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Industry Opinions

 

VLCC Orderbook Poses Challenge for Earnings Outlook
March 01, 2013
VLCC sector earnings continue to languish as recent rate movements broke through previously estimated seasonal support levels. TD1 spot rates have fallen into the teens, while other Baltic VLCC routes have also dropped precipitously in the new year. Furthermore, time charter rates are well below our assessment of the vessel’s breakeven level of approximately $28,700, despite the fact that newbuild prices have fallen to $90MM.
 
Chinese Growth Provides Impetus for Fluid Crude Oil Supply Mix
February 22, 2013
Chinese oil majors have been on a substantial buying run over the past four years, peaking at $35bn worth of mergers and acquisitions activity in 2012 according to Dealogic. As a result, IEA’s chief economist, Fatih Birol, was quoted in the Financial Times earlier this week saying that the country is “set to become a major producing country outside of its borders,” rivaling the domestic production of OPEC countries Kuwait and the United Arab Emirates.
 
Distillate Inventory Impact Continues on Atlantic Coast
February 15, 2013
The recovery from last autumn’s Hurricane Sandy continues in some of the hardest hit areas of the Northeastern United States, and there are likewise lingering effects within the petroleum products market in the region. Unseasonably high motor gasoline prices are receiving considerable attention in the press as blending components for summer grades are in higher demand and contango in gasoline futures markets is narrowing. These high prices have come despite eroding gasoline demand in the area.
 
Benefits of Canadian Crude Oil Production Remain Untapped
February 08, 2013
Canada has recently seen substantial growth in crude oil production, and consensus forecasts portray even larger volumes of near-term production capacity due to developments in and around Alberta. However, the possibility of these newly unlocked reserves being sold into more profitable markets is questionable. The Keystone XL pipeline, a political lightning rod for different reasons in both the United States and Canada, is still pending due to regulatory review, but is viewed as necessary relief to producers with few export options. Regardless of the project’s eventual approval by President Obama, Canadian producers will need more export diversity in order to fully reap the benefits of newly accessible reserves.
 
Falling Inventory Levels Keep Downward Pressure on Tanker Market
February 01, 2013
The weak earnings environment has obstinately continued in the spot market this week, as low cargo counts have persisted. VLCC liftings out of their primary loading zone in the Arabian Gulf have been on a decidedly negative growth trend for the past year, and actually contracted in three of the last four months. The current stubbornness of rates is consistent with the combination of these reduced liftings and headwinds associated with steady fleet growth over the same period of time.
 
A Dreary Week for Rates, Could Chinese Macro Situation Spell Relief?
January 25, 2013
This week saw fresh lows for several tanker routes, and the usual seasonal spike in earnings has largely failed to materialize. Limited demand has coupled with the oft-repeated fleet oversupply story to form an unwelcome combination for tanker owners. Indicators for macroeconomic growth coming out of China have been conversely upbeat. It is not clear that such metrics are indicative of a sustained pick-up in demand, though.
 
OPEC Moving to Tighten Market, as Demand Rebounds
January 18, 2013

In today’s Oil Market Report (OMR), the International Energy Agency (IEA) provided a revised outlook that suggested a tighter oil market than orginally assumed, with rising demand estimates pushing against a decline in OPEC output.  Indeed, with OPEC crude production having remained well above 31 mbpd during the first three quarters of 2012, global supply outpaced demand by 1.4 mbpd during that period.  Those comfortable inventory builds are coming to an end for the moment, however, as the agency has hiked its oil demand forecasts, citing more rapid growth in Chinese oil demand.  With OPEC already cutting its crude production by 0.65 mbpd since October, to 30.64 mbpd in December, the cartel has moved reduce supplies and cede market share to rising North American production.  Additional OPEC cuts may pressure the tanker markets during 1h13, but rising demand expectations are suggesting a stronger end to the year, as dirty tanker fleet growth slows significantly.

 
North American Production Continues to Alter Cargo Flows
January 11, 2013
The US Energy Information Agency (EIA) released their first Short-Term Energy Outlook (STEO) of 2013 earlier this week to much fanfare in the financial press. A continuation of production capacity increases in North America was indeed front page news. Although the growth to date in North American production has been well-documented, EIA forecasts a continuation of strong output growth in the near future. In fact, during the past year, the STEO forecast for US crude production has become more aggressive with each iteration. This growth, when combined with recent drops in US consumption and land-based transportation bottlenecks throughout North America, has continued to support the divergence between North American and global oil benchmarks. Between the resulting drop in US imports and the need for Canadian producers to gain access to other markets, developments are in motion that would no doubt have a substantial impact on tanker cargo flows going forward.
 
Dirty Spot Fixture Activity Rises, But Top Rankings Shift
January 04, 2013
Reported spot activity for larger dirty tankers increased by 5% from 2011 to 2012. Suezmaxes saw the greatest gains, increasing more than 10%, thanks to the increased loading activity from such regions as the Caribbean and Arabian Gulf (discussed in our September 28th, 2012 opinion). Aframaxes and Panamaxes each grew by approximately 3% year-on-year, while VLCC spot fixtures increased by 5%. At the same time, however, increased supply created difficult rate environments for owners - vessel earnings in 2012 were at or near ten-year lows.
 
Tanker Gloom Continues, but Room for Optimism
December 21, 2012

As the Holiday Season nears its crescendo, the approaching new year has provided its usual litany of annual reviews and next year outlooks, including those offering potential surprises for the new year.  Often thought-provoking and sometimes amusing, these lists of “surprises” suggest potential outcomes that deviate from the mainstream consensus.  Still, for a shipping industry that regularly faces triple-digit revenue volatility from extreme sensitivity to macro-economic growth, geopolitical developments and even weather events, the idea of a list of surprises seems almost whimsical.  Indeed, an unusual year for the shipping industry would be one in which something surprising and volatile did not occur. 

 

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