certainly there”.

“Higher consolidation should reduce ‘overcapacity’ in the Korean shipbuilding sector, which, coupled with higher demand from other sectors (e.g. LNG), could support higher prices, potentially impacting on the volumes of newbuilds contracted. However, much depends on what happens in the Chinese shipyard industry and whether that sector too sees further consolidation. Nevertheless, prices have already increased over the past 12 months, with a newbuild VLCC (non-scrubber, Korea) having risen approximately $10m over the past 12 months. Regulation may also make the decision trickier, owing to uncertainty over which fuel choice/compliance method represents the future. Some owners may wait to see how the next few years evolve before committing to newbuild designs. However, regardless of how these factors play out, replacement tonnage will be needed, and ordering activity will eventually surge. When this takes place, however, is key to the shape and timing of the next market upcycle”, Gibson concluded.

 

Tanker Market Declines by 28% in January (16/02)

The tanker market has reeled under the pressure of abundant tonnage supply during the month of January, according to the latest monthly report from OPEC. Following gains registered in the tanker market in the previous quarter, average dirty tanker spot freight
rates declined by 28% in January, reversing all earlier profits. Lower rates were seen in all reported dirty classes in January, which was mainly attributed to thin market activity in general, while vessel supply remained abundant. Dirty tanker average freight rates showed a drop from the previous month as VLCC, Suezmax and Aframax rates fell 36%, 31% and 24%, respectively.

Clean tanker spot freight rates were no exception, as they were impacted by the general downward trend which overtook the tanker market in January. A lack of activity was seen dominating different classes, leading to a decline in average clean tanker spot freight rates by 18% from a month before.

Spot fixtures

According to preliminary data, global fixtures dropped by 3.8% in January compared with the previous month. OPEC spot fixtures were down by 3%, or 0.43 mb/d, to average 13.78 mb/d. Fixtures on the Middle East-to-East route averaged 7.90 mb/d in January, down by 0.14 mb/d from one month ago, and those on the Middle East-to-West route averaged 1.41 mb/d. Outside of the Middle East fixtures averaged 4.47 mb/d in January, dropping by 0.19 mb/d m-o-m. Compared with the same period a year before, most destinations showed higher fixtures than in 2018.

Sailings and arrivals

Preliminary data shows OPEC sailings were 0.2% higher m-o-m in January, averaging 25.33 mb/d. This was 1.01 mb/d above the same month a year ago. Middle East sailings also went up by 0.2% from the previous month and by 5.1% from a year ago.
January crude arrivals were mixed, registering increases in most areas. Arrivals in North American, Far Eastern and European ports increased by 7.2%, 3.5% and 0.3%, respectively, from one month ago, while arrivals in West Asia declined by 2.1% m-o-m to average 4.44 mb/d in January.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
Following an increase in 4Q18, VLCC freight rates saw softer sentiment at the beginning of the year as the month started with rates decreasing. Tonnage availability was building and activities were declining, which is normal during the month as a result of the holidays.

In January, spot freight rates declined on all reported routes. A tonnage build up in the east drove freight rates down significantly and delays in Eastern ports did not support freight rates. As a result, freight rates registered for tankers operating on the Middle East-to-East route fell by 36% from the previous month to stand at WS56 points in January.

Similarly, West Africa-to-East routes dropped by 35% from a month ago to average WS56 points in January as the West African market was mostly quiet. Middle East-to-West routes declined by WS14 points from the previous month to stand at WS24 points,
impacted by general downward pressure in the region, though rates dropped to a relatively lower degree. The softening trend for VLCC spot freight rates stabilised by month end, yet vessel supply in different areas remained more than sufficient to prevent rates from increasing. Nevertheless, average VLCC freight rates in January remained 23% above those of the same month a year before.

Suezmax
Suezmax average spot freight rates experienced a higher drop than those of VLCCs in January. On average, Suezmax rates fell by WS32 points from a month earlier. Rates for tankers operating on the West Africa-to-USGC route decreased by WS33 points to average WS77 points. Rates on the Northwest Europe (NWE)-to-USGC route fell by 32% in January from the previous month to average WS65 points.

The drop in freight rates came as a result of weak tonnage demand and a subsequent tonnage build-up due to slower activities in the holiday season. Delays at the Turkish Straits increased steadily as well as cancellations at Çanakkale, however tonnage was sufficient to absorb the effect of any delays in January.

Aframax
Aframax spot freight rates saw the largest decline compared with other tankers in the dirty segment. Freight rates on all reported routes showed a drop from the previous month, with no exception. Aframax spot fright rates often fluctuated during the month and in several areas, however they showed an average general decline.

 

Tanker Market: Fleet Growth Robust Despite Uncertainties (14/02)

VLCCs and MR product tankers have been the “weapon of choice” among ship owners looking to make plays in the tanker market. Despite the geopolitical and financial uncertainties which are having an adverse effect on the shipping markets, a lot of ship owners have sought to conclude deals in the tanker market, taking advantage of lower asset values. In its latest weekly report, shipbroker Allied Shipbroking said that “2019 will be a significant year for the fleet development in the tanker segments, as sentiment in the market has improved and expectations are now more bullish than a year ago, despite the recent freight market correction. All this has translated into 141 new contracts being reported in 2018 and a total orderbook of 518 for both crude and product carriers. This increased appetite amongst owners in both the crude and products space has mainly focused up till now in the VLCC and the MR segments”.

According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “in the crude oil market, it looks as though owners have not been discouraged by the increased uncertainty witnessed recently by the various geopolitical tensions. Market participants expect that demand for crude oil will increase soon, with the International Energy Agency forecasting a 1.4 million bpd growth for 2019, 0.1 million bpd more than in 2018. Meanwhile, news regarding US oil shipments heading to China are helping further boost confidence that a deal is close to being reached by the two. Up to now, 17 new contracts for VLCCs have been placed within 2019 and added to the existing orderbook which is currently standing at 114 vessels. In comparison, during the same period back in 2018, new orders for VLCCs had not even reached double digits. The majority of these new orders have been secured by South Korean shipbuilders (9 out of the 17 new orders). In addition to these VLCC orders, we have seen orders for 3 Suezmax vessels surface so far in 2019, while in sharp contrast, there have been no confirmed new orders for Aframax vessels in 2019, with the last reported order being back in October 2018. Shipbuilders, having witnessed the rising appetite for new orders in the crude oil space, have already pushed for higher prices, with the average newbuilding price for a VLCC being quoted now at around US$ 93 million, US$ 4.5 million higher compared to the average price noted back in 2018”, he said.

Vamvakas added that “on the product tanker side, orders for 13 new MRs have been signed this year, with 10 of them being ordered in South Korea and 3 of them in Russia. The oil products trade growth that is expected to be seen during the latter half of the year (due to the IMO 2020 regulation) has played an important role in the boost in new orders. New products will need to be produced and distributed across the different bunker markets worldwide, with a fair increase in tonnage likely to be needed in order to cover this increased demand. It is worth mentioning that 3 of these MR carriers were ordered by Russian interests and will use LNG as their main fuel. Beyond this, expectations seem to hold no that the orderbook for product tankers will continue to grow within the year, while at the same time 127 vessels are currently scheduled to be delivered within this year. Both LR1 and MR newbuilding prices have increased considerably against what we were seeing back in 2018, climbing by US$ 2.5 million and US$ 1 million compared to their respective last year average levels”.

“The global developments, including Iran sanctions and the US-China trade war, will define the level of uncertainty noted in the market during the year. Meanwhile, things will start to clear with regards to how prepared oil refineries really are for the upcoming IMO 2020 regulation and how many vessels will eventually be equipped with scrubbers by the time the regulation comes into full enforcement. To what extent things will clear up in this regard and opportunities begin to be more well defined will determine the level of renewed interest that will emerge amongst owners during the rest of the year”, Allied’s analyst concluded.

 

Tanker Market and Venezuela Crude (11/02)

Another week, another geopolitical shift is having an impact on the tanker market. This time it’s Venezuela’s political crisis and a bankrupt state that are causing havoc in tanker trades. In its latest weekly report, shipbroker Gibson said that “on the 23rd of January the US president recognised Venezuela’s national assembly speaker Juan Guaido as interim president of the country and called Maduro’s government “illegitimate”. Soon afterwards, Washington announced tough sanctions against PDVSA, designed to halt US imports of Venezuelan crude. The government stopped short of placing an outright ban; instead, refiners will be able to continue to receive Venezuela’s crude until the 28th of April as long as payments are placed in to a blocked account. Sanctions have already caused chaos and confusion. Reuters reported earlier this week that over a dozen of tankers involved in oil trade with Venezuela were anchored in the US Gulf, as shippers seek clarity and payment instructions”.

Gibson said that “according to AIS data, US imports of Venezuelan crude averaged under 0.5 million b/d last year. The biggest buyer was PDV’s subsidiary Citgo, followed by Valero, Chevron and PBF. The sanctions come at a time of restricted supply of heavy sour crude and so it may be challenging to replace Venezuela’s barrels but not impossible. Similar quality crudes could be sourced from different sources, most likely from Latin America and Canada. There is also a possibility of higher shipments from the Middle East, but that will be subject to OPEC’s willingness to increase production. The loss of Venezuela-US crude trade is a negative for regional Aframax and Suezmax demand, although this in part will be mitigated if trade from other Latin American countries rises as a result. Venezuela’s long haul crude exports to the East are expected to continue, as most of this trade is backed by “oil for loans” deals with China and Russia. Furthermore, PDVSA plans to divert the volumes effected by sanctions to China, Russia and India, where Rosneft has an equity stake in refining assets. Although this suggests an increase in long haul volumes, there are many uncertainties”.

According to the shipbroker, “importing countries will need to find a way to bypass the US financial system. More importantly, it is unclear whether Venezuela will be able to maintain production at current levels, if government access to revenues from US sales is curtailed. Venezuela will also need to source naphtha which it uses to dilute extra heavy grades to make synthetic crude for exports. According to ClipperData, Venezuela imported about 80,000 b/d of naphtha from the US last year but these shipments are now prohibited as well. Several cargoes which had been en route from the US to Venezuela when sanctions were announced have been rerouted elsewhere. If Venezuela is unable to find alternative suppliers of diluent, about 250,000 – 300,000 b/d of the country’s output could be at risk. The latest sanctions are also expected to halt Venezuela’s imports of other clean US products, with shipments averaging around 80,000 b/d in 2018. Here also much depends on whether Venezuela will be able to source barrels from elsewhere. Europe is a good alternative, but most of European countries have voiced their support for Juan Guaido. As such, products are likely to be imported from further afield”.

Gibson concluded that “the developments in regional/local politics over the past couple of weeks suggest that Maduro’s government is in increasingly challenging position. Venezuela will also find it difficult to secure tanker tonnage for crude and product shipments. The guidance provided by the US Treasury with the regards to the latest round of sanctions somewhat lacks clarity. Shipping is not mentioned; however, owners are considering whether it is worth continuing to trade with Venezuela anyway. The risks are evident and those willing to trade are likely to demand a significant premium”.

Meanwhile, in the crude tanker market this week, the shipbroker said that “bad just got worse for beleaguered VLCCs, as ongoing weighty availability easily soaked up demand and led rates further downwards to under ws 40 East, even for modern units, and to under ws 19 to the West also. Older vessels had to accept into the very low ws 30’s to the East just to stay in the picture. With returns now at close to merely running cost levels there probably won’t be much further to fall, but equally a rebound is also hard to call unless Charterers really lose their heads on the March programme. Suezmaxes found only gentle attention to keep rates flatline at no better than ws 80 East and ws 37.5 to the West, with no realistic prospect of early recovery. Aframaxes slipped into sub-ws 100 territory to Singapore and need a lot more to happen to prevent further slippage next week”, the shipbroker concluded.

 

Will 2019 be the Year of the VLCC for Libyan Oil Trade? (04/02)

VLCCs could start their trips back into Libya, should current plans set in motion be actually implemented. In its latest weekly report, shipbroker Gibson said that “in 2010 Libyan oil production topped 1.6 million b/d, 9 years on and crude output since has struggled to come close to sustaining anywhere near that. In 2018, it seemed like progress had been made and looked promising with production averaging almost 1 million b/d, showing signs of a potential road to recovery. With the country effectively split in two and rebel groups holding significant power – both in the east and west – oil facilities have at times been used as monetary and political bargaining tools for different groups to appropriate power. The latest issue concerns the shutdown of Libya’s largest oilfield, El Sharara, which can produce 340,000 b/d and has been offline since December. If Libya wants to fulfil its potential, protecting these oilfields from insurgents will be key”.

According to the shipbroker, “Libya is certainly not lacking in ambition, with the chairman of state oil company NOC – Mustafa Sanalla – signalling their intent to increase production to 2.1 million b/d by 2021, over 1 million b/d more than current levels, whilst also investing over $50 billion in infrastructure. Sanalla also indicated their desire to encourage foreign investment, stating that he will visit China in the first quarter of 2019 to formally discuss investment into Libya’s oil and gas production opportunities. China has been steadily increasing crude imports from Libya since 2016 when they imported just over 11,000 b/d, up to over 155,000 b/d in 2018. Foreign direct investment from China could indicate a possible signal to increased Libyan imports in future. However, with previous uncertain investments from China in the past, notably Venezuela, it could be deemed an extremely risky investment”.

Gibson added that “part of the investment plan is to build a state-of-the-art port suitable for VLCCs to berth. VLCCs haven’t fully loaded in port for over 5 years due to a build-up in silt at the Es Sider terminal. The Libyan Seaport Authority have recently agreed to part fund, with the US based Guidry Group foundation, a $1.5 billion grant for the construction of the project on the eastern city of Susah. The harbour itself already has a natural depth of 18 metres, only a few metres short of what’s needed for a fully loaded VLCC. Local neighbours Sudan and Chad have reportedly also welcomed the project stating their desire to use it. The port will hope to capitalize on being strategically placed for vessels travelling between Asia and Europe via the Suez Canal and to and from the US”.

The London-based shipbroker concluded that “in the short term, national sources expect domestic crude output to rise back to 2010 levels this year, producing close to 1.6 million b/d. However, much of this will heavily depend on the domestic security and administration situation. Bearing in mind the frequency of armed attacks and the recent history of Libya unable to follow through on ambitious plans it looks increasingly unlikely. Despite being a country torn between competing militant parties, the central bank in Tripoli controls oil revenues and NOC budgets and has signalled their intent to rid of all militant controlled oilfields. Once this is under control, they believe production can ramp up and contribute to national growth. Whether that can be done efficiently and anytime soon remains to be seen”.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Owners had hoped for pre Chinese holiday momentum to help reverse the recent slide but although activity did pick up there remained a wall of availability to soak hopes, and lead to a continuation of the decline. Rates now slide below ws 40 to the East for older units, and little better than ws 45 for modern vessels too, with runs to the West moving in the low ws 20’s. A bottom may now be in near sight, but it will take a lot more digging for Owners to get out of the hole. Suezmaxes slowly circled around an unchanged centre point, with rates to the East at around ws 80 and a little over ws 37.5 to the West, with no catalyst for meaningful change in near sight. Aframaxes flattened further to 80,000mt by ws 100 to Singapore on thin demand, and easy supply. Charterers will be looking to chip away further next week”.

 

Product Tanker Owners’ Fortunes to Improve In Second Half of 2019 on New Refinery Additions (28/01)

Product tanker owners could potentially see rates improving during the second half of 2019, as a number of new refineries will hit the market. In its latest weekly report, shipbroker Gibson said that “according to a recent IEA report, 2019 is expected to see the largest wave of refinery capacity additions since the 1970’s. The Agency expects that 2.6 million b/d of new capacity will initiate operations this year. In terms of pure volumes, this is of course a bullish sign for the product tanker market, but what really matters is how global product flows shape up”.

Gibson said that “Asia accounts for the bulk of the new additions. The new 400,000 b/d Hengli and Zhejiang Petrochemical plants should support higher export flows from China in 2019. Further South, Malaysia’s 300,000 b/d RAPID project, and Hengyi’s 160,000 b/d Brunei plant, as well as the recently commissioned 200,000 b/d Nghi Son Refinery in Vietnam, will all add to regional supply. Some of this supply will be gasoline focused, which could further pressure an already oversupplied global gasoline market and force more product out of the region. Where this goes however is uncertain, with main global demand centres already well supplied”.

According to the shipbroker, “products supply out of the Middle East is also set to rise following capacity expansions there. Higher products supply will primarily be driven by the start up of Aramco’s 400,000 b/d Jazan refinery, increased capacity from KPC’s Clean Fuels Project and the start-up of Iran’s third 120,000 b/d Persian Gulf Star condensate splitter (although sanctions may complicate the matter). Flows into the Middle East may also be impacted. Argus estimates that the region is currently 100-200,000 b/d short of gasoline, but with the start-up of new plants this year, that deficit could drop to 50,000 b/d. All in all, this has the potential to impact on gasoline flows from the West. Likewise, the overall distillate surplus in the region is expected to grow, supporting incremental export volumes”.

“Ultimately, more product will be pushed out of both the Far East and Middle East during 2019 as both regions see greater product length, with South/Latin America, Africa and Europe being the primary demand outlets for exporters. The picture is however more complicated as we move closer to 2020. As 2020 approaches, middle distillates are expected to (at least initially) serve as the primary route to compliance with the 0.5% sulphur cap. In theory higher demand and wider product imbalances should support arbitrage, particularly from East to West. However, Asia’s gasoil length is expected to be reduced through higher regional demand for low sulphur fuels, which may limit the growth in exports out of the region. This is however, expected to be counterbalanced by higher intra-regional flows, offsetting any negative impact caused by potentially lower extra-regional outflows”, Gibson said.

