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Industry Opinions


China-Russia Crude Oil Deal Largely Bypassing Tanker Market
March 29, 2013
Although most media reports were previously suggesting that major Sino-Russian energy negotiations were faltering, relations between the pair took a high-profile positive step last week as it was announced that OAO Rosneft will double its crude oil exports bound for China to over 620 kbpd while China National Petroleum Corporation will become a partner of Rosneft’s in upstream Arctic projects. The two countries also indicated that they plan to announce additional pipeline capacity between them later this year. This development is significant as China attempts to secure crude oil for the substantial amount of refinery capacity that is estimated to be brought online in the country in the near term.
Curb Your Enthusiasm
March 22, 2013
The shipping industry has been working the conference circuit in the New York metropolitan area this week, and some of the heavier hitters have not hesitated to offer strong opinions about the direction in which tanker ordering should be headed. They varied across the spectrum of course, but there was no shortage of advocates of viewing the current earnings environment as an opportunity to purchase new vessels in anticipation of a future rate recovery.
Ethanol RIN Volatility has Consequences for US Trade Volumes
March 15, 2013
The Renewable Identification Number (RIN) market administered by the US Environmental Protection Agency (EPA) has largely been a boondoggle from its inception. A RIN is a number assigned to individual batches of biofuel that are then used by regulated entities to prove that they are in compliance with the EPA’s Renewable Fuel Standard (RFS) program. Companies that produce more RINs than they need can sell the credits to those that need to purchase them in order to be in compliance. Not unlike other purported market solutions for mandating increased renewable energy production, the tradable RIN market has been beset by wild volatility and frequent cases of fraud. EPA in fact estimated in 2012 that there were approximately 140 million illegitimate credits in circulation.
Opportunity for Recovery of Venezuelan Oil Production?
March 08, 2013
Hugo Chavez’s death earlier this week was notable from several perspectives, not the least of which is from that of global crude oil production. His time in office, beginning in 1999, saw the implementation of a series of provocative policies. Viewing Venezuela’s main geopolitical leverage to be its status as one of the world’s larger oil exporters, several of these policies were aimed at centralizing control of Venezuela’s crude oil. Unfortunately, the execution of this ambition – and the associated lack of foreign investment – resulted in increasingly inefficient production as the country largely fell behind from technological and institutional knowledge standpoints.
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.
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