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Industry Opinions


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.
“Three Speed” Economic Environment Batters Europe
May 17, 2013
The “three speed” recovery – a phrase of choice of the IMF – refers to varying rates of economic growth in emerging markets, the United States, and demographically-challenged areas such as Europe and Japan. Emerging market economic growth has been the saving grace of tanker demand in severely overbuilt crude tanker sectors. The economic rebound in the United States is partially credited to extraordinary growth in crude oil production that, while initially negative for tanker demand, has not been all bad news as it has pushed volume to emerging longer-haul trade lanes. Even Japan showed a monetary policy-induced mirage of growth in the last quarter. Europe, on the other hand, continues to lag behind, and Eurozone optimists were disappointed earlier this week when the region reportedly entered the longest recession of the European Union’s existence. The challenges faced by European refineries