As such, “with much of the impact from new refining capacity not expected until the second half of the year, shipowners may have to endure a weak six months before seeing any sizeable demand boost. Seasonal factors will also play a role. Spring turnarounds are likely to limit product export volumes over the coming months, whilst higher newbuild volumes will continue to threaten the product tanker market. However, as we move into the second half of the year, a combination of seasonally higher flows, preparations for 2020 and the impact of new refineries coming online should be felt, allowing 2019 to end the way it started – on a high”, Gibson concluded”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “January has proved a ‘short’ month for VLCC volumes and with easy ongoing availability, and a big chunk of the February programme already taken care of, Owners started to feel the pressure. Rates remained largely rangebound, but then started to compress from the top end to end the week in the low ws 50’s East, and low ws 20’s to the West. Ballasting alternatives remain popular, but even those are starting to lose some of their previous shine. Chinese New Year approaches and Owners will be hoping for some heavier pre-Holiday fixing to help them out. Suezmaxes remained broadly flatline at around ws 85 to the East and low ws 40’s West but there were occasional premiums paid for replacements and one or two early ‘injection barrels’ liftings. Little change likely into next week. Aframaxes continued to soften to 80,000mt by ws 105 to Singapore on low-feed demand, and easy supply. Perhaps further discounting next week, but a bottom does look in near sight now”, the shipbroker concluded.

 

Tanker Shipping Companies Will Keep Consolidating Says Shipbroker (25/01)

The tanker market has produced some important mergers over the course of the past 12 months. And this is no accident. Shipbroker Intermodal said in its latest weekly report that “more and more tanker owners are consolidating, in a bid to achieve economies of scale and take advantage of the benefits. However, a merger or an acquisition is concluded for a number of reasons, depending on the aim of the parties involved. The past year was evidently active in the product tanker sector, going beyond few minor transactions. To be precise, we are about to see the formation of some of the world’s largest owners and operators of product tanker shipping”.

According to Mr. Stelios Kollintzas, Specialized Products with Intermodal, “in a way, one could say that the soft market prevailing during the past few years but also the prospect of another spike in freight rates ahead, both constitute a good reason for consolidation. In the first instance consolidation makes sense while trying to survive the market and dealing with financial problems, while in the latter, consolidation helps positioning better in order to fully capture a potential recovery. In other words, no matter what the drive behind consolidation is, it is a win-win choice. On another instance, consolidation has also been the focus of smaller companies, which are either listed or have the ambition to go public. Sufficient scale is vital to create big companies with high market capitalization, which will attract interest among the biggest investors and make stocks more liquid”.

Kollintzas added that “although the shipping community has urged the need for consolidation, no major consolidation move was recorded for almost two years before Scorpio Tankers acquired competitor Navig8 back in May 2017. Saying this, it is the BW Tankers and Hafnia Tankers merger that made the headlines of the year, creating the world’s single largest fleet of product tankers, which will control over 85 vessels. The second deal that made the news is the merger between the privately held Diamond S Shipping and the publicly listed Capital Product Partners. Once the deal is completed, the single public company formed, will boast a fleet of more than 65 ships in total. Taking into account the above deals, the top 5 owners of product tankers will be shaped as follows:

1- HAFNIA (85+)
2- SCORPIO (80+)
3- TORM (70+)
4- DIAMOND S (65+)
5- MAERSK (60+)

According to Kollintzas “the substantial economies of scale achieved by joining forces come with a list of further benefits including; strong presence across product tanker segments, enhance customer network and relationships, commercial and marketing efficiencies, minimization of commercial and operating costs, advantages in terms and quality of financing, well positioned for further consolidation opportunities and adequate size to gather market information and secure charters”.

“The industry’s course towards consolidation is not likely to change direction. The tanker market is highly fragmented with many owners who have one or two vessels struggling to survive. Consolidation is good for the market and it is better news compared to people ordering new ships. As such, seeing more ships in fewer hands might be good for the market”, Intermodal’s analyst concluded.

 

Tanker Market Softens in December (19/01)

The tanker market ended 2018 on a soft note, as overall sentiment retreated, OPEC said in its latest monthly report. Following gains in the tanker market registered in November, a softer sentiment was witnessed in December with average dirty tanker spot freight rates relatively stable affected by a drop in VLCC and Suezmax rates from the previous month. Lower rates were seen in the larger dirty classes in December and across all reported routes on the back of limited demand. This was the result of the holiday season that led to thin market activity in general. Nevertheless, the drop was offset by higher rates registered in the Aframax class, which went up by WS15 points on average. Aframax rates were partly supported by severe weather conditions, delays and replacements in December. Clean tanker spot freight rates showed a positive performance on all routes with significant gains registered on both eastern and western direction of Suez. In general, freight rates on all routes in December were above those in the same month a year earlier.

Spot fixtures

According to preliminary data, global fixtures dropped by 7.6% in December compared to the previous month. OPEC spot fixtures were down by 1.6%, or 0.23 mb/d, to average 14.21 mb/d. Fixtures on the Middle East-to-East route averaged 8.16 mb/d in December, down by 0.18 mb/d m-o-m from November, and those on the Middle East-to-West route averaged 1.48 mb/d. Outside of the Middle East, fixtures averaged 4.57 mb/d in December, increasing by 0.04 mb/d m-o-m. Compared with the same period a year before, the increase was 0.13 mb/d.

Sailings and arrivals

OPEC sailings increased by 0.04 mb/d, or 0.2%, m-o-m in December to stand at 25.29 mb/d. Middle East sailings remained stable in December and stood at 18.50 mb/d. Crude oil arrivals dropped in December in all areas with the exception of arrivals to West Asia, which was higher by 0.01 mb/d, or 3%, from a month earlier. Arrivals to North America, Europe and the Far East declined by 0.6%, 1.0% and 2.7%, respectively, compared with the previous month.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
Following the increase in rates achieved in previous months, the VLCC market showed lower tonnage demand in general in December, which prolonged the tonnage list and thus kept spot freight rates under pressure. VLCC spot freight rates were softer in December on several routes as the market was mostly quiet. VLCC freight rates on key the trading routes Middle East-to-East and Middle East-to-West fell, with spot freight rates decreasing by 6% and 7%, respectively m-o-m, to stand at WS87and WS38 points in December.

Similarly, spot freight rates on the West Africa-to-East route declined by 5% m-o-m to average WS87 points in December, influenced by the general downward trend in the Middle East. Nonetheless, despite the lower freight rates, VLCC returns were supported by a decline in bunker prices in December. On all routes, VLCC freight rates were negatively influenced by fewer cargo loading requirements and an extended tonnage list. However, VLCC freight rates on all routes in December were above those of the same month a year earlier.

Suezmax
Suezmax average spot freight rates experienced a higher drop than those for VLCCs in December. Suezmax fixing activities slowed in December, mainly in the West, thus negatively affecting the gains achieved in November. Activities in several markets witnessed a slowdown in December, including West Africa, the Mediterranean and the Black Sea. Suezmax rates dropped on average despite a pre-holiday rush, which temporarily supported rates and shortened the tonnage list that led to a significant increase in rates. However, this did not last for long, as the market rebalanced and rates were pushed back.

Rates for tankers operating on the West Africa-to-US Gulf Coast (USGC) route decreased by WS10 points m-o-m to average WS111 points in December. Rates on the Northwest Europe (NWE)-to-USGC route fell by WS6 points from the previous month to average WS95 points.

Aframax
Average Aframax spot freight rate has witnessed a strong return in previous months, which continued in December. The class was the only one in the dirty tanker segment that showed a rate increase from the previous month. In fact, Aframax earnings in December reached a level not seen for several months. Aframax rates have been partly supported by severe weather conditions and delays. Additionally, high demand for ice vessels and forwards fixing further supported rates, mainly in the North Sea and the Baltic.

In general, Aframax spot freight rates rose in December, although the levels of gains varied on different routes. Average rates were up by 10% from one month previous, with higher rates on all routes except the Caribbean-to-US East Coast (USEC), which dropped by WS22 points from one month earlier to stand at WS188 points in December.

Spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes rose by 26% and 27%, respectively m-o-m, to stand at WS195 and WS183 points in December.

Similarly, the market in the east showed higher rates with Aframax spot rates rising on the Indonesia-to-East route by 3% m-o-m to stand at WS138 points.

 

VLCCs Could Enjoy Increased Supply of Cargoes from Arab Gulf (15/01)

An increase of supply of crude oil from the Arab Gulf and a resulting need for additional infrastructure in terms of ports and pipelines could result in a heightened use of VLCCs in the region. In its latest weekly report, shipbroker Gibson said that “it is fair to say the US crude exports have transformed the global oil markets since the crude export ban was lifted by Congress at the end of 2015. Crude exports have risen at a considerable rate, placing the US in the market as a major exporting player. Whilst OPEC have been busy cutting production, the Americans have been steadily increasing their market share. However, the question is; can production continue to rise at this pace?”

According to Gibson, “latest figures suggest the trend won’t stop in 2019, the consensus is that US exports will rise to almost 3 million b/d this year, with most of the production for exports arising from the Permian basin. The increase in export capacity will be facilitated by numerous large-scale pipeline projects, all of which will flow into the Gulf Coast. Major pipeline projects include the Cactus II, Sunrise, Gray Oak and EPIC projects, which are all expected to come online in 2019 – the majority in the second half of the year – which will add over 2.5 million b/d to the existing network of pipelines down to the US Gulf Coast; with a further 2 million b/d projected to flow in 2020. With new infrastructure coming online, bottlenecks to the ports will start to ease, which may incentivise further well completions and drilling activity, supporting growth in export volumes”.

The shipbroker added that “consensus amongst analysts suggests exports from the US Gulf could rise to between 2.8-3 million b/d by the end of 2019. Although the first half of 2019 is projected to stay relatively flat at between 2 and 2.2 million b/d as new pipeline capacity is introduced into the market. Once fully operational, forecasts suggest a 400,000-500,000 b/d rise in exports between Q2 and Q3 in 2019, eventually rising to 3 million b/d by the end of the year”.

Gibson says that “port loading capacity will then become even more pivotal. With LOOP the only terminal currently capable of fully loading VLCCs, new projects are needed to improve the cost and efficiency of US exports. Subject to environmental approval, the Carlyle led project that includes dredging at Harbor Island in the Port of Corpus Christi, will enable VLCCs to berth at the port and fully load cargo onshore. Dredging is scheduled to commence during the second quarter of 2019, with the target of being fully operational in late 2020. Further projects are planned. Freeport has also been earmarked on the Gulf Coast as a port to be readied for VLCC loadings, as well as numerous companies showing an interest in port expansions along the Gulf. In theory, the possible expansion of ports to handle VLCCs could carry much of the increase in supply expected to reach the US Gulf”.

“Overall, with supply volumes projected to increase throughout 2019, the need for greater pipeline capacity is evident, as is the need for deeper ports. Inefficiencies in the supply chain have altered current market dynamics, highlighted by a recent trend for charterers to use VLCCs over Aframaxes for voyages from US Gulf to Europe. This peculiarity has been facilitated by strong demand for Aframaxes to engage in lightering operations, constricting the supply of ships available to lift export cargoes. Once infrastructure improves, the status quo is likely to be restored”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson noted that in the Middle East, “steady, but rather uninspiring, VLCC interest through the week failed to patch the slow market puncture to allow rates to deflate into the low ws 50’s East and mid ws 20’s West on the new 2019 Worldscale schedule. Further erosion is possible but there’s a finer balance on early dates and perhaps Owners will manage to dig in next week. Suezmaxes were reasonably active and managed to push rates slightly upwards to ws 40+ West and to ws 95 to the East, as availability became pruned, though a more significant gain looks unlikely over the near term. Aframaxes enjoyed a busy week that allowed rates to solidify at 80,000mt by ws 125 to Singapore, with the prospect of something better developing next week”, the shipbroker concluded.

 

VLCC Tanker Market Soft, While More Headwinds Should Be Expected (08/01)

The VLCC tanker market hasn’t started the year well, with rates remaining soft. To make matters worse, shipbrokers expect more headwinds in the coming weeks, as a result of a series of newbuildings expected to hit the water. In its latest weekly report, Affinity Research said that “markets are taking just as long as many of the London workforce to clamber out the holiday slump, with activity across the board remaining soft. VLCCs go into the new year with a higher worldscale flat rate, which may set freight rates up for some shortages in the coming weeks until markets adapt to the newly set flat rate. The AG and WAFR mid-70s from before the new year may be a thing of the past, with a modern WAFR doing a mere WS 67.5. While the discount is a shock, the fact of the matter is the VLCC fleet is simply too big (in fact the biggest its ever been!), which will continue to put some pressure on rates. Aframaxes have seen marginal activity in the Baltic and North Sea, with very little to report. The second decade of the January Rebco program is looking quiet, while the list is looking long. This leaves charterers in a position of continuing to test rates going into next week, especially for non ice class vessels”, said Affinity.

The shipbroker added that “the Med and Black Sea, though, have been relatively active over what was left of the working week after New Year’s. However, there seems to have been less urge to fix ahead after the holiday period, and with the list showing a few options for charterers, rates have started to correct. The Straits are still facing long delays, with northbound look at 17 days and southbound at 15. This is causing long turnarounds for vessels fixing the final remaining Black Sea stems. Poor weather at Milazzo as well has meant berth operations are unlikely to resume before the evening of Sunday 6 th or morning of Monday 7 th , and caused some uncertain itineraries s a result. Rates are likely to keep being tested going into next week. Suezmaxes have sailed through a particularly quiet market over the festive period, with activity only picking up now. We are now seeing lots of Eastern ballasters on the list, while TD20 continues to drop off. The AG has also remained very quiet until now, meaning ships from the east have been left with little alternative”, Affinity concluded.

In a separate report this week, shipbroker Charles R. Weber said that “VLCC rates trended moderately lower this week as owners took stock of a supply/demand positioning that remained largely unchanged despite slow demand. The Middle East market observed sluggish demand for a second consecutive week with 15 reported fixtures representing a 17% w/w decline and comparing with a 2018 weekly average of 29 fixtures. The West Africa market, too, moderated down w/w with four fixtures representing three fewer than last week’s tally. The Atlantic Americas extended last week’s active pace, however, with the regional fixture tally rising by two to eight this week. More attractive freight levels for VLCCs on the USG‐UKC route, relative to Aframaxes that traditionally service the trade, created a flurry of inquiry late this week – though as of writing no corresponding fixtures are reported to have materialized”.

According to CR Weber, “accounting for lightering costs and freight, the VLCC class currently offers the most attractive $/mt value. Any forward expectations around this trade, however, should be tempered by a likely moderating of Aframax rates from prevailing highs. Key Middle East supply/demand fundamentals remain tight, which are likely to keep freight rates strong in the near‐term. The two‐week forward regional availability surplus is expected to conclude January’s second decade with 10 units. This compares with 13 surplus units at the conclusion of the December program and 14 at the conclusion of the November program. Beyond the immediate near‐term, fresh headwinds are expected to materialize in the coming weeks as an onslaught of newbuildings deliver. We project that 18 newbuilding units will deliver during 1Q19 – including 10 during January alone. Adding to pressure, the recent crash of crude oil prices could create greater urgency around planned OPEC+ supply cuts. Although these could push some Middle East demand to the Atlantic basin and thus stoke greater ton‐miles, any positive impact thereof would come after a lag period for the longer period units take to reappear on position lists to be priced in”, the shipbroker concluded.

 

Tanker Market in 2019: Will it be Another Rollercoaster Ride? (07/01)

Tanker owners were faced with a mixed bag in the freight rate market, as there were highs, as well as lows throughout 2018, or as shipbroker Gibson commented in its latest weekly report, it has been a year of extremes. “For most part trading conditions have been very challenging amid a persistent oversupply of tonnage, with spot earnings often well below operating expenses. TCE returns for VLCCs trading on the benchmark TD3C voyage from the Middle East to China averaged just over $11,000/day during the 1st nine months of the year. However, since early autumn, notable increases in loadings out of the Middle East and strong demand from Asian refiners for Middle East and Atlantic Basin crudes have contributed to a very impressive rebound in earnings, with TD3C averaging in Q4 at over $50,000/day. Smaller crude tankers were quick to follow suit, supported by the jump in VLCC rates, a rebound in Nigerian crude production and higher Libyan crude exports, while weather disruptions in the Mediterranean and escalating delays in Bosporus also played an important role. Throughout the year, we have also seen relentless growth in US crude exports, offering incremental support to all crude tanker categories. US seaborne crude exports averaged just over 2.2 million b/d last November, up by nearly 1 million b/d versus the corresponding period in 2017”, Gibson said.

According to the shipbroker, “December has also seen a major hike in clean tanker earnings against a backdrop of largely very weak results during the rest of the year. Overall, the growth in the product tanker trade in 2018 has been rather mediocre; yet, recently the market has been helped by higher US product exports, a rush of east-west cargoes and less willingness on behalf of newbuild crude tankers to compete for product cargoes on their maiden voyage. In addition, some LR2s were tempted into switching to dirty trade, another factor which helped to somewhat tighten tonnage availability”.

