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Industry Opinions


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. 


FSU Pipeline Optionality Shifts Export Flows
December 14, 2012
Export flows out of Former Soviet Union (FSU) states continue to undergo rather dramatic shifts. A recently completed expansion of the Eastern Siberia-Pacific Ocean (ESPO-2) pipeline will give producers in the FSU further access to Asia via the terminal at Kozmino. The extension, along with a plethora of recently completed and planned pipeline expansions, was brought about by the need to create alternate markets due to Russian conflicts with neighbors over exports via the Druzhba pipeline and higher crude demand growth in Asia. Fueled by this growth, various readings of Asian spot crude prices have been strengthening attractively against European prices over the past five years, although spreads have begun to tighten as additional Asian capacity comes online.
Lingering Over-Supply Tempers VLCC Outlook
December 07, 2012
Much like the broader macroeconomic news of the past two weeks, VLCC indicators have been seemingly incongrous. An ominous milestone was reached last week when the Baltic Exchange marked five-year double-hull VLCC resale prices at the vessel’s lowest level since their panel started reporting such values almost ten years ago. The number of VLCC fixtures, however, was higher than ever before. Not surprisingly, years of overbuilding continue to drag down rates, largely overwhelming any demand gains. Although there is a case that the supply picture could improve in the medium term, storm clouds remain in the short term, given a final surge in VLCC deliveries in early 2013, combined with stabilising Chinese crude oil imports and rising global crude inventories that could pressure OPEC production levels.
Naphtha Redemption Redux for LR1s
November 30, 2012
As we noted in this space in April of this year, a surge in Asian naphtha demand provided a brief respite for LR1 tanker owners operating along the benchmark Baltic TC5 route. We likewise noted that the rate spike was unsustainable, and rate gains indeed subsided a few months later as naphtha demand growth was tempered. However, a recent increase in LR1 fixtures has generated a renewed surge in spot rates as LR1s have reached peaks of $19,100/day – up from $7,600 at the beginning of October. Spot rates should again subside as they attract increased tonnage from the supply-side of the market.
A Pause in Ethanol Contribution to US Energy Independence
November 23, 2012
Almost forgotten amidst the current excitement over rising US tight oil production, a critical US policy instrument towards US energy independence has been the promotion of ethanol blended gasoline.  In late 2007, the Energy Independence and Security Act (EISA 2007) included provisions for rising annual average ethanol blending volumes derived from corn, as well as next-generation feed sources.  Since 2007, the volume of ethanol blended into US gasoline production has jumped by 121%, to a year-to-date average 826 kbpd.  Domestic ethanol output has stalled this year, however, as the severe US drought drove corn prices sharply higher, punishing the margins from ethanol production.  This drop in supply has reversed the country’s net export position in ethanol, prompting a rise in ethanol imports.
Recovering Chinese Data Supporting Oil Imports
November 16, 2012
As China’s new fifth generation leaders were announced to their public this week, a wave of encouraging assessments of the nation’s coming economic health fortuitously seeped into the media.  Late summer’s unveiling of some $150 billion in rail and infrastructure project stimulus funding seems to be helping stabilize the economy.  Recent data shows the year-over-year growth of China’s economy as a meagre 7.4% during the third quarter.  Whether last quarter’s growth assessment embodies the view of some observers that the recent Chinese economic figures are “man-made” and they are for “reference only” remains to be seen, as does the breath of any recovery.  After enduring a seven-quarter slowdown, the country’s expectations for economic improvement, the new Communist Party leader Xi Jinping seems careful in managing expectations.  As economic vitality returns to China, its need for oil imports also seems destined to expand.
Post-Sandy Focus Shifting to Distillate Markets
November 10, 2012
With the New York City area facing severe shortages of gasoline following Hurricane Sandy -- featuring the unwanted 1970s nostalgia of long lines at gas stations and now, odd-even day gasoline rationing -- the regional diesel and heating oil markets have not captured the same level of public attention. This week’s storm that brought snow to the region, however, provided an abrupt reminder of approaching winter, and brought distillate inventories back into focus. In fact, New York City temporarily lifted the New York State requirement to burn heating oil with less than 15 ppm sulphur that began this summer, easing shortages. Despite the media focus on gasoline, the diesel and heating oil markets have had a profound effect on the Atlantic Basin MR market and should continue to influence its equilibrium post-Sandy.
Hurricane Sandy Reverberates throughout Oil Supply Chain
November 02, 2012

Hurricane Sandy captured headlines during the past week, and her effects will be felt throughout the Northeastern United States to varying degrees for the foreseeable future. Various media outlets note that drivers in New York, New Jersey, and Connecticut have been forced to wait in lines of 100 cars or more to refill their automobiles as they attempt to return to their daily routines. The supply chain has been jolted elsewhere as well: prolonged delays and outages at pipelines, refineries, and terminals have lifted tanker rates both into the region and into areas that compete for tonnage with the region. 

China's Teapot Refineries Face Regulatory Challenges
October 26, 2012
China’s independent petroleum refining industry comprises an estimated one-fifth of the nation’s nameplate capacity – or some 2 mbpd.  Many of these independent plants have a capacity of around 40 kbpd (2 mtpa) or less, and are typically referred to pejoratively as “teapots.”  These small refineries fell into the cross-sights of Beijing’s regulators a few years ago, as they sought to rein in an industry segment whose growth had overheated.  To cool this segment, China’s economic planners mandated the closure of dozens of teapot refineries with a capacity less than 2 mtpa by the end of 2013.  It now seems, however, that owners of some of these plants are planning to boost their capacities above this threshold as a means of continuing operation.
California Gasoline Situation Stabilises
October 19, 2012

Following a 50-cent per gallon spike that sent California retail gasoline prices to record levels and as high as $5/gallon in some areas, gasoline supply is finally stabilising in the region.  An upset at ExxonMobil’s 149.5 kbpd Torrance refinery on October 1, following a prolonged outage at Chevron’s 257 kbpd Richmond refinery that began in August, sparked a short burst of panic buying and led to closures of petrol stations that were unable to secure supplies.  The consumer outcry at the magnitude of the gasoline price surge and legislators’ impassioned calls for regulatory investigation were inevitable, but the entire episode served as a reminder of the isolated geography of that market and its dependency on local refining.

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