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Industry Opinions


Canadian Crude Oil Prices Back from the Brink
July 26, 2013
From 4Q2012 to 1Q2013, the Western Canadian Select (WCS) crude oil benchmark experienced historically low prices during a period when Canadian crude oil production underwent rapid growth that shows no signs of slowing (see 8 February 2013 Opinion). WCS’s struggles were caused by this influx in crude oil production and the resulting transportation bottleneck. While the building of TransCanada Corp.’s highly contested Keystone XL pipeline could provide relief to this supply glut, the project awaits U.S. regulatory approval, making it unlikely that construction will even start by 2015, according to TransCanada CEO Russ Girling. Yet recently WCS has seen a sudden reversal of fortune as its prices are rapidly converging with Bloomberg’s U.S. Sour Crude Oil Index prices, revived by drastic increases in crude oil transportation by rail. As a result, the spread between the two crudes has decreased from $59.87 per barrel in December of 2012 to $20.42 per barrel at the time of printing. A recent Bloomberg article highlighted the success of producers of Canadian heavy oil, as their stocks “have returned an average of 15 percent in the past three months… [while] an index of global oil stocks rose 7.6 percent in the same period.” Although more pipelines could still be built even if plans for Keystone XL falter, rail cars appear to be providing at least a temporary solution to the bottleneck issue surrounding Canadian crude oil.
WTI-Brent Spread Reflects Dynamic Refinery and Infrastructure Pictures in US
July 19, 2013
There is increasing optimism that the economic recovery in the United States is on firm footing and strengthening. Indeed, the main concern articulated by many investors in the US is that the Federal Reserve will start to slow the growth of money supply due to continued economic recovery. Part of the reason for the comeback in the US is the rapid growth of domestic crude oil production. This phenomenon has received no shortage of attention from both the press and analysts, and the suddenness of it caused a supply glut within North America as transportation infrastructure struggled to keep pace. West Texas Intermediate (WTI), a popular light-sweet inland crude oil pricing benchmark, consequently fell in relation to the more globally traded Brent benchmark. The so-called “spread” between the two peaked near $30 a barrel in 2011, but has almost returned to parity as of this writing.
VLCC Spot Rates: A Rare Bright Spot
July 12, 2013
Dirty tanker rates are in a well-documented and, for owners, tiring slump that leaves earnings levels well below their peaks seen almost five years ago now. VLCC rates have arguably been hit the hardest from peak to trough, although that provides little to no consolation to other vessel classes. In a rare bright spot for the sector, rates for several spot VLCC voyages have bounced in the past week. Worldscale rates for the voyage from the Persian Gulf to the US Gulf (TD1), which have languished in the teens for much of 2013 thus far, threatened to break into the thirties before seemingly plateauing in the high twenties for the first time since a brief spell last fall.
Policy Changes Could Affect South Korean Tanker Demand
July 05, 2013
Effective July 1st, South Korea, the fifth largest buyer of crude cargoes in the world, confirmed the elimination of tax rebates on refined product exports sourced from countries with which they shared a free-trade agreement (FTA). While this move will likely negatively impact the amount of crude oil South Korea imports from the North Sea, it should not be too detrimental to the South Korean demand for tankers as a whole due to the relatively small market share of North Sea crude. And although this policy change will dampen tanker movement from the North Sea to South Korea, another newly implemented policy favoring non-Middle Eastern crude oil could balance out or even overtake the demand negatives associated with the change.
A Crack in the Wall
June 28, 2013
Over the last decade, China’s consumption of oil has grown more rapidly than any other nation. Its lead has single handedly supported incremental demand for VLCCs as it has risen to the second largest consumer of oil in the world. As a result, Chinese oil companies control about 35% of the VLCC market between spot and term charters. While this market share is up significantly over the past decade, it has held steady for the past few years, reflecting what is now perhaps the slowing growth of China’s oil markets and its economy as a whole.
Will Turbulence in Financial Markets Impact Tankers?
June 21, 2013
Marine Money Week made its annual appearance in New York this week, and everyone from owners to brokers to capital markets professionals were there to discuss where opportunities to capitalize on the current state of shipping markets might exist. The theme of the week was “Risk On,” which is typically indicative of bullish sentiment driving investors to venture out along the risk spectrum on the notion that risk is underpriced in the market. Risk was anything but “on” in the broader financial markets this week, though, and there were pronounced implications for oil prices, which fell sharply across the board.
Russian Crude Runs and Transportation Optionality Cut Baltic Exports
June 14, 2013
Russia, an original member of the BRICS group of emerging markets, has experienced renewed post-financial crisis macroeconomic growth, though not at the same clip as some of its peers. This growth has led to increased domestic demand for clean products. At the same time, Russia’s refinery infrastructure is notably inefficient. For example, IEA recently wrote that “if Russia had used energy as efficiently as comparable OECD countries in each sector of the economy in 2008, it could have saved more than 200 million tonnes of oil equivalent, equal to 30% of its consumption that year.”
The Sun is Rising in the West: US Exports Steal the Spotlight
June 07, 2013
In 2008, it was difficult to envision the developments in exploration, production and the resultant impacts on trade that would come to characterize the tanker market just five years later. For the majority of the past decade, all eyes have been set on China and rightfully so. For all intents and purposes, the emerging market nation’s rapid crude oil consumption growth was the singular driving force for ton‐mile demand. Prospects for VLCCs looked bright. The West was obsolete.
Memorial Day Has Come and Gone While US Mogas Demand Has Simply Gone
May 31, 2013
Memorial Day brought in the unofficial start to Summer 2013 in the United States, a line of demarcation that has historically meant increased driving by American families. The American consumer has been demanding less and less motor gasoline, though, as increasing vehicle efficiency standards and higher prices have dampened and then reversed decades’ worth of demand growth.
Will Slow Ordering Provide Foundation for Aframax Rate Recovery?
May 24, 2013
Dirty tanker rates have extended their period of languishment in a prolonged slump that will be memorable in the future for both its severity and persistence. Continuing their performance from last year, dirty rates have at least found a support level thus far in 2013. This is little consolation, though, as it simply suggests that earnings are at or below owners’ marginal costs. Aframax spot rates have shown some resilience, and have demonstrated a generally positive, though mild, gain since the middle of last year. They are up slightly year-over-year.
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