Gibson added that “2018 has marked the highest number of tanker demolitions over the past fifteen years. All in all, over 150 tankers above 25,000 dwt have been sent to the recycling yards, with weak industry returns and attractive scrap prices offering a strong impetus to scrap. At the same time, the market has seen lower than expected number of new additions: over 25% of the tanker orderbook scheduled for delivery in 2018 has slipped into next year. The combination of robust demolition activity and a slower pace of tanker deliveries has meant that the growth in tanker supply has been fairly marginal”.

“Another consequence of the dire market conditions for most of the year has been a welcome decline in new tanker ordering activity. Overall, investment in new tonnage has fallen to one of its lowest levels seen over the past decade. Only VLCCs bucked this trend, with new tanker ordering largely driven by speculative investment, with a focus on scrubber equipped tonnage. Nonetheless, even VLCCs have seen notable slowdown in ordering activity in the 2nd half of the year, with just 3 tankers ordered versus 34 between January and June”, Gibson said.

The shipbroker also noted that “another key development of the year has been the uptake of the exhaust gas cleaning technology. At the end of 2017 hardly anyone showed any support for the technology. The picture is very different now, with more and more owners committing to installations on newbuild and secondhand tonnage over the course of 2019/2020. The biggest interest in scrubbers is in the VLCC segment. If we count all the units where the technology is fitted, will be fitted or intended to be fitted, by the end of 2020 scrubber equipped VLCCs could reach over 20% of the current fleet on water”.

“As we head into 2019, there will be new challenges and new opportunities. The most immediate threat to demand is the pending OPEC production cut. There is also a substantial new tanker delivery profile over the course of next year. We will hope to see a similar slippage in 2019 delivery dates as the one witnessed this year; however, there could to be less willingness to do so, particularly for scrubber equipped tonnage. On the upside, the expectations are for further increases in long haul trade out of the Americas and higher trading demand in preparation for the IMO2020. Taking account of all the factors above, could we be heading for another rollercoaster ride again next year?”, Gibson concluded.

 

Tanker Ordering Picks Up as Investment Opportunities Arise (27/12)

While the tanker market has been less than kind to ship owners this year, investment opportunities have arisen, as evidenced by the latest influx of newbuilding ordering activity. In its latest weekly report, shipbroker Clarkson Platou Hellas said that there was “a number of tanker orders to report this week. Starting with the larger sizes, clients of Enesel contracted two firm plus two option 158,000dwt Suezmax at Daehan – with delivery of the firm vessels due within end of 2020. Having been under discussion for some time, CSC Nanjing Tanker finalized an order at GSI for two firm plus up to four option 50,000dwt MRs. Delivery of the firm vessels is similarly due within 4Q 2020. In the specialized tanker space, Donsotank announced placing contracts at Wuhu Shipyard for two firm 22,000dwt coated chemical tankers. The ice class and LNG fueled vessels are due to deliver in 2021. One feeder order to report in the container market with Zhoushan Changhong securing an order for three firm plus up to six option 2,300 TEU vessels from Gerchicon, Germany. Delivery is due from 2020 onwards. In gas, both DSME and Samsung announced new orders each for one firm 174,000cbm LNG carrier for delivery in 2021 – both for a yet to be disclosed Oceania based owner”.

In a separate note, Allied Shipbroking said that “activity seemed to have ramped up in the newbuilding sector. In the dry bulk sector, several new contracts came to the light last week across different size segments, with Far Eastern owners being key players for the week. These were probably the last orders to be agreed before the close of the year and reflect the overall expectations for the new year. All eyes are focused now on the first quarter of 2019, where it is anticipated that a fair number of new orders will follow through given the overall standing of freight rates during the past month. In the tanker sector it was a relatively quiet week as only a couple of new orders were seen, but with high expectations for year to come, as market fundamentals leave place for optimism among owners. Based on the above-mentioned expectations, prices for new contracts may be affected by the increased appetite among owners and the improved sentiment, giving a boost on the shipbuilders’ offered prices. However, in case that second-hand vessel prices also increase, it is possible to see the gap between second-hand and newbuilding prices close somewhat”.

Meanwhile, in the S&P market, Allied added that “on the dry bulk side, a considerable boost in activity was noted on w-o-w basis, despite that we are just a breath before the end of the year and most interested parties have already adopted a rather sluggish attitude. All-in-all, with the freight market having already recovered to a significant level and given that there is a glimpse of an up-trend in sentiment, we may well expect things to continue on an upward pace after the new year festivities pass. On the tanker side, however, activity is in a state of regression as of late, given here too that we are just 10 days before the close of the year. With most market participants being in a relaxed mode, things most probably will continue on this track next few days. Notwith-standing this, given that from an earnings perspective we are in bet-ter shape as of late, we may well expect many interesting deals com-ing to light during the early part of the new year”.

VesselsValue added that tanker values have remained stable this past week. VLCC Nerissa (299,200 DWT, Jul 2006, Nantong COSCO KHI) was purchased by NGM Energy for USD 32.5 mil, VV value USD 30.72 mil. Vessel was in poor condition. Bulker values have remained stable. Panamaxes Hull 2122 and Hull 2131 (81,800 DWT, Jul & Oct 2019, Jiangsu New Yangzijiang) were purchased for USD 27.5 mil each, VV value USD 27.6 mil each. Supramax Luisia Colossus (55,500 DWT, Mar 2010, Kawasaki) was purchased by New Vision Shipping for USD 14.8 mil, VV value USD 14.66 million. Container values have remained stable. Handy Containers Akerdijk, Aalderdijk, Alsterdijk and Amerdijk (1,436 TEU, Mar – Dec 2011, Sainty Marine) were purchased by JR Shipping for USD 9.25 mil each, VV values of USD 9.37 mil, USD 9.16 mil, USD 8.97 mil and USD 8.82 mil respectively”, the ships’ valuations expert concluded.

 

Tanker Market in 2018 Was the Year of Extremes (24/12)

From the latest installment of the sanctions against Iran, to a number of highs and lows in the freight rate market, tanker owners had to endure a rough ride in 2018. In its latest weekly report, shipbroker Gibson analysed this year’s market trends. It said that “2018 has been a year of extremes. For most part, trading conditions have been very challenging amid a persistent oversupply of tonnage, with spot earnings often well below operating expenses. TCE returns for VLCCs trading on the benchmark TD3C voyage from the Middle East to China averaged just over $11,000/day during the 1st nine months of the year. However, since early autumn, notable increases in loadings out of the Middle East and strong demand from Asian refiners for Middle East and Atlantic Basin crudes have contributed to a very impressive rebound in earnings, with TD3C averaging in Q4 at over $50,000/day”.

Gibson added that “smaller crude tankers were quick to follow suit, supported by the jump in VLCC rates, a rebound in Nigerian crude production and higher Libyan crude exports, while weather disruptions in the Mediterranean and escalating delays in Bosporus also played an important role. Throughout the year, we have also seen relentless growth in US crude exports, offering incremental support to all crude tanker categories. US seaborne crude exports averaged just over 2.2 million b/d last November, up by nearly 1 million b/d versus the corresponding period in 2017”.

According to the shipbroker, “December has also seen a major hike in clean tanker earnings against a backdrop of largely very weak results during the rest of the year. Overall, the growth in the product tanker trade in 2018 has been rather mediocre; yet, recently the market has been helped by higher US product exports, a rush of east-west cargoes and less willingness on behalf of newbuild crude tankers to compete for product cargoes on their maiden voyage. In addition, some LR2s were tempted into switching to dirty trade, another factor which helped to somewhat tighten tonnage availability”.

“2018 has marked the highest number of tanker demolitions over the past fifteen years. All in all, over 150 tankers above 25,000 dwt have been sent to the recycling yards, with weak industry returns and attractive scrap prices offering a strong impetus to scrap. At the same time, the market has seen lower than expected number of new additions: over 25% of the tanker orderbook scheduled for delivery in 2018 has slipped into next year. The combination of robust demolition activity and a slower pace of tanker deliveries has meant that the growth in tanker supply has been fairly marginal”, Gibson noted.

Meanwhile, “another consequence of the dire market conditions for most of the year has been a welcome decline in new tanker ordering activity. Overall, investment in new tonnage has fallen to one of its lowest levels seen over the past decade. Only VLCCs bucked this trend, with new tanker ordering largely driven by speculative investment, with a focus on scrubber equipped tonnage. Nonetheless, even VLCCs have seen notable slowdown in ordering activity in the 2nd half of the year, with just 3 tankers ordered versus 34 between January and June”.

The shipbroker also remarked that “another key development of the year has been the uptake of the exhaust gas cleaning technology. At the end of 2017 hardly anyone showed any support for the technology. The picture is very different now, with more and more owners committing to installations on newbuild and secondhand tonnage over the course of 2019/2020. The biggest interest in scrubbers is in the VLCC segment. If we count all the units where the technology is fitted, will be fitted or intended to be fitted, by the end of 2020 scrubber equipped VLCCs could reach over 20% of the current fleet on water”.

Gibson concluded that “as we head into 2019, there will be new challenges and new opportunities. The most immediate threat to demand is the pending OPEC production cut. There is also a substantial new tanker delivery profile over the course of next year. We will hope to see a similar slippage in 2019 delivery dates as the one witnessed this year; however, there could to be less willingness to do so, particularly for scrubber equipped tonnage. On the upside, the expectations are for further increases in long haul trade out of the Americas and higher trading demand in preparation for the IMO2020. Taking account of all the factors above, could we be heading for another rollercoaster ride again next year?”

 

Production cut by OPEC and allies unlikely to hurt crude tankers (22/12)

A sharp decline in prices as well as mounting pressure of oversupply has forced OPEC and its allies to cut production. However, crude tanker demand is unlikely to be affected, as a notional loss in the volume of crude oil trade owing to the production cut will be more than compensated by the expected surge in long-haul exports from the US to Asia.

OPEC’s balancing act

OPEC and Russia-led non-OPEC crude exporters have decided to slash crude production by 1.2 mbpd from October 2018 levels until the first half of 2019. The decision will however be reviewed in April 2019.

While OPEC producers will reduce their output by 800 kbpd from 32.9 mbpd in October, with non-OPEC producers making up the balance. Although there is no specific quota for OPEC members, most of the cartel’s production cut will be made by Middle Eastern members, especially Saudi Arabia. Libya, Venezuela and Iran have been exempted from the cut, while the non-OPEC cut will be driven by Russia, which will tribute 50% of the 400 kbpd reduction.

Why the 180-degree turn in OPEC’s case?

Earlier, in its June 2018 meeting, OPEC decided to increase production to cope with the decline in output from Iran and Venezuela. The cartel ramped up its output to 32.9 mbpd in October, ahead of the deadline for the US sanctions on Iran. However, after the US granted a waiver to eight countries which enabled them to continue importing Iranian crude until May 2019, Brent prices plunged below the $60 per barrel mark in November. As non-OPEC production is expected to surge in 2019, the call on OPEC crude for a balanced market is expected to be 31 mbpd in the first half of 2019, about 1.9 mbpd lower than the cartel’s October 2018 output.

Crude tanker trade to remain unaffected

The production cut is unlikely to affect the crude tanker market as the oil market will be well supplied. Even a notional loss in the volume of crude oil trade will be more than compensated by the expected surge in tonne-mile demand because of increased long-haul exports from the US to Asia.

In the absence of a production cut, oversupply would have led to either stocking in key demand hubs (supportive for trade) or inventory build-up in production hubs (neutral for trade).

Assuming oil demand is not affected by the production cut, most of the lost Middle Eastern supply to Asian markets will be replaced by US crude. In short, all the gains in non-OPEC production in 2019 will come from the US. As the distance between the US and Asia is almost double that between the Middle East and Asia, tonne-mile demand will more than compensate for any notional loss in crude oil trade volumes.

 

VLCC Tonnage Supply Looking Ominous After the Latest OPEC Oil Production Cuts (18/12)

The tanker market has suffered a lot from oversupply and the tide doesn’t seem to be changing any time soon either, especially in the light of the recent OPEC decision to limit oil production once again. In its latest weekly report, shipbroker Gibson said that “unless you’ve been living under a rock for the past week, you will probably have heard that OPEC are at it again, preparing to cut production just as the tanker market experiences its strongest seasonal upcycle since 2015. In short, OPEC members have agreed to cut 800,000 b/d from October production levels, with its allies contributing a further 400,000 b/d. Clearly it is no revelation that this is likely to set a bearish tone for the tanker market for at least the first half of 2019”.

According to Gibson, “whilst OPEC has not released a country by country breakdown, this week the IEA suggested that Saudi Arabia is likely to over comply, producing 10.20 million b/d in January, down from 11.06 million b/d in November. If this proves to be correct, then Saudi Arabia alone will cater for OPEC’s entire obligation. Moreover, Iraq has committed itself to cutting 140,000 b/d, the UAE is already cutting nominated volumes for January and Nigeria has also agreed to participate”.

“It is however worth noting that for most members, the production cuts are based off October production levels. Most members have been steadily increasing output in recent months, meaning the cuts will at least come from a higher basis point. In any case, the recent increases in OPEC production, which have lent support to the crude tanker market, will soon be removed, with Saudi Arabia’s steep cuts ensuring full compliance with the agreement is promptly delivered. However, cuts from OPEC’s allies may not arrive so quickly. Whilst Russia has agreed to remove 230,000 b/d from the market, it has agreed to do so gradually, which may give the smaller end of the crude tanker market some additional breathing space, particularly if volumes increase from other Former Soviet Union States”, Gibson said.

The London-based shipbroker added that “the timing of this production cut probably couldn’t be any worse. Once slippage from 2018 is accounted for, some 70+ newbuild VLCCs are scheduled for delivery next year. 24 of which are due in Q1. Some hope could be taken from the potential for as many as 60+ VLCCs to go in for scrubber retrofitting at some stage next year. However, on an annualised basis this may only account to the equivalent of just 4-6 VLCCs taken out of the fleet (if it is assumed each retrofit takes 1 month). Of course, there are sensitivities on timings; if the bulk of the retrofits are concentrated in the second half of 2019 then the impact might appear greater, but on balance the significance could be limited. It also needs to be considered that some retrofits may take place during natural dry dockings, whilst this does not negate the impact, it must be considered that each year a certain number of dry dockings take place anyway. The potential downside is not just for VLCCs. All crude carriers will be impacted. Beyond OPEC cuts, for the Aframaxes, the key downside risk is lower production from Russia. Suezmaxes will also be impacted by lower exports from the Middle East, Russia and perhaps West Africa with Nigeria now willing to participate in the deal”.

Gibson concluded that “of course, the counter argument to this negative tone is that exports from the Atlantic Basin (in particular the US) will continue to rise, offsetting the lost output from the Middle East. IEA figures suggest crude supply in the Americas will grow by 1.1 million b/d next year, neutralising the decline in OPEC+ production, with longer tonne miles also support the demand side story. Although it is difficult to argue against this, it is debatable whether the anticipated demand increases will be sufficient enough to absorb the high fleet growth expected next year”.

 

Tankers Rebound in November (15/12)

In November, tanker spot freight rates for dirty vessels showed a significant increase as rates continued to rise from the previous month, as per the latest monthly report from OPEC. Average spot freight rates increased for the third month in a row, showing a gain of 21% on average from the previous month. Freight rates for all classes in the dirty segment of the market increased on all reported routes. VLCC spot freight rates went up from the previous month, supported by increases in tonnage demand in major trading areas. The Suezmax class also benefited from a firming market, showing higher levels of increases in spot freight rates supported by a tightening tonnage list and increased transit delays in the Turkish Straits. Similarly, Aframax freight rates edged up in November, mainly as demand and rates in the Mediterranean and US Gulf Coast (USGC) surged. Additionally, delays in the Turkish Straits reduced the supply of vessels and raised freight rates significantly on a monthly and annual basis. Clean tanker spot freight rates also showed gains in November, benefiting from seasonal demand and higher chartering activities in both the eastern and western directions of Suez. Tanker market earnings in both the dirty and clean sectors were enhanced in November on the back of lower bunker prices, thus reducing operational costs

Spot fixtures

In November, OPEC spot fixtures were up by 1.3% from the previous month to average 14.51 mb/d, according to preliminary data. The increase came at the same time as fixtures from the Middle East-to-East increased by 8% from one month earlier, while fixtures from both Middle East-to-West and outside Middle East declined by 2.3% and 7.8%, respectively, from a month before.

Sailings and arrivals

OPEC sailings increased by 0.55 mb/d, or 2.2%, m-o-m in November to stand at 25.26 mb/d. This was supported by an increase in Middle East sailings, which rose by 0.55 mb/d, or 3.0%, over the previous month to average 18.51 mb/d.
Crude oil arrivals were higher in Far Eastern and West Asian ports, rising m-o-m by 0.09 mb/d and 0.03 mb/d, respectively, while arrivals at North American and European ports dropped m-o-m by 0.44 mb/d and 0.24 mb/d, respectively, in November.

Dirty tanker freight rates

Very large crude carriers (VLCCs)
In the dirty tanker market, VLCC spot freight rates continued to strengthen, showing further gains from one month earlier. The VLCC market showed obvious signs of recovery starting in mid-November.

VLCC average spot freight rates increased by 14% from one month before. On average, VLCC spot freight rates stood at WS75 points, up by 37% from those registered in the same month a year earlier.

VLCC Middle East-to-East spot freight rates went up by 12% m-o-m in November to stand at WS93 points, followed by freight rates registered for tankers trading on the West Africa-to-East route, which rose by 13% to average WS91 points.
The VLCC spot freight rates on the Middle East-to-West route showed similar gains, rising by 24%, or WS8 points, m-o-m to average WS41 points.

Suezmax
Suezmax freight rates have shown increases for three months in row with remarkable gains recorded in November across all reported routes.

Rates surged on all major trading routes from a month before, remaining well above those of the previous year. November tonnage availability tightened and market activities experienced their usual seasonal uptick. The Suezmax market saw further gains from the previous month as the market kept strengthening in several areas, including the Black Sea, West Africa and the Mediterranean. Furthermore, November freight rates were strengthened by increased delays in the Turkish Straits.

Average Suezmax freight rates remained healthy, supported by higher rates registered for tankers trading on the Northwest Europe (NWE)-to-USGC, which gained 50% m-o-m to stand at WS101 points in November.

Similarly, an increase of 63% was seen over rates for the same month in 2017. Moreover, Suezmax spot freight rates for tankers operating on the West Africa to-USGC rose by WS27 points from a month before to stand at WS120 points, higher than those of the same month a year before by 52%.

Aframax
Average Aframax spot freight rates showed gains as seen in larger vessels in the dirty tanker sector. Increases were seen on all reported routes. And average Aframax spot freight rates showed worthy gains in November byWS160 points.
Spot freight rates on the Mediterranean-to-Mediterranean and Mediterranean-to-NWE routes were the main contributors to the average rate increases. Both routes reflected higher rates, by 20% each, respectively, from the previous month to stand at WS155 points and WS144 points. This reflects an increase of 51% and 46%, respectively, from the same month in 2017.

Spot freight rates for Aframax operating on the Caribbean-to-US East Coast (USEC) increased by 11% from last month to recover to WS210 points.
Meanwhile, spot freight rates for tankers trading on the Indonesia-to-East route showed relatively lower gains, rising by 8% m-o-m to stand at WS133 points in November.

 

VLCC Utilization Up in November (15/12)

In November, VLCC utilization increased to the highest level observed since the beginning of the year at 60.55%, nearly as high as the level observed in November 2017 (60.58%). Through the first 11 months of the year, utilization has averaged 59.99%, compared to 61.95% in the same months of 2017 (Figure). Although both ton-day demand and ton-day supply decreased month-on-month, the pace of declines in the latter was greater than the former, placing upward support for utilization. Ton-day demand decreased by 1.0% month-on-month in November, a slight acceleration from the prior rate, while ton-day supply decreased by a greater 1.7% month-on-month. On a year-on-year basis, we observed the opposite trend with demand down by 1.8%, while supply was down by only 1.7%. Perhaps what is the most important and telling statistic of the current position in the market is the relationship of ton-day demand and supply in November versus January levels. This indicates that ton-day demand is down about 1.2% compared to January levels, whereas ton-day supply has declined by 1.6%, the greatest decline year-to-date.

When combining VLCC and Suezmax utilization, we note an increasing trend since April 2018; however, with a very slight dip in August. Average utilization came in at 61.02% in November, the highest level observed since the beginning of the year, correlating with the recent run-up of freight rates and TCE earnings. The highest utilization level observed in the month was 61.58%, while the lowest was 60.25%, still above some months in the first half of the year. Despite the bullish trend month-on-month, utilization remains below November 2017 levels and well below November 2016 levels. Over the next month period, we expect utilization to fall as demand tempers on the back of lower import requirements in Asia, while vessels continue to be delivered to the fleet amid lacking incentives to scrap tonnage.

 

Flexible Tanker Owners Will Benefit from Latest Trade Flows (14/12)

The new marine fuel regulations which will enter into force from 2020, won’t have an effect just on the “modus operandi” of the shipping industry, but will also affect freight rates and trade flows of oil products. In its latest weekly report, shipbroker Allied Shipbroking noted that “a lot of discussions have been made as to the effects of the IMO 2020 regulation on OPEX levels, investment feasibility of scrubbers and the benefits of alternative fuel usage. Aside from all of these, there is another reading to this new regulation”.

According to Mr. Yiannis Vamvakas. Research Analyst with Allied, “new oil products (ultra-low sulphur fuel oil) as well as the much larger quantities of MGO that will be needed from the shipping industry will reshape trade patterns around the globe. The first effect could well be depicted in crude oil trade due to shifts in refinery utilization. Specifically, demand for light sweet crude oil will move upward as it will be required from the non-upgraded refineries, while it is possible to see a negative trend in the demand for heavy sour grades. The second part is the need for redistribution of the low-sulphur fuels, in order to properly cover the global bunkering markets. A side-effect to this could well be the requirement for floating storage for both clean (building of inventories), as well as dirty products (storage of the excess heavy fuel oil produced). Demand for HSFO is projected to recover in the long-term, as scrubber-equipped ships will continue using it. However, given that the IMO expects around 3,800 vessels to be fitted with scrubbers by 2020, it looks as though these vessels will remain a relatively small percentage of the global fleet”.

Vamvakas added that “many refineries have proceeded with their investment plans, adding capacity in order to produce more middle distillates, with the International Energy Agency (IEA) forecasting that an additional 7 million barrels per day will come into production by 2023. However, there are also several refineries that have not yet fully prepared for the IMO 2020 regulation, possible creating a shortfall of the required fuels in certain regions. All in all, the most modernised refineries with extensive vacuum resid processing capacity will benefit most from the new regulation, as they will be able to produce larger quantities of required fuels, gaining market share in the marine sector. Based on these facts, demand will increase in regions were the more modern refineries reside, modifying current trade routes. According to a Reuters survey, around 66% of 33 questioned refineries will continue produce HSFO in 2020, but 70% of these stated that they will reduce their output. A decline has already been reported in fuel oil inventories, depicting the fact that refineries have started to cut output in anticipation of the regulation. However, it’s worth mentioning that if output cuts prove to be bigger than the consumption fall, prices will see a significant upsurge”.

According to Allied’s analyst, “with regards to different geographical locations, most of the US refineries have been upgraded by the US shale boom, giving them a head start, but they are still dependent on heavy fuel imports, which is used for blending purposes. This means that further investments will be required for adding desulphurisation capacity. In Europe, the coastal refineries are better prepared compared to their mainland peers, as their main oil source is crude from North and West Africa, regions with less sour oil. In Middle East and China, most of the refineries do not have the capacity of desulphurisation needed to produce the new low-sulphur fuels, making new investments necessary. In almost all cases a significant change is to take place in the shipping industry. This change can be seen as a threat, an opportunity or as a combination of these two. The modification of crude oil/oil products trade flows should benefit owners and refineries that are flexible and adaptable enough for the new regulations, while it may be a significant threat for market participants that will choose to fall behind their competition”, Vamvakas concluded.

 

Rebound in Tanker Freight Rates Echoed in Ships’ Values As Well (11/12)

As expected tanker values have started to pick up of late, following the trend set in the freight market. In its latest weekly report, shipbroker Intermodal wondered whether the rise in crude carrier rates is driven only by seasonality, or is the recent positive reversal signaling the end of challenging days for the market? Intermodal says that “whatever the case may be, it seems that at least for now soft sentiments belongs to the past, with both the spot and period market steadily firming. Given the improvement in sentiment, it is normal that appetite in the SnP would also increase, while besides interest from specific ship-owners that were looking to invest for a while now, there is also interest from new Buyers who are encouraged by the performance of the freight market”.

According to Mr. Giannis Andritsopoulos, SnP Broker with Intermodal, , “focusing on the past couple of weeks, there are rumours that a K-Line Aframax, namely the ‘SINGAPORE RIVER’ (115,126dwt-blt ‘09, Japan) with SS/DD due in March 2019, was committed at $23.5 million, whereas, in June during Posidonia, Bergshav purchased a sister vessel from the same sellers, namely the ‘SENTOSA RIVER’ (115,146dwt-blt ‘08, Japan), for a price in the region of $19.0 million, which translates to an impressive increase of around 17% in less than six months (including yearly depreciation for the age difference). Another noticeable sale is that of the ‘TOLEDO SPIRIT’ (159,342dwt-blt ‘05, S. Korea), where almost ten Greek Buyers inspected the vessel and competed aggressively, with the vessel eventually changing hands for $19.0 million”.

Intermodal’s broker added that “on the MR side the improvement is also evident. In the beginning of October the Doun Kisen vessel, namely the ‘HIGH ENTERPRISE’ (45,967dwt-blt ‘09, Japan), was sold to Greek owners, Spring Marine, for a price in the region of $13.95 million. A month after this deal, the same owner sold the ‘SILVER EXPRESS’ (47,401dwt-blt ‘09, Japan), for a price in the region of $15.3 million, while during the past week the ‘HIGH PEARL’ (48,023dwt-blt ‘09, Japan), was reported sold for a price of $16.0 million”.

Andritsopoulos concluded by noting that “we expect SnP interest in the sector to remain firm at least for as long as earnings remain around the healthy levels of late and given that there will be no wild volatility in the freight market during this winter we should also see additional premiums on future deals, especially in high quality tonnage of up to ten years of age”.

Meanwhile, in the VLCC tanker market this week, shipbroker Charles R. Weber said that “rates rose to fresh year-to-date highs early during the week on a tight prevailing supply/demand positioning following last week’s surge in demand. A slowing thereof, however, saw rates retreat at the close of the week amid waning sentiment. This came even as fundamentals actually tightened, thus raising the prospect of a rebound during the upcoming week. A total of 30 fixtures were reported in the Middle East market, marking a 25% w/w decline. Meanwhile, the West Africa market observed just a third of last week’s tally with just three units reported fixed. The Atlantic Americas yielded just two fixtures, or half last week’s tally. Fundamental strengthened irrespectively, as evidenced by a successive narrowing of surplus supply in the Middle East market as the December program progresses. Whereas November concluded with 14 surplus units, the surplus slipped to nine in December’s first decade and to six in the month’s second decade; we project that it will slip further still during the third decade, to just five units, or a fresh low in the current cycle. A rebound in activity during the upcoming week could help to hasten rate gains that reflect the tighter fundamentals”.

CR Weber added that “reports this week indicating that Unipec plans to resume imports of US crude raise the specter of a rise in demand in the Atlantic Americas to cover corresponding cargoes. A negotiating period ending on March 1 implies that cargoes will need to be fixed and imported in the interim. Given normal forward fixing and a voyage duration of nearly two months, limited time remains to cover any fresh cargoes to be imported by China by March, suggesting a potential imminent rise in associated fixture demand. Meanwhile, the OPEC+ agreement announced Friday calls for production cuts of 1.2 Mb/d from an October base to be distributed two‐thirds to OPEC producers and the balance to a non‐OPEC group led by Russia. Given that production surged during November from October, the implications may be less pronounced than some participants had feared. Iran, Venezuela and Libya are exempted from cuts, though the former two are expected to observe independent output declines amid US sanctions on Iran over its nuclear program and worsening mismanagement of energy resources by the Venezuelan regime. Saudi Arabia appears to be shouldering an outsized portion of the OPEC cuts having indicated January production of 10.2 Mnb/d which represent a 4.7% reduction from October production of 10.7 Mnb/d. November production stood at 11.1 Mnb/d. Absent greater granularity about how the remainder of the cuts will be distributed, we note that the development may prove positive for the VLCC market by pushing Asian crude buyers further afield to the Atlantic basin. Indeed, US crude production continues to rise with a y/y gain of 1.16 Mnb/d projected by the EIA during 2019 (other sources expect gains of as much as 2.0 Mnb/d)”, CR Weber concluded.

 

Product Tanker Markets Improving in Various Routes (10/12)

While the product tanker market segment hasn’t had the lackluster year of the crude tanker business, things haven’t been all that rosy as well. However, the past few weeks, there has been a positive trend in the freight market. In the MR tanker segment, shipbroker Gibson said in its latest weekly report that “the story of the week in the North has remained the same since the thin list was produced on Monday morning and, with little on offer in terms of natural tonnage owners continued to be in the driving seat. However, Charterers have since backed off somewhat and the resulting lack of enquiry has given Owners few opportunities to make the large gains they might have been expecting. Despite the lack of reliable benchmarks, sentiment remains firm here and we should therefore expect distortion in fixing levels between deals”.

“After a busy start to the week, the Med has seen activity slowly but surely pick off MRs that have shown firm prospects. Monday saw two MRs go on subs and, with one of those failing, opportunities for Charterers to present cargo continued to materialise. The expectation for Owners to piggyback on the success of the recent gains in the Handy market were not realised as full stems were there to be taken. Rates have climbed in line with a steady pace of enquiry with Black Sea – Med reported fixed at ws 172.5. If enquiry continues to flow in week 50, sentiment will remain firm. With Handies showing no sign of letting up, Owners will be looking to make further improvement”, Gibson noted.

Similarly, in the East, the shipbroker said that it was “an incredibly busy week on the smaller tonnage. Having seen the LR2s firm considerably, it was inevitable that Charterers would look to split stems where possible. Longhaul has pressed, with TC12 now at ws 170 levels, and westbound at $1.395million, with the suggestion of higher numbers to come. EAF is now at ws 205, but again we will see a further press early next week. Shorthaul needs some more support, and $225k is the market assessment to finish the week; $625k Gizan into the Red Sea. The LR1s are the underperforming size, but there is still value in the MRs at these levels, so should remain busy next week”.

Gibson added that it was “another strong week for the LRs, with rates pushing further early in the week up to 3 year records, but a quiet end has raised doubts over the longevity. LR2s are still short and rates look solid with 75,000mt naphtha AGulf/Japan at ws 185 and 90,000mt jet AGulf/UKCont $2.80 million. LR1s have never quite hit the highs of the LR2s and still look longer on the list – for now 55,000mt naphtha AGulf/Japan is ws 180 and 65,000mt jet AGulf/UKCont is $1.95 million. But we could easily see these rates drift off slightly if we don’t see a push of cargoes early next week”.

In the Mediterranean, “the momentum seen towards the back end of week 48 continued into Monday, with Owners on the front foot from the off. X-Med stems have consistently traded in the ws 200’s and at the time of writing, the going rate for X-Med stems is 30 x ws 210, with the potential for a few more points ex EMed where the numbers seen ex Black Sea may heighten ideas. 30 x ws 235-240 is the rate achievable for stems ex Black Sea, with the fixing window tonnage extremely tight, delays through the straits will only help Owners’ cause, with the potential for more points in return for safer itineraries. As we move into week 50, with cargoes needing cover before the Christmas break, the momentum seen this week is likely to progress (more so towards the back end of next week), with Owners licking their licks as to future prospects”, Gibson said.

It added that “although it hasn’t been the busiest week of MR action in the Med this week, Owners have continued to reap rewards, with the sentiment by and large being driven by action in the UKCont. A tight front end of the list meant a problematic WAF cargo saw heights of 37 x ws 270 with Med-transatlantic runs trading consistently around the 37 x ws 200-202.5 mark. With profits for runs heading East now tempting, we’ve seen ships begin to ballast through Suez in order to head back where they came from, with an Izmit-AGulf run achieving $1.25 million, with most Owners now freighting Med-AGulf at $1.2 million. Much like the Handies, Charterers will begin to stretch the fixing window next week in order to cover for the Christmas period and this will only add fuel to the fire in this current market”, the shipbroker concluded.

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

Tanker Market On a High Note (17/11)

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

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

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

Spot fixtures

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

Sailings and arrivals

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

Dirty tanker freight rates

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

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

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

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

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

Clean tanker freight rates

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

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

 

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

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

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

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

 

 

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

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

US crude oil exports to any other destination were record high

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

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

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

 

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

 

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

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

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

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

Spot fixtures

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

Sailings and arrivals

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

Dirty tanker freight rates

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

US crude oil exports to any other destination were record high

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

 

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

Demand

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

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

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

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

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

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

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

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

Supply

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

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

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

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

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

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

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

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

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

Crude oil tanker sector growing by 0.7%.

Oil product tanker sector by 0.8%.

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

Outlook

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

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

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

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

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

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

 

VLCC Oversupply Still Plaguing Market (28/08)

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

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

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

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

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

 

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

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

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

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

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

 

OPEC: Tanker Market (20/08)

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

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

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

Spot fixtures

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

Sailings and arrivals

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

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

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

Dirty tanker freight rates

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

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

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

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

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

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

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

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

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

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

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

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

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

Clean tanker freight rates

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

2018 Mid-Year Tanker Market Outlook Update

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

VLCC

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

Suezmax

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

Aframax

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

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

Clean

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

 

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

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

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

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

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

 

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

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

Spot fixtures

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

Sailings and arrivals

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

Dirty tanker freight rates

Very large crude carrier (VLCC)

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

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

Suezmax

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

Aframax

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

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

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

Clean tanker freight rates

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

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

 

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

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

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

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

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

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

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

 

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

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

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

2 secondhand MR Vessels

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

NPP beats the market again and again

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

A multi-tasking VOC recovery plant

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

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

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

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

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

Reliable power distribution

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

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

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

More orders in the pipeline

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

Spot fixtures

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

Sailings and arrivals

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

Very large crude carrier (VLCC)

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

Suezmax

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

Aframax

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

Overview

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

Demand

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

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

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

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

Supply

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

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

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

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

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

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

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

Outlook

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

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

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

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

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

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

 

Tanker Newbuldings Gathering Pace (09/06)

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

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

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

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

 

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

Ship owners snap up tankers (25/05)

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

VLCC Still the Main Demolition Candidates (17/05)

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

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

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

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

 

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

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

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

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

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

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

 

Tanker Market Lacking Direction (14/05)

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

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

 

VLCCs, Place your bets! (21/04)

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

Better days ahead for VLGC shipowners (01/03)

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

 

VLCC Tankers Prime Candidates for Scrapping (24/02)

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

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

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

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

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

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

 

Tanker Newbuilding Orders Resume (22/02)

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

Demand

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

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

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

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

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

Stock levels are often measured by ”days of supply” – giving an indication that accumulated stocks equal to +1m bpd maybe one target point to watch out for.

According to the U.S. Energy Information Administration (EIA), the implied stock changes to the world liquid fuel balance in Q1-2018 show a drawdown of stocks, for the fifth consecutive quarter. Overall, stocks have piled up to an equivalent of 2.9m bpd since mid-2014, when crude oil prices started to decline rapidly. For 2018 and 2019, EIA forecast modest inventory (stocks) build up.

The drawdown of stocks is measured as a ‘flow’, i.e. the difference between oil production and oil consumption in million barrels per day (m bpd) and not as an absolute in million tonnes.

Since November 2016, when OPEC and non-OPEC producers agreed for the first time ever, to deliver a co-ordinated cut in oil supply, global stocks have declined. Despite that effort, stocks remain significantly above the level they were before oil prices started to drop, inspiring large-scale stockpiling during Q4-2014 to Q1-2016. The deal to cut oil output runs until the end of 2018.

So why is it that global stocks do not continue their decline? The short answer is because the US oil producers, who are not party to the supply cut agreement, are increasing their output from 9.3m bpd in 2017 to a forecast 10.3m bpd in 2018. Output reached 10m bpd in November 2017. From an oil tanker perspective, the uncertainty surrounding global oil supply adds another layer of unpredictability to the market.

Regardless of the talk about alternative sources of energy – oil demand continues to grow. The International Energy Agency (IEA) forecasts global oil demand to grow by 1.3m bpd in 2018. Potentially breaking the 100m bpd barrier during Q4 2018.

Supply

A four-year high for demolition was not enough to prevent the freight market from stagnating, as the crude oil tanker fleet grew by 5.1% and the oil product tanker fleet grew by 4.2% in 2017. For 2018, BIMCO expects the amount of capacity leaving the fleet for demolition to go down slightly. This is due to a lower level of newbuild deliveries and expectations of slightly improved demand growth in the second half of 2018.

For 2018, BIMCO expects slightly higher fleet growth, on the back of the factors mentioned. We are now expecting the crude oil tanker fleet, as well as the oil product tanker fleet, to grow by 2.5%.

Fleet growth estimates are quite sensitive to demolition forecasts – which in turn are very sensitive to freight rate developments. 2018 has already seen 0.5m DWT of oil product tankers tonnage and 1.1m DWT of crude oil tanker tonnage being demolished (including two VLCCs). As the year progresses the pace is expected to slow down.

In terms of new tanker orders, 2018 is off to a slow start. It seems as if the recovery of the dry bulk sector meant that most orders placed in January were for dry bulk ships. One VLCC, two LR1s, five MRs and six handysize is it – for now.

For deliveries in 2018, the VLCC sector (with 734 ships at the end of 2017) will see some 30 units launched. In the product tanker sector, the MR fleet (with 1,387 ships at the end of 2017) will see up to 40 MR-workhorses entering the fleet in 2018.

Outlook

One of the volatility factors to watch out for in the crude oil tanker market is the amount of capacity being used for floating storage. Depending on the amount of newbuildings delivered, a huge increase in the use of oil tankers for floating storage could deliver a “virtual” decline in the operating fleet size. This in turn affects the freight market balance in a positive way – at least temporarily. Even though gross delivery of crude oil tankers in 2018 will be lower than last year – the level of floating storage will be lower as well.

According to McQuilling Services, less than 20 VLCC are currently being used for floating storage. This is due to the oil market backwardation (future price of oil being below the spot price) which does not encourage anyone to store oil, at sea or on land, until contango (future price of oil being above the spot price) returns on a more permanent basis. Floating storage at current level has no impact on the freight market.

The future of oil demand and subsequently of tanker demand is very much policy driven. It has been so in the past to some extent, but in coming years this will be more apparent.

The impact of policy can be seen in many forms. Such as:

The building of strategic petroleum reserves in the US, China and India to mention a few that can afford it.

The resumption of crude oil exports from the US in early 2016 and

Rapidly increasing refinery capacity in the Middle East.

These are all major market policy events that have impacted the tanker market and its trading lanes.

Next in the line of policy driven changes with a potentially widespread impact, particularly on the oil market and oil tanker market comes from the industry itself. The 2020 marine fuel sulphur cap is a huge issue, not just in terms of the uncertainties surrounding fuel availability and compliance, but also in terms of the positive knock-on-effect on shipping demand but also the negative and inevitable higher cost of bunkers.

More questions are raised by the day, with only very few absolute replies to any of them. Will there be a sufficient amount of compliant low sulphur marine fuel available from 1 January 2020? Even if there is, how much of this compliant fuel will require largescale redistribution from its production area to the purchase place of the bunkers? Will there be a requirement to refine and stockpile compliant fuel ahead of 1 January 2020, if yes how much?

What is apparent is that shipping demand will be positively impacted – mainly, in the short term with the building of local stocks, but possibly also in the longer term if the compliant marine fuels from the refineries continue to be produced remotely to the bunker refueling hubs. Last but not least, what will the refining industry do with the high sulphur residuals previously “disposed of” through the shipping industry? They will need to find new markets to ship to.

 

Suezmax Tankers Could Witness Higher Freight Rates Despite Record Newbuilding Deliveries (19/02)

Despite a high volume of newbuilding deliveries in the Suezmax tanker market over 2017 which led freight rates levels to average lows of $14,000/day, demand growth evolution could help return the segment back to growth. In its latest weekly report, shipbroker Gibson said that “crude tanker earnings across all sectors were challenged in 2017, not least the Suezmax sector, which saw net fleet growth of 45 units during the year. Heavy ordering activity between 2014 and 2015 saw 57 newbuilds enter the market, making 2017 a record year for Suezmax deliveries. It was therefore unsurprising to see earnings averaging lower at $14,000/day, down from $27,000/day in 2016. However, despite bearish developments on the supply side, developments on the demand side were positive overall. Indeed, AIS tracking data indicates that tonne mile demand for the sector rebounded in 2017 driven by shifting global oil flows”.

According to the shipbroker, “a key driver of the trade growth was higher crude flows from West to East as OPEC production cuts took effect, in particular, increased CPC blend exports from the Black Sea to Asia. According to tracking data, Suezmax CPC blend volumes grew from 1.5 million tonnes in 2016, to 7 million tonnes last year, which was particularly beneficial for Suezmax demand given distances involved. Nearby, further growth was seen out of the Mediterranean, however the picture was somewhat mixed depending on the countries involved. Declines were seen from Algeria, but Suezmax flows from Libya increased by 5 million tonnes, which accounted for the majority of the growth from the region”.

Gibson added that “significant growth was observed from the Americas, with total Suezmax loadings in the region growing by 30 million tonnes. The key to such growth has been higher exports from the US and Brazil. Exports from Brazil account for a third of the increase, whilst the US accounted for more than 20 million tonnes. However, over half of the Suezmax volumes were traded within the region, limiting the tonne mile effect. In the Middle East, despite OPEC’s product cuts, Suezmax exports from the Middle East saw continued growth in 2017. Growing by over 13 million tonnes, with almost all the increase originating from Iran. However, not all regions have seen growth. Suezmax exports from West Africa have fallen over the past three years outright exports from West Africa on Suezmaxes fell to below 100 million tonnes in 2017 (down 12 million tonnes YOY)”.

“Moving forwards, whilst 49 Suezmaxes are scheduled to be delivered this year, demand growth can be expected in some of the key load regions. Strong expectations for US production, as well as anticipated higher Brazilian output will support volumes loading in the Americas, even as Venezuelan volumes continue to slide. Export growth from Libya is never certain but remains a possibility whilst high Kashagan production this year (despite Kazahkstan’s involvement in the OPEC pact) is expected to translate into higher CPC exports from the Black Sea. In theory, exports from the Middle East should flatten out, given OPEC’s pact. However, volumes from West Africa could rise year on year, if Nigeria is able to hold its production stable at its OPEC ceiling of 1.80 million b/d. On balance, 2018 will be tough whilst the excess supply delivered in 2017, and inbound deliveries this year, are absorbed. However, tangible demand growth means it is only a matter of time before earnings return to more sustainable levels”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “hopes of a pre-Chinese Holiday boost for VLCCs were never realised and although the week started with reasonable volume, no momentum resulted, and the pace eased to keep the market at little better than ws 40 for the most modern units to the East, with down to ws 32 booked for the most challenged. Rates to the West remained cemented at under ws 20 for straight runs too. Availability remains an ongoing challenge for Owners over the coming week, and well beyond. Suezmaxes saw less and less as the week progressed and as tonnage built, rate ideas fell further to 130,000mt by ws 57.5 to the East and to under ws 25 to the West with no early recovery likely. Aframaxes operated to a slow beat too, which was just sufficient to keep rates at an average 80,000mt by ws 85 to Singapore, with more of the same the call over the coming period”, the shipbroker concluded.

 

Demolition Market Could Heat Up For Tanker Units Soon (15/02)

Things could start to heat up in the ships’ demolition market, as more and more tanker owners are contemplating selling their older units. On the back of this trend, should Pakistan elect to uplift its ban on tanker imports, as is widely rumored among the industry, the market could firm up pretty quickly.

In its latest weekly report, shipbroker Clarkson Platou Hellas said that “as more larger tanker units are talked in the market this week, there are ‘stronger’ rumours emanating from Pakistan that the ban on importing tankers will be lifted. However until an official announcement is made, we cannot predict anything at this stage as we have been down this road of ‘opening, not opening’, for the last 12 months. The only point to make, and for all to understand is, that if and when it reopens and allows the import of tanker units again, nothing will happen immediately as it will take some time to ascertain the new regulations and comprehend any new formalities that are put in place by the local authorities. Any cash buyer speculating with firm prices on the basis of this market reopening at the end of this month, as hinted, could be risking a big exposure should these rumours fail to become reality.

Whilst many units are now being talked into the market, the same argument remains that there appears to be a lack of definite workable tonnage on offer to Buyers. With this in mind, any sales are very competitive and gives the opinion that the market still remains in 4th gear and is not at its most fluid, nor is it particularly transparent with huge disparity over pricing from every buyer, each having their own ideas as to where this market is. Interestingly, several units that cash buyers purchased at the beginning of the year remain unsold which fuels further suspicion that the domestic markets are not as aggressive as would seem. Only time will tell after the latest small cluster of sales reach the waterfront and we then see which destination is the most stable market and attracts more confidence from the cash buyers”.

In a separate note, Allied Shipbroking added that “there seemed to have been a jump in the level of activity being noted in the recycling market, showing a sharp turn compared to what we were seeing one week prior. This came just in time to soothe somehow the overall thinking of a market that may well have reached a peak in the overall activity we would see moving forward. For the Indian Sub-Continent, things in India have remained firm, with Cash buyers still eager to gather as many demo candidates as possible and compete heavily on any promising tonnage that comes to market, holding a positive sentiment at the same time, following the announcement of the Indian Budget. Bangladeshi buyers have remained relatively close on the heels of their Indian counterparts, committing a fair share of tonnage sent for scrap recently. Pakistan seems to still be in a state of flux, with an eerie pause having taken place of late. It is true that the improved picture in terms of earnings combined with the upward trend of sentiment in the Dry Bulk sector has resulted to a tighter availability in demo units. There still seems to be a fair amount of demo candidates emerging from other sectors, allowing for this relatively fair flow of sales reported this past week”.

Meanwhile, in a separate note, GMS, the world’s leading cash buyer of ships, said that “following on from last, another flat week concluded in the recycling markets as a steady reluctance from recyclers to pay some of the ongoing exorbitant Cash Buyer asking prices and some reverberating volatile fundamentals (in tandem with the recently rocky international stock markets) started to tell of a nervous sub-continent recycling market. Indeed, local steel plate prices suffered another set of worrying reversals midweek (just as global stock markets started to plunge), only to find their feet in the final few days of the week, subsequently bringing some needed relief to the anxious ship-recycling sector. Several Cash Buyers are still hoping that the markets hold going into the traditionally quieter Chinese New Year holiday period, as there remain several expensive and unsold vessels in a variety of hands, all of who will be hoping for further market gains in the days / weeks ahead (rather than any declines that could prove disastrous).

Meanwhile, the VLCC market continues to shed tonnage at pace as news of yet another unit being committed, surfaced this week. This has taken the total to almost 10 units sold / beached for the year already! Overall, it does seem increasingly clear that prices will likely not breach the USD 500/LDT mark any time soon (as many were hoping for), despite some clearly over exuberant market sales having been concluded through early 2018 (which have eventually lost the relevant Cash Buyers considerable amounts on their trades). As the Chinese New Year holidays commence at the end of the coming week, it could be a quieter period (in terms of overall supply) and this should give the markets a chance to steady themselves for a renewed push on levels as February concludes”, GMS concluded.

 

VLCCs on Firmer Ground as Middle East Fixtures Rose by 82% on the week (13/02)

The VLCC tanker market was on a high over the course of the past week, as a result of increased demand for cargoes from the Middle East. In its latest weekly report, shipbroker Charles R. Weber noted that “a strengthening of demand in the Middle East market this week halted the downward rate trend of the second half of January. A total of 35 fixtures were reported there, representing an 82% w/w gain and the highest tally in four weeks. Fixture activity in the West Africa market was less inspiring: there were just four fixtures there – off two from last week’s tally – which reduced the four‐week moving average of regional fixtures to a two‐month low. Meanwhile, a small number of speculative ballasts from Asia to the Atlantic basin have returned amid the sour TCE environment prevailing in the Middle East market. Round‐trip AG‐FEAST TCEs presently yield an average of ~$11,081/day while round‐trip TCEs on the CBS‐SPORE route stand at ~$18,719/day.

According to CR Weber, “these ballasts contributed to a modest narrowing of oversupply during the final decade of the February Middle East program to 22 units after reaching a four‐year high of 30 units at the conclusion of the month’s second decade. The reduction of excess supply could help to improve rates during the coming week if sentiment is also influenced by demand strength, but any gains would likely be very modest at best, particularly as recent decline in bunker prices has broadly boosted voyage TCEs. Middle East Rates to the Far East route were unchanged at ws37 while corresponding TCEs were up 18% to ~$11,804/day on a 7% decline in bunker prices. Rates to the USG via the cape rose one point to ws19 to narrow the gap between triangulated TCEs and those on round‐trip voyages from the Caribbean. Triangulated Westbound trade earnings rose 22% to a closing assessment of ~$20,141/day. Atlantic Basin Rates in the West Africa market lagged those in the Middle East and posted fresh losses, accordingly. The WAFR‐FEAST route lost 2 points to conclude at ws42.5. Corresponding TCEs were off 2% to ~$14,479/day. Rates in the Atlantic Americas were stronger on declining regional availability. The CBS‐SPORE route gained $100k to conclude at $3.6m lump sum. Round‐trip TCEs on the route rose 18% to conclude at ~$19,088/day”.

Meanwhile, “Suezmax rates in the West Africa market were up slightly this week as availability levels slipped. The WAFR‐UKC route gained five points to conclude at ws57.5. Waning VLCC demand in the region has been incrementally increasing Suezmax cargo availability since late January loading dates – and as charterers move to work through February program this week, demand is expected to jump in line with a decline in VLCC coverage for late‐February cargoes. This could keep rates on an upward trend during the upcoming week. In the Caribbean market, rates were softer in a lag of regional Aframaxes, despite stronger demand to service US crude export cargoes and the stronger West Africa market. The CBS‐USG route was unchanged at 150 x ws60 while the USG‐UKC route dropped four points to 130 x ws48”, said CR Weber.

Finally, “the Caribbean Aframax market saw rates steady at an affective floor tested last week. The CBS‐USG route was trading in the low ws80 for most of the week, concluding unchanged w/w at an assessed ws85. Meanwhile, the USG‐UKC route lost 2.5 points to conclude at 70 x ws62.5. Owners are keen to maintain present rates as the floor with some having earlier shown resistant to trades at lower levels. The disappearance of some units late during the week from position lists will likely be pointed to as a basis for modest fresh rate gains, though it remains to be seen if this will be sufficient to add to rates given that TCEs rose 42% this week on lower bunker prices”, the shipbroker concluded.

 

Tanker Ship Owners Are on Consolidation Mode (12/02)

As tanker freight rates are still reeling under the pressure of oversupply of tonnage, more and more tanker owners are entering consolidation mode, in a bid to improve economies of scale and avoid financial problems. In its latest weekly report, shipbroker Gibson said that “just before Christmas last year, the tanker market was greeted with the announcement of the proposed merger between two NYSE quoted tanker companies, Euronav and Gener8. At the time of writing this merger has still to be approved but, if the green light is given, the joint company will own 40 VLCCs and 28 Suezmaxes (incl. 4 newbuildings). Part of the deal includes the sale of 6 Gener8 VLCCs to International Seaways, another NYSE company which will raise their VLCC profile to 16 vessels. In a separate deal, concluded in March, DHT Holdings announced the acquisition of all 11 VLCCs from the BW Group (incl. 2 newbuildings). The BW Group promptly then placed an order in May for 4 VLCC newbuildings from Samsung HI for 2019 delivery at an attractive price. These were the only major “consolidation” deals concluded in 2017 in the large tanker sector. DHT had rebuffed several takeover proposals by Frontline earlier in the year”.

The London-based shipbroker added that “the beauty of the agreed deals is that both parties would grow their fleets without adding to the existing orderbook and as a result of clever acquisitions, bring down the age profile of their respective fleets. Euronav has a good track record of smart acquisitions without adding to the orderbook. In March 2015 the company purchased 4 brand new VLCCs from Metrostar. At the same time selling off the older units at good prices to keep the fleet modern. DHT has also been very active in this area too, selling off 5 units in November (all over 17 years of age) to reduce bank debt. Based on the VLCC fleet today (excluding VLCCs on order) and assuming the Euronav/Gener8 deal is ratified, Euronav will own 5.5% of the fleet, while DHT Holdings will own 3.2%. With the recent delivery of two units, Frontline now owns 3.0%, while International Seaways ownership could rise to 2.2%. Of course, consolidation has several strategic benefits for listed companies, as size does matter, making shares more liquid and more attractive to investors. Euronav’s acquisition of the Gener8 fleet will of course swell the Tankers International Pool at the expense of the VL8 pool, providing a stronger platform to counter the charterers”.

Meanwhile, “the VLCC supply is still dominated by the Asian giants such as China VLCC, Bahri and Cosco Shipping (CSET), with NITC’s share slipping. Apart from Euronav and NITC, all of the top ten owners have tonnage on order, which will swell the ranks by another 44 units. Maran, steadfastly remaining independent, will take delivery of 9 more VLCCs before the end of 2019. However, both China VLCC and CSET have substantial orderbooks, which will eventually give them an even more dominant position. The domination of the big fleets and the diverse ownership of the remainder of the VLCC fleet, most 10 units or less, is likely to limit any further consolidation in the short term”, Gibson said.

“The volatility experienced in the US stock market this week, pinned partly by concerns over the prospect of higher interest rates coupled with the current malaise across the tanker markets, heaps more pressure on beleaguered CEOs to keep the shareholders happy. With the prognosis of a tough year ahead for the crude sector, almost certainly, owners in the large tanker sector are unlikely to have further consolidation as a priority”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, Gibson said that it was“a much busier week for VLCCs…but that’s where the good news ended as the fresh demand was easily met by a solid wall of availability that remains standing as the very last of the February programme shakes out. Rates remained stuck within their lowest range of the year at down to ws 34 East for older units, and at no better than ws 40 for the most modern vessels with straight runs to the West at under the ws 20 mark. Chinese New Year commences later next week, and Owners will be hopeful of concentrated preholiday attention, though with March stem confirmations still to be awaited, there is no guarantee of that. Suezmaxes bumbled along with ballasting from the area not an economic option and a consequent easy tonnage list kept rates at down to 130,000mt by ws 62.5 to the East and to ws 26 West. No early change likely. Aframaxes trod water over the period with little/no support from the inter Far Eastern market either. 80,000mt by ws 85 still to Singapore, and nothing likely to shift that over the near term, at least”, the shipbroker concluded.

 

Tankers’ Newbuilding Deliveries a Major Obstacle for Market’s Restoration of Balance (10/02)

The single biggest stumbling block which is hindering the crude tanker market’s recovery and is bound to continue doing so, is the excess supply of ships, a trend which isn’t going away anytime soon. In its latest weekly report, shipbroker Intermodal said that “crude oil supply has been reported to have grown by approx. 2.5% reaching 40.1m bpd in 2017. However, tanker charter rates have been under pressure and have significantly been declining since Q3 of 2017 as a result of demand-supply imbalance. Lately, Brent crude oil has hit a 3-year high evidence that OPEC’s policy for supply cuts is supporting prices. Forecasts for 2018 indicate elevated oil demand that might lead to healthier tanker rates, subject to a number of other factors as well”.

According to Intermodal’s Katerina Restis, Tanker Chartering, “IEA forecasts global crude oil demand to rise by 1.3% mainly on the back of increased imports by China and India. China’s crude oil imports increased by 800,000 bpd in 2017, representing 50% of the global oil demand growth. China’s domestic oil demand continues to grow, while inland output is respectively descending. IEA projects China’s oil import dependence to rise to 80% by 2040. Additionally, India’s crude oil demand is increasing rapidly, with the country’s import dependence reaching 82% last year. India’s imports from OPEC’s countries declined during 2017, while total imports from non OPEC producers such as US, Canada, Russia and Kazakhstan significantly increased. BP projects the country’s energy demand to rise faster than any other major economy between now and 2035. India’s oil consumption averaged 4.6 million bpd in 2017 and it is projected that the country’s crude oil demand will increase 4.3% in 2018”.

The analyst added that “it is reported that OPEC will maintain output cuts, while demand continues to grow in 2018. Non-OPEC production is estimated to grow by 1.3 million bpd, with most of it sourced from the US, paving the way for significant ton-mile demand gains, as the USG to Asia represents one of the longest hauls possible. US exports have already started to increase, a trend which is probable bound to continue as OPEC sticks to current production levels. Asian refineries have already increased their oil orders from the Caribbean and Gulf of Mexico. Concurrently, the trouble in Venezuela could discourage ton-mile growth as Europe and Asia are important consumers of Venezuelan crude and exports to these regions represent one of the longest hauls. Therefore, as US exports continue to grow, much of this benefit may be offset by declining long haul routes out of Venezuela”.

Restis also noted that “when prices trended lower in past years, inventories built up and demand for storage spiked. Respectively, such demand diminished as inventories reached peak levels and storage became rarer. Nowadays, we are in the downward phase of this cycle almost after 5 years, as inventories are being utilized. Once inventory capacities return to more manageable levels, in line with historical averages, this would allow trade flows to stabilize, which could be a sort of tailwind for the crude tanker market once it all plays out. Of course the tanker deliveries that are scheduled for this year, estimated at around 10.7 million dwt, as far as crude carriers are concerned, will most probably offset part of this expected upside”.

“A healthier crude market is expected in 2018, with analysts anticipating most of the upside to take place closer to the end of the year. As discussed, various supply-demand essentials may disturb the trade patterns and as always numerous of currently unknown risks could also present themselves during the year. Undoubtedly it looks like all of these trends will require close monitoring in the year ahead” Restis concluded.

 

CPP Tanker Ton-Mile Demand (10/02)

In examining bilateral country trade flow data, we recorded a 2.1% rise in CPP ton-mile demand distributed across the four tanker segments we analyze (Figure). At 2.23 trillion ton-miles, CPP marine transportation requirements make up 17.3% of all tanker demand, the highest on record. By comparison in 2000, CPP marine transportation accounted for just 7.79% of total tanker demand.

LR vessels represent approximately 50% of clean transportation demand. We project annualized growth of 2.0% and 2.5% for the LR2 and LR1 sectors through 2022. We are likely to see more intra-regional trading in Asia for these tankers amid increasing volumes, but between shorter distances. At the same time, the US Gulf will continue to balance out deficits in the Caribbean and South America, while Europe’s Mediterranean region will exhibit significant intra-regional trading. We project MR2 demand to grow by 1% per annum through 2022.

We note a significant turnaround in European loaded barrels headed to the Far East, particularly naphtha. The Far East market is chronically short naphtha, a product used as a feedstock for petrochemical plants, but also in gasoline blending. In 2017, we note Far East supply of naphtha increased to 2.4 million b/d, while demand accelerated by a stronger 160,000 b/d to 3.6 million b/d. On the heels of relatively strong refinery margins for the Mediterranean complex, incremental supply growth was shipped out to the East to help offset the naphtha deficit. For the LR2 tanker class, this resulted in 16% growth year-on-year, with our projected balances through 2022, pointing to continued growth of about 4.9% per annum.

 

Tanker Market: Suezmax Segment In Worst Position Among Other Classes (06/02)

Owners of Suezmax tankers are worse off than their counterparts with focus on other ship classes, said shipbroker Charles R. Weber in its latest weekly report. The shipbroker said that the Suezmax market will face a prolonged course towards recovery, as a result of a lack of enough phase-outs, compared to other tanker classes. According to the report, “a broad decline in Suezmax rates since the start of the year has seen average pushed earnings to sustained lows with average returns hovering under $3,000 /day throughout this past week. Representing merely third of average daily OPEX, average earnings stand 35% below the low observed during 2017 – at a time when the market is still at seasonal strength”.

CR Weber said that “while hosts of factors have influenced trade dynamics to the detriment of demand distributed to the Suezmax class, the drivers of the extreme scope of the earnings downturn are far from complex: global fleet supply has expanded by 17% since 2015 while demand has decline by 8%. Indeed, in order to achieve earnings equivalent to the ~$42,280/day observed during 2015, we estimate that the fleet would need shed 111 units. Instead, we project that the 2018 orderbook will produce 33 deliveries by the close of the year. Net of a projected 21 phase‐outs, the fleet is likely to expand by 2.4%. During 2019, a further 24 newbuilding deliveries and 15 phase‐outs are projected, for a net growth of a further 1.7%”.

The shipbroker added that “Suezmax demand is not isolated and the class’ ability to compete in VLCC and Aframax markets implies that any advance improvements elsewhere in the crude tanker market will be supportive, to varying degrees, of Suezmaxes.  Inversely, challenges in those markets have applied strong negative pressure on Suezmaxes in recent quarters – something evidenced by the fact that Suezmaxes presently earn considerably less than Aframaxes on a TCE basis but are more expensive for charterers on a $/mt basis for comparable voyages.   At the time of the last downturn, at their lowest Suezmax earnings were earning 56% of Aframaxes were – and indeed today, the larger class is earnings 59% of the smaller.   Typically, Suezmaxes out earn Aframaxes by 132%”.

According to CR Weber, “encouragingly, the pace of demolition sales in the crude tanker market surged during 2017 amid 38% rise in $/ldt values.   Twelve Suezmaxes were ultimately retired through such sales, partly offsetting the 51 newbuilding units delivered; between 2014 and 2016, just 10 units were retired.  Expanding the pace during 2018 could help to lift the floor during the ongoing trough market.    It would be unreasonable to expect 111 units to be quickly phased‐out in the coming months – indeed, achieving that number would require nearly every unit under 16 years of age to be demolished, something unlikely given recent major maintenance undertaken on a large portion thereof.    Simultaneously, it would not be unreasonable to expect at least some pickup. Our base‐case phase‐out assumption, which is based on a granular analysis of the likely phase‐out time for each consistent of the fleet given a range on information pertaining to attributes like ownership, construction and deployment, is for 22 phase outs during 2018”.

“In a high scrapping scenario, we would assume that the commercial disadvantages of older tonnage and the prolonged earnings lull would change the mentality of owners around scrapping sufficiently that most units under 18 years of age would be phased‐out in during the year, totaling 38 units. Assuming that similar scrapping acceleration is observed throughout the crude tanker space, the impact would certainly be meaningful: we estimate that the difference between 22 and 38 phase‐outs during 2018 for earnings could be as much as $13,000/day”, CR Weber concluded.

 

Exploiting economy of scale effects for big tankers (06/02)

When Bow Pioneer was commissioned by Odfjell in 2013, building a chemical tanker of these enormous dimensions – 228 meters in length, 37 meters wide, and with a 14-metre draught – was considered by many as a daring step. But Odfjell, planning for the longer term, ordered the vessel in anticipation of the growing demand for liquid chemicals from new and emerging economies in Asia, most notably China and India.

And since size always promises benefits of scale, a key consideration in a highly competitive industry, Odfjell wanted to be able to offer economy of scale to its large-volume-moving customers.

Solid know-how

As one of the world’s top operators in the chemical business, Odfjell is an expert in transporting “anything liquid”, as the company motto says. With a fleet of about 74 specialized ships of all sizes, both owned and chartered, and a total capacity of around 2.2 million dwt, Odfjell has solid experience in worldwide operations and is present on all main trades between the US, Europe, Asia, the Middle East and South America.

The size of the fleet gives the company the flexibility to choose just the right vessel for a given voyage or shipment, whether customers want to transport as little as 100 to 150 tonnes or as much as 50,000 tonnes of cargo. Odfjell ships carry everything from organic and inorganic chemicals to vegetable oils and petroleum products.

Other business lines include gas carriers as well as operation of tank terminals in key ports around the world, an ideal match for the tanker business.

Bow Pioneer is a good example of Odfjell’s maxim of offering utmost flexibility: the vessel is capable of carrying 86,000 cubic metres of Type 2 chemicals and other liquids in 31 separate, inorganic zinc silicate-coated cargo tanks. Setting new standards in terms of fuel efficiency and versatility, the ship encouraged several other operators to order larger chemical tankers as well.

Fuel consumption per tonne mile, the main benefit of her size, translates to reduced transport costs for commodity chemicals, especially since a larger vessel does not require a larger crew, as Odfjell CEO Kristian Mørch points out: “The number of crew is about the same whether it’s a 20,000 tonner or an 81,000 tonner.“

Expecting growing demand

While the liquid chemicals segment expected to grow 3.8 per cent in 2017, Seaborne trade typically follows the general growth trend of the global economy, and experts are predicting a growth of 2% for 2018. “Both the US and the Middle East areas are instrumental for further growth in our segment,” says Mørch. “But what matters most is stable economies in consumer regions, while our biggest threats are geopolitics and obviously, risks inherent in the global economy.”

As the demand for commodity chemicals rises, so does the profitability of Bow Pioneer and her classmates. In particular, world demand for methanol is expected to increase substantially, especially from China.

Methanol is used as a feedstock for the manufacture of other chemicals, such as biodiesel fuel, formaldehyde, polypropylene and many synthetic products. It is also gaining importance as an ingredient of low-emission vehicle and ship fuels. Methanol and other commodities transported by product tankers are mostly produced in the Middle East, where major new refinery capacities are currently being added, and in the United States, where shale gas is expected to boost methanol production.

All this means that the demand for ship sea transport is likely to increase. Apart from China, Japan and India are also expected to import significantly more of these commodities in future.

Challenges are manageable

But size can also bring challenges, such as higher port fees, the need for extra tugboats, or berthing and unberthing operations being restricted to daylight hours only. While designed to fit the new locks of the Panama Canal, the vessel nevertheless still has to undergo a few minor modifications to meet requirements unknown at the time she was built before being able to pass, and charter parties need to be updated to clarify coverage of canal costs. Furthermore, a ship carrying multiple products must deal with additional scheduling and tank cleaning tasks, and the product supply chain has to be managed carefully because loading and discharge ports change frequently.

And since the number of ships the size of Bow Pioneer is still limited, some ports lack the right infrastructure to handle them. “The vast majority of chemical vessels are limited in size by the former Panama Canal restrictions,” says Odfjell CEO Mørch. “This limits incentives for terminals to invest in their existing infrastructure. However, we see that many new terminals are being built to a larger scale to fit the size of Bow Pioneer.”

As a tank terminal operator, Odfjell can influence this development, and its own tank terminal operations offer opportunities to develop new markets. Further tank terminal projects are currently under development on Fujian and in Changxing Island, China. So all these matters can be dealt with without compromising the benefits of size and fuel efficiency. And Bow Pioneer is well equipped to comply with upcoming environmental regulations as well, with a certified ballast water treatment system installed and a monitoring plan and emission reporting system in preparation.

 

Tanker Freight Rates At Below Operating Expenses Despite Seasonality Factor (05/02)

Although hardly a surprise, as most market delegates and shipowners were expecting a weak tanker market anyhow, January has proven to be quite the disappointment for tanker owners. Freight rates have fallen at below operating expenses rates, despite the fact that this part of the year should be a positive seasonality factor. In its latest weekly report, shipbroker Gibson said that “for quite some time the consensus in the crude tanker market has been that 2018 will be a disappointing year in terms of industry earnings. However, the extreme weakness in spot TCE returns across all tanker categories in January still left many surprised, taking into the account the traditional support lent to the market during the winter season. Spot TCE earnings on the benchmark VLCC trade from the Middle East to Japan (TD3) averaged just under $13,000/day at market speed last month, an unprecedented level for January since the turn of the century. The performance on key trades for other crude tanker segments was even worse. Spot earnings for Suezmaxes trading West Africa to UK Continent (TD20) averaged $6,500/day, while Aframaxes trading across the North Sea (TD7) returned on average $4,500/day over the course of last month, in both cases insufficient to cover fixed operating expenses”.

The shipbroker added that “without doubt, such a poor performance is largely attributable to OPEC-led production cuts, coupled with the rapid growth in the crude tanker fleet. Crude production in the Middle East, the largest load region for VLCCs and an important demand source for Suezmaxes and Aframaxes, is now at similar levels relative to volumes produced in early 2016, while the fleet size is notably bigger. At the start of 2018, the VLCC fleet stood at around 720 units, nearly 80 vessels more than in the beginning of 2016. In addition, back in 2016 a sizable portion of the VLCC fleet was tied up in Iranian and non-Iranian storage. This is no longer the case. VLCC storage of Iranian crude and condensate ceased to exist in November 2017, while storage of non-Iranian crude declined dramatically over the past three months. Overall, over 20 VLCCs were released from floating storage duties between January 2016 and January 2018, with the vast majority of these tankers resuming trading operations”.

According to Gibson, “the Suezmax and LR2/Aframax supply also witnessed a spectacular growth, with the fleet size up by 50 and over 75 units respectively over the past two years. In addition to the developments in the Middle East, crude trade on the Suezmax key route from West Africa to Europe remains weak, despite recovering Nigerian output. This is primarily due to the rebound in Libyan output, which has reduced the European refiners’ appetite for West African barrels. Furthermore, more crude is also being shipped from the US to Europe. The same factors aid Aframax demand; however, at the same time there has been a decline in Aframax trade from Latin/South America to the US, mainly due to lower flows from Venezuela. Finally, generally favourable weather conditions in January in a number of regional markets meant less weather driven delays and disruptions, one of the key support factors to the market during this time of the year”.

The shipbroker noted that “going forward, there could still be a few weather driven spikes in rates, particularly in the Northern Hemisphere. However, the rapid fleet growth will continue, as the anticipated pick up in demolition activity will provide only a limited relief from plenty of new deliveries expected to enter the trading market this year. To reverse the current fortunes, owners need notable increases in trading demand. At the moment, rising crude exports out of the US is the key area for growth but the industry also needs to see strong gains in exports in other parts of the world”.

Meanwhile, in the crude tanker market this week, Gibson said that it was “another difficult week for VLCC Owners here as Charterers see no reason to fix too far forward as the oversupply of tonnage again dictates. We may start to see Owners become apathetic and withdraw from the field of play until there is a necessity to fix. Currently levels achievable going East are 270,000mt by ws 39 and 280,000mt by ws 18 cape/cape to Western destinations. Suezmax rates have come under further pressure this week and in the earlier part of the week rates to the West bottomed at 140,000mt by ws 25 and after a flurry of activity rates only slightly rebounded up to ws 27.5. The East has seen little activity and levels remain suppressed at 130,000mt by ws 62.5/65. The Aframax outlook in the East remains bleak with rates slipping further this week. AGulf-East runs are now down to 80,000mt by ws85 even after a flurry of activity in the Agulf”, the shipbroker said.

 

Clean Tanker Market: New Bunker Specification Will Redefine Global Product Balances, Shifting Trade Flows and Tanker Demand (30/01)

A clear correlation between low product oil stocks and increased opportunities for tanker seaborne trade hasn’t been the case recently, as trade flows are in flux. In its latest weekly market report, shipbroker Gibson attempts to highlight the changing dynamics in the product tanker segment. It noted that “high product stocks, which have been a feature of the market in the wake of strong refining runs in recent years, can be a key barrier to international products trade. Therefore, Gibson closely monitors developments in refined product inventories to forecast tanker demand. However, in recent times, developments in onshore product inventories haven’t necessarily translated into the improved opportunities for product tankers. Is this a sign of changing dynamics or are other factors in play?”

According to Gibson, “looking at the latest data from the IEA on middle distillate and gasoline stocks, shore based inventories in OECD nations have returned close to historical averages. The latest data from November points to OECD gasoline and middle distillate stocks being just 10 million barrels above the five-year average, down from 100 million barrels above historic trends at the start of the year. This should therefore translate into increased products trading. However, when analysing stocks and trade into the key product hubs, lower stocks have not necessarily translated into higher seaborne imports”.

The London-based shipbroker added that “in the key distillate importing Antwerp-Rotterdam-Amsterdam (ARA) region, refined product stocks fell towards the end of 2017 to 1.917 million tonnes, down by 1.75 million tonnes from 2016’s peak. Historically, ARA has been a key outlet for US diesel cargoes, making stocks in the region an important barometer for product tanker demand in the Atlantic. However, even with a substantial fall in stocks, there has been limited impact on trade volumes from the US into the region. Whilst this has been partly driven by higher output in the region, a key factor behind this appears to be an insatiable appetite for US products in Latin America, which has often become a more attractive outlet for US exports”.

Meanwhile, “on the other side of the pond, gasoline stocks in the key US Atlantic Coast import hub currently stand at 63.219 million barrels, down 12 million barrels after peaking in early 2017 and the lowest seasonal level in 4 years. Has there been any material impact on gasoline trade from Europe to the US? No, volumes are down year on year, and would probably be lower had hurricane Harvey not disrupted US refining capacity last summer. Again, for European suppliers, other markets have proved more attractive, most notably West Africa (as covered in our 8 th December 2017 report) and at times, Eastern destinations. In the Far East, stocks remain elevated. Singapore inventories, which provide the most timely indication of regional supply and demand have built up substantially after dipping throughout the second and third quarters. Such stock levels have made trading arbitrage barrels of naphtha, particularly from the West, more challenging of late, whilst higher exports from China also compete with supplies from other regions”, said the shipbroker.

Of course, “the fundamental factors are set for a step change once again in just a few years’ time. Expanding refining capacity in the Middle East from 2019 onwards, and the change in the bunker specification will redefine global product balances, shifting trade flows (and tanker demand) accordingly. Yet in the short term, the key demand drivers emanate from developing nations with limited storage, insufficient refining capacity and incomplete data, making forecasting product tanker demand an interesting challenge” Gibson concluded.

Meanwhile, in the crude tanker market this week, Gibson said that “VLCCs spent a slow-paced week searching for a bottom to the market. The ‘blip’ of a couple of weeks ago can more certainly be marked as a dead cat bounce, and an ongoing swathe of availability will continue to act as a heavy drag anchor to any further hopes of re-inflation. Levels to the East dipped into the low ws 30’s for older units with down to ws 18 cape/cape paid to the USGulf. Suezmaxes found reasonable short haul attention, but that could never be enough to positively influence the wider market and with India on holiday on Friday, even that cargo flow dried up. Rates settled at down to 130,000mt by ws 65 to the East and to ws 27.5 to the West with little early change likely. Aframaxes bobbed along on modest interest and rates remained set at ws 92.5 to Singapore accordingly with similar levels anticipated over the next phase too”, the shipbroker concluded.

 

Tanker Market: Will Oil Demand Growth in 2018 Turn Things Around? (27/01)

With oil prices hitting new highs by the day, things are getting more complex in the tanker market. However, if some projections about oil demand growth prove to be real in 2018, tanker owners could be in for a positive surprise in terms of freight rates. In its latest weekly report, shipbroker Allied Shipbroking said that “brent oil futures hit a three year high on January 16th touching around USD 70.30 before falling back down to around USD 68.60 at the time of this publication, the former figure being the highest it has seen since December 2014. This has been in part due to the weakened US dollar, a massive decrease in the total global crude storage, as well as the highest rate of OPEC conformity to their oil production cuts, which was announced this past week in the Joint Ministerial Monitoring Committee (JMMC), in Muscat, Oman. The committee is made up of OPEC and non-OPEC member states, and although its primary goal was not to discuss further production cuts, the question was on the table as to whether they would continue their plan through to 2019. The answer to that is very much like a social media relationship status, “Its Complicated”.

According to Allied’s Research Analyst, Gerry Lathrop, “as previously mentioned, oil prices are hovering around a 3-year high, having increased by at least 10% since OPEC’s last meeting in Vienna this past November, and more than 50% from 6 months ago. On the supply side, the number of US oil rigs in 2017 and 2018 reached a new high, surpassing the number of rigs operating in 2016, and leading to a 16% rise in US oil production which peaked at around 9.75m b/d. The International Energy Agency raised its forecast for US production growth to 1.35m b/d for this year, making up by far the biggest chunk of supply growth outside of OPEC countries. The IEA then went on to say, US crude production is on course to overtake Saudi Arabia and rival Russia, as it made an upward revision on its 2018 growth forecast and stressed that “explosive” expansion in shale was offsetting OPEC-led supply cuts”.

Lathrop added that “the IEA, which is the latest body to raise US estimates, following the US energy department’s statistics arm and OPEC’s own research unit, has said: “This year promises to be a record-setting one for the US.”US growth of nearly 1.4m barrels a day, to a record 10.4m b/d, will help propel non-OPEC supply by 1.7m barrels a day in 2018 (Total output from outside the cartel is forecast to reach 59.8m b/d), dwarfing the level of supply cuts in OPEC crude output. But its not all smooth sailing for people in the downstream oil market, the recent OPEC-led rally in crude prices is hitting refinery profits hard, flashing warning signs over oil’s bull run. Higher oil prices typically quench consumption and squeeze profit margins at refiners that convert the feedstock into products”.

Allied’s analyst went on to note that “benchmark profit margins in key refining hubs dropped sharply in recent weeks – by over 50% in the U.S. Gulf Coast and northwest Europe, Reuters data shows – increasing expectations that some refiners will reduce operating rates. However, a wave of refinery maintenance scheduled in spring could eventually put a downward pressure on crude itself. According to the IMF’s most recent upward revisions on its estimates for global economic growth, we are currently witnessing some of the strongest growth figures in years and these (relatively) low oil prices could well boost global oil consumption by a further 1.3m b/d this year, a number the IEA acknowledges is “conservative” compared with other forecasts. Others have predicted demand growth could approach 2m b/d this year, more than double the rate of 2011-2014. Given the above, 2018 could well prove to be the turning point in the tanker market that all of us have been hoping for or at least the spark that sets it in motion”, he concluded.

 

Tankers: McQuilling Services Predicts Weak Freight Market for 2018 (24/01)

McQuilling Services is pleased to announce the release of its 2018-2022 Tanker Market Outlook. This 200-page report provides a five-year spot and time charter equivalent (TCE) outlook for eight vessel classes across 23 benchmark tanker trades, plus four triangulated trades. Also included in the report is a robust five-year asset price outlook as well as a one and three-year time charter forecast through 2022.

With 21 years of tanker rate forecasting expertise, McQuilling Services is a leader in the industry and continues to support a variety of stakeholders in the energy, maritime and financial services industries with its annual Tanker Market Outlook.

Methodology

The McQuilling Services rate forecast is based on the evaluation of historical and projected tonnage supply and demand fundamentals in the tanker market within the current and projected global economic environment, including oil supply and demand expectations. The forecasting process begins with the development of quantitative models, which are used to measure the correlation between historical freight rates and tanker supply and demand. This fundamental approach has proven to be reasonably predictive over the past 21 years. However, the forecasting process evolves past the modeling stage when the quantitative results are balanced with experiential knowledge and reasonable market assessments.

Key findings from 2017

In 2017, global ton-mile demand to transport crude and residual fuels increased by 5.4%, supported by a 4.9% increase in VLCCs (which accounted for 62% of the total demand for dirty tankers). Suezmax demand accounted for 24% of all DPP demand in 2017, 1% higher than 2016 due to higher crude exports from the Southern Europe and North Africa load region towards the Asian refinery complex.

We note the Middle East’s largest producer, Saudi Arabia, cut crude exports to every region in 2017, except the Far East, where traded tons rose 2.4% using official trade data through September 2017. Contrarily, exports to North America were markedly lower by about 7-9% amid rising North American crude oil production and de-bottlenecking from improved land-based infrastructure.

In examining bilateral country trade flow data, we recorded a 2.1% rise in CPP ton-mile demand distributed across the four tanker segments we analyze. At 2.23 trillion ton-miles, CPP marine transportation requirements make up 17.3% of all tanker demand, the highest on record.

For 2017, we estimate that LR1 transport demand declined by 2.4%, following a 3.0% rise in 2016. With the estimated amount of transported tons remaining stable year-on-year at around 119 million, the reason for the ton-mile contraction can be explained by a reduction in mileage from 3,703 miles per voyage to 3,618.

Throughout 2017, we recorded 145 dirty vessels delivered to the fleet, an acceleration of deliveries when compared to the 101 ships observed in 2016. The Suezmax sector expanded significantly with a net fleet growth of 45 ships. On the clean side, we observed a similar trend with vessels additions rising from 55 in 2016 to 71 in 2017, additionally we also observed 60 MR chemical tankers join the fleet.

Vessel deletions totaled 91 ships in 2017, 64 from the dirty side and 27 from the clean side. About half the removals were dedicated to the VLCC and Aframax sectors with 24 and 25 vessels removed, respectively. In the clean space, we observed 27 deletions with the majority in the MR space at 21 vessels, while four LR2s and two LR1s were removed.

Newbuilding ordering activity rose 64% year-on-year in 2017 within the DPP sector amid much higher interest in the VLCC and Aframax segments. In 2016, 19 VLCCs were placed on order, which rose to 51 in 2017. Suezmax and Aframax orders also increased rising to 23 and 34 newbuilding contracts, respectively. Clean tanker ordering activity through 2017 represents a decline in comparison to the previous five years with 16 LR2s and five LR1s contracted. In the MR2 space, 67% of orders were chemical tankers, while in the handysize segment, owners increased this percentage to an absolute 100%, the first year this has occurred.

Looking forward

Global economic activity strengthened in 2017, following a year of the weakest growth since the financial crisis at 3.2% in 2016. According to the International Monetary Fund, global growth is on track to expand 3.7% in 2018, an upward revision from previous expectations.

Global crude demand is expected to rise by 840,000 b/d in 2018 amid significant growth in the East on the back of expanding refinery capacity. Global crude supply is projected to rise by 1.5 million b/d in 2018, despite continued efforts from OPEC and non-OPEC countries to rebalance the markets and normalize inventory levels.

Crude and residual fuel ton-mile demand is projected to increase by about 1% on an annual basis throughout the forecast period with a decelerating trend observed in the outer years of our forecast. We project 2018 demand growth of 1.8% supported by higher long-haul West to East crude flows, particularly out of the US Gulf, Brazil and Europe with pressure on demand continuing from reduced Middle East flows to the US.

We project a net fleet growth of 155 dirty ships through 2022 on the back of 591 deliveries and 436 deletions. Substantial growth of about 72 vessels is forecast for the VLCC fleet, while the Panamax fleet is on track to contract over our forecast period, as owners place emphasis on coated tankers of this size. On the clean side, we expect a net fleet growth of 56 vessels over our forecast period as the LR fleet expands, while the MR CPP fleet contracts; however, we note that the MR chemical fleet will continue to grow over this period.

On the basis of supply side pressure as well as demand indicators pointing to decelerating growth, we expect 2018 to be a weak year for rates of all dirty tanker classes with VLCCs averaging around US $21,700/day and Suezmaxes averaging US $12,100/day.

The story is quite different on the clean side of the market as supply fundamentals improve with growing demand. Spot market earnings in the LR2 and LR1 sectors are projected to average around US $14,600/day and US $13,100 in 2018, respectively. MR earnings on a round-trip basis are, in general, expected to rise in 2018 with TC2 TCEs averaging US $8,800/day; however, higher earnings of US $14,900/day can be attained on the basis of the Atlantic Basin triangulation. Potential for supply side pressure on clean freight rates becomes evident in 2020 based on analysis of our new long-term delivery forecast methodology.

The relationship between time charter rates and spot market earnings was strong in our analysis and formed the foundation for our time charter forecasts. For VLCCs, we project 1-year and 3-year time charter rates to average US $27,000/day and US $29,500/day in 2018, respectively.

Our 2018 price forecast for the 5-year old crude tanker sectors sees VLCC values averaging US $62.6 million, a 3.5% increase from the 2017 average price of US $60.5 million. Modern Suezmax tankers are projected to demand US $41.2 million in 2018; however, by 2022 we project the values of these tankers to reach US $51.2 million amid a pickup in earnings.

Clean tankers of this age group (5-year) are expected to see higher prices relative to their 2017 averages. For the LR2 space, we forecast a 2018 average price of US $37.1 million, a 5.0% increase from the average price recorded in 2017, while the LR1 sector is expected to see larger gains of 11% year-on-year to average US $31.2 million. The MR2 tanker is likely to appreciate 15% to US $27.1 million.

What’s New in 2018?

In the 2018-2022 Tanker Market Outlook we have incorporated a variety of new features to provide our clients with a more robust view of global trade flows and major tanker trades:

Enhanced vessel demand data for European land-locked countries with access to neighboring country ports, supporting our ability to exceed 95% coverage of global trade flows

Refined our long-term vessel delivery forecast methodology utilizing regression analysis of historical fleet behavior to forecast future deliveries in conjunction with the current orderbook

Adjusted our deletion profiles to factor in historical deletion patterns and apply corresponding ratios to each sector in order to gain a more accurate view of fleet evolution

Developed a spot rate/TCE forecast for the Suezmax AG/Med route in response to the robust growth of Middle East crude flows into Europe

Added two LR2 trades AG/UKC and Med/Japan as well as one LR1 trade South Korea/Singapore to expand our coverage of the clean sector and produce two triangulated voyages for the LR sectors.

 

VLCC Surplus in the Middle East Set for Reduction in the Coming Weeks Says Shipbroker (23/01)

A looming fall in VLCCs’ availability in the Middle East over the coming weeks could help boost the freight rate market in the weeks to come. According to the latest weekly report from shipbroker Charles R. Weber, “VLCC rates moved broadly higher this week as participants reacted to a narrowing Middle East availability surplus that materialized during January’s last decade loading program. The gains came despite a slowing of demand in the Middle East as draws on the region’s positions to service West Africa demand rose for a third consecutive week. The Middle East market observed 20 fresh fixtures, representing a 46% w/w decline. Meanwhile, demand in the West Africa market inched up by one fixture to a one‐month high of ten. Average earnings on AG‐FEAST routes surged 93% y/y to ~$20,411/day”.

According to CR Weber, “the supply/demand positioning appears set for successive further narrowing during the first half of the February program. We presently project that, net of draws to the Atlantic basin, Middle East availability will decline from January’s end‐month surplus of 16 units to 14 units at the conclusion of February’s first decade. Looking further ahead, the surplus could drop to 9‐11 units by mid‐February (though we note that there is greater uncertainty around mid‐month availability given the potential for “hidden” positions and/or a weakening of West Africa demand). Nevertheless, the 14 surplus units projected at February 10th represents the lowest surplus since November, when AG‐FEAST TCEs averaged ~$27,698/day, implying that there is further upside potential. Indeed, based on the first decade’s supply/demand positioning, our model suggest an AG‐FEAST TCE of around $25,000/day. An expected increase in Middle East demand during the upcoming week should allow owners to capitalize on the improving fundamentals, though it remains to be seen how a high presence of commercially disadvantaged units will influence rate progression. These units represent 29% of the position list through February 10th and 24% of the position list through February 15th.  A most likely scenario is for a wider rate differential between competitive and disadvantaged units, though this is subject to a normal distribution of inquiry between requirements that can and cannot work disadvantaged tonnage”, said the shipbroker.

In the Middle East, CR Weber noted that “rates to the on the AG‐JPN route surged 10.9 points to conclude at ws48.5 with corresponding TCEs rallying 91% to ~$21,921/day. Rates to the USG via the Cape added 2.5 points to conclude at ws22.4. Triangulated Westbound trade earnings rose by 17% to ~$20,340/day. In the Atlantic Basin, rates in the West Africa market were stronger in line with the trend in the Middle East. Rates on WAFR‐FEAST routes added 4.6 points to conclude at ws48.4. Corresponding TCEs rose by 30% to ~$18,572/day. Rates in the Atlantic Americas market continued to pare early‐month losses in line with last week’s improvement in demand and improving overall VLCC sentiment. The CBS‐SPORE route added $100k to conclude at $3.50m lump sum. Round‐trip TCEs on the route rose 9% w/w to ~$16,385/day”, the shipbroker concluded.

Meanwhile, in other tanker segments, “the West Africa Suezmax market was modestly stronger this week a charterers were busy working cargoes in January’s final decade, during which the spot cargo availability for Suezmaxes was at a one‐month high.  Rates on the WAFR‐UKC route added 2.5 points to conclude at ws57.5.  The positive direction of rates appears to have been arrested by a progression into early February dates, within which availability levels appear to have inched up slightly. Rates in the Caribbean/USG market were slightly softer at the close of the week after regional demand declined 25% w/w and the class’ $/mt premium to regional Aframaxes undermined demand for intraregional Suezmax voyages. The CBS‐USG route shed 5 points to 150 x ws60 while the USG‐UKC route was unchanged at 130 x ws52.5”, CR Weber said.

 

Tanker Demolitions in 2017 Reached 85 Ships of Over 25,000 dwt, As Prices Increased Says Gibson (22/01)

Tankers sold for demolition last year were one of the few silver linings, as activity rose on the back of diminishing freight rates. In its latest weekly report, shipbroker Gibson reported that “one of the few bright spots for the tanker market last year was the notable increase in recycling sales. Of course, this could be viewed as a double-edged sword as many of these sales could Ahave been a result of poor earnings across most of the tanker market sectors. Another factor to consider is that lightweight prices gained steadily throughout 2017, closing the year just shy of $450/ldt for sub-continent sales. By the end of December, lightweight prices for tankers were approx. $100 tonne higher than the corresponding month in 2016. However, tanker recycling activity could only improve after the low level of sales recorded for 2015 and 2016 and lightweight prices have continued to rise into the new year which we hope will attract more sales”, the shipbroker said.

According to Gibson’s data, “in deadweight terms tonnage sold for demolition in 2017 amounted to 9.78 million tonnes, 86 units (25,000dwt+). The young age of the tanker fleet continues to be a barrier to sales, however, changes to OPEC production quotas began to bite in 2017 and unlike the previous year, the continuous stream of newbuildings across most sectors began to impact on earnings heaping pressure on older units. Older tankers found it increasingly difficult to get traction in the market and some owners may have found lightweight prices to be tempting”.

The shipbroker added that “last year we witnessed 11 VLCCs committed for demolition (average age 21.5 years), with the last sale in December, PLATA GLORY (built 1999) achieving the highest reported lightweight sale price at $438/ldt. Five Iranian controlled VLCCs were sold to Indian breakers, accounting for 1.5 million dwt. Of the 86 tankers sold last year, Bangladesh breakers took 46 units (5.1 million dwt), while India took 35 (4.3 million dwt). The final destination of the remaining five units is yet unknown. Pakistan remains absent from tanker demolition for the moment, following a series of explosions at recycling facilities in 2016. Twelve Suezmaxes (average age 22.5 years) and a sizable 30 Aframax/LR2 sales (average age 21.4 years) were concluded, the highest number since 2013. Our statistics above include only tankers removed from the conventional trade for demolition. However, five additional VLCCs were removed permanently from the trading fleet to take on FSO/FPSO duties, which accounted for the removal of a further 1.5 million deadweight”.

According to Gibson, “last January we alluded to the impact that pending legislation would have on demolition sector. In the event the IMO bowed to pressure to lessen the impact on owners softening the implementation of the Ballast Water Treatment convention (BWT). Owners have now turned their attention to the new 2020 sulphur limits, which we believe in combination with BWT, will exert greater pressure to increase scrapping levels as we head towards the end of the decade. The recent price hikes in bunkering costs could also heap pressure on owners to scrap, particularly for tankers with less efficient bunker consumptions. Tanker market fundamentals have changed considerably from a year ago, all of which could combine to be the catalyst for higher levels of removals in the near future”, it concluded.

Meanwhile, in the crude tanker this week, in the Middle East, Gibson said that “a lone, last minute VLCC deal to the East at the very close of last week that paid a noticeable premium, jolted the market into a vigorous, and positive, reaction at the opening bell this week, and the relief/euphoria drove rates up to a peak ws 62.5 East as a result. Thereafter, Charterers looked around to see that good availability remained, and decided to shut the taps once again, demand then softened somewhat, and older units accepted down to ws 50 also. A more cautious approach likely over the next phase. Suezmaxes bumbled along with only modest interest hitting up against easy supply – rates remained stuck at around ws 70 (18 Worldscale) to the East and sub ws 30 (18 Worldscale) West with no real cause for early change. Aframaxes kept flat through the week, but are now starting to resist ‘last done’ 80,000mt by ws 92.5 (18 Worldscale) numbers to Singapore and may add a little to the scoreboard next week”, the shipbroker said.

 

Tankers: December Market at a Standstill (20/01)

Unlike the usual seasonal pattern, in December dirty tanker spot freight rates in general did not show any remarkable gains. Average dirty tanker spot freight rates were almost stable from a month before to stand at WS78 points, pressured by a decline of WS10 points in average spot VLCC freight rates during the month on the back of high vessel availability while tonnage demand remained limited, thus unable to support any growth in rates during the month. The increase in vessel capacity during 2017 weighed heavily on tanker market profitability as a clear sign of the current imbalance in fundamentals. Moreover, a reduction in transit delays – mainly in the Turkish straits – was another factor that led to a lack of support for spot freight rates in December. Suezmax and Aframax spot freight rates showed minor gains, with the market also affected negatively by ample vessel supply as seen in the larger vessel markets. Clean tanker spot freight rates strengthened in west of Suez as a result of more balanced conditions, as vessel availability was tighter, which led to a significant gain for medium-range tankers, mainly in the Mediterranean.

Spot fixtures

Global fixtures went up by 22% in December, compared with the previous month. OPEC spot fixtures rose by 1.62 mb/d, or 15%, averaging 12.8 mb/d, according to preliminary data. An increase in fixtures was registered in all regions, up by between 10% and 22% from the previous month. Compared with the same period a year earlier, all fixtures were higher with an only exception on the Middle East-to-East route.

Sailings and arrivals

Preliminary data showed that OPEC sailings rose by 0.5% in December, averaging 24.10 mb/d, remaining 0.6 mb/d, or 0.2%, higher than in the same month a year earlier. Arrivals in North America, Europe and Far East were up from the previous month, while West Asian arrivals declined by 0.32 mb/d, to average 4.55 mb/d

VLCC
In December, VLCC spot freight rates diverged from the usual pattern during the peak winter season, with average monthly VLCC spot freight rates dropping to the lowest level in 4Q17. The VLCC market was mostly flat over the month, as it did not benefit from the usual rising seasonal trend as vessel demand remained weak and earnings remained low on most routes. Furthermore, rates were under pressure on all selected routes as vessel supply remained ample. Freight rates continued declining despite some improvement in tonnage demand in the week ahead of the holidays, as the number of inquiries remained scarce in comparison to a high number of idle ships. Lack of delays and slow movement in the market also contributed to the fall in rates.

The imbalance in the market came mostly as a result of continuation of newly built deliveries to the market seen during the year. The drop in freight rates was registered on many routes as high vessel availability existed on all major trading routes. The highest monthly decline in freight earnings for tankers was seen on the Middle East-to-East route, dropping by WS15 points from a month earlier followed by rates registered on the West Africa-to-East route, where earnings declined by WS12 points to stand at WS57 points. Levels for West Africa were weak as the market suffered from general weak tonnage demand. Tankers operating on the Middle East-to-West route saw a drop in spot freight rates, down by WS3 points from the previous month, to stand at WS25 points. VLCC freight rates in December showed a drop on a monthly and annual basis on all selected routes, with no exceptions.

Suezmax
Suezmax spot freight rates showed some increases in December, though remaining below the levels seen in the same month a year before. Average Suezmax rates increased by WS6 points compared with the previous month. The gains in Suezmax rates were halted by charterers continuing to attempt to control the market and preventing rates from increasing despite an occasional increase in activity in West Africa, the Black Sea as well as some other areas. On the other hand, limited delays at the Turkish straits also prevented rates from registering remarkable gains at any stage of the month. Therefore, vessels operating on the West Africa-toUS route rose by WS8 points, to average WS87 points, while rates for Northwest Europe-to-US routes increased by WS4 points to average WS66 points. In December, Suezmax tonnage supply was sufficient despite an occasional thinning in vessel availability.

Aframax
Aframax average spot freight rates went up by WS8 points in December. The gains were driven by higher freight rates seen by tankers operating on the Caribbean-to-US route, where they averaged WS160 points showing a remarkable increase of WS43 points from the previous month, and a rise of WS23 points from the same month a year earlier. Firm sentiment in the Caribbean lasted for some weeks in December before rates started to gradually decline, as tonnage availability started to build up. On the other hand, Aframax rates on all other reported routes dropped from a month earlier. Vessel availability in the spot market was ample and many markets were lacking activity. Spot freight rates for the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes declined by WS2 and WS3 points, respectively, to stand at WS100 points and WS96 points, respectively. Aframax freight rates in the East were no exception. They dropped on the Indonesia-to-East route by WS9 points to average WS101 points.

 

Tonnage on the Water (20/01)

A beginning inventory figure for the eight vessel classes we track is extracted from our proprietary database during the Tanker Market Outlook process. For the clean sectors, we historically calculated supply for product carriers and IMO 3 class vessels only; however, are now including the Chemical IMO 2 fleet due to its increasing utilization for the marine transportation of refined products amid volatile chemical tanker demand. Chemical ships with an IMO II/III designation are evaluated on a monthly basis to determine whether their classification has changed and updates are reflected in our inventory numbers.

Throughout the year, we monitor additions to the fleet which are added to the inventory, while deletions, which are a result of vessels being sold for scrap or offshore conversion, are removed from inventory counts. The net result is the ending inventory and the average inventory for the year (beginning plus ending inventory divided by two).

At the start of 2018, the dirty tanker fleet consisted of 2,082 ships. The VLCC fleet begins the year with 711 vessels from an initial 2017 inventory count of 686, a 3.6% increase. The Suezmax segment began 2018 with 562 ships in its trading fleet; a significant increase of 8.7% from 2016’s starting level of 517 vessels.

The second largest dirty tanker fleet by number of vessels, the uncoated Aframaxes, commenced 2018 with 699 ships on the water, representing growth of only 1.0 % year-on-year. Crude carrying Panamaxes totaled 110 at the start of 2018, one ship decrease year-on-year.

The clean and refined product tanker fleet at the beginning of 2018 totaled 1,769 vessels, excluding vessels with IMO I and II classifications in January 2018. The MR2 class represents about 49% (down from 54% at the beginning of 2017) of the clean tanker fleet with 872 trading vessels on the water. MR2 sized vessels with an IMO II designation at time of writing totaled 714, up from 661 at the beginning of 2017, while chemical MR1 ships increased from 303 to 315 over the same period. At the start of 2018, there were 329 LR2 tankers (2 with an IMO II classification) in service, while we counted 289 LR1 sized vessels, up from 273 vessels at the beginning of last year, a 5.9% increase.

 

Tankers: Tonnage Oversupply to Remain an Issue during 2018 says Shipbroker, as VLCCs’ Earnings Could Fall by 30% (19/01)

Those who predicted that 2018 would be yet another challenging year for the tanker market, after a dismal 2017 as well, haven’t been far off. In fact, as shipbroker Charles R. Weber reiterated in its latest weekly report, things could very well stay that way for quite some time. In its latest analysis, the shipbroker said that “crude tanker earnings have commenced 2018 at seasonal lows not observed in decades as a large, ongoing newbuilding program continues to undermine fundamentals. Crude tanker earnings declined during 2017 by an average of 45% from 2016, led by a 46% decline in VLCC earnings to ~$25,309/day while Suezmaxes shed 45% to ~$13,838/day and Aframaxes fell 44% to ~$13,101/day. The annual averages in each segment were heavily supported by seasonal strength during 1Q17 which appears to elude the market presently, implying a potentially horrendous year for average earnings during 2018. Our base expectation is that VLCC earnings will conclude the year with a 30% y/y decline to under $18,000/day. We project a 40% y/y decline for Suezmax earnings to $8,250/day and a 12% y/y decline in Aframax earnings to ~$11,500/day”.

According to CR Weber, “supply Fleet growth remains the key catalyst to the prevailing earnings environment with a long list of units ordered between 2013 and 2014 delivering during 2016 boosting capacity. A subsequent wave of orders penned during the strong earnings environment of 2015 extended high levels of newbuilding deliveries during 2017 – and is ongoing. Phase‐outs concluded 2017 considerably above expectations as stronger $/ldt values against poor earnings incentivized a surge in demolition sales activity across all size classes while an improving offshore market saw conversion works progress on a number of units held for conversion in the VLCC space. All told, some 23 VLCCs were phased out during 2017 – a considerable increase from the just two and three units phased‐out during 2015 and 2016, respectively, and the most since 2011. Twelve Suezmax units were phased out, up from zero and one during 2015 and 2016, respectively and the most since 2012. Thirty‐three units were phased‐out from the Aframax/LR2 asset class, up from 6 and 9 during 2015 and 2016, respectively and also the most since 2012”.

The shipbroker added that “despite the stronger phase‐outs, net fleet growth was still high during the year (if lower than the more extreme levels observed during 2016), clocking in at 4.0% for VLCCs, 8.4% for Suezmaxes and 3.2% for Aframax/LR2s. For 2018, we project net fleet growth of 3.9% for VLCCs, 3.2% for Suezmaxes and 3.3% for Aframax/LR2s. While these levels are broadly within range of historical annual averages, coming on the back of the past two years’ fleet growth levels, any positive net supply growth would only serve to delay a progression into earnings recovery”.

In terms of demand, CR Weber says that “collectively, crude tanker demand rose by 4.0%, though a secular look shows that only VLCCs concluded in positive y/y territory. Demand for VLCCs returned to growth during 2017, posting an increase of 11% after a contraction of 4% during 2016. The gains were supported, in part, by an increase in voyages to Asia from the Atlantic basin, particularly during 1H17 due to OPEC supply cuts heavily distributed to Middle East producers and during September and October as US crude exports surged amid long‐lasting US Gulf Coast‐area refining outages after Hurricane Harvey and other storm systems”.

“Inversely to VLCCs, Suezmax demand was undermined during 1H17 due to OPEC supply cuts as more voyages from the Atlantic Basin to Asia oriented to VLCCs reduced cargo availability for the smaller class. These losses were partly offset by rising US crude exports (28% of which were serviced by Suezmaxes), but overall demand for the class concluded with a 1.3% y/y contraction. Aframax demand was the hardest hit among its crude tanker counterparts. Like Suezmaxes, demand losses on key routes were partly offset by gains in ex‐USG crude cargoes (for which the class serviced the lion’s share of 42%), but these did little to stem contraction in intraregional Caribbean voyages, and contractions in nearly all other markets. Overall, the class saw demand decline by 10.8%”, CR Weber concluded.

 

Tanker Fleet Utilization: Supply Rose by 12% in 2016/2017 (18/01)

The concept of real time demand using remotely sensed vessel position data is predicated on the ability to draw conclusion about a vessel’s condition at a certain point in time. The ability to capture daily demand is a step change in current methodologies of assessing ton-mile demand. Historically, tanker demand (measured by ton-miles) relied upon lagging data, often times incomplete and revised at a later point. Delving further into daily demand data, we explored the delineation of the data to account for disadvantaged tankers. At this stage, the definition is simplified to include vessels that are over the age of 15 on a given day. As we continue to “fine-tune” our process, we intend on expanding this definition to include vessels that are exiting dry-dock and are engaging in their maiden voyage.

In 2017, we measured an average of 137 million ton days for the VLCC fleet. A quick extrapolation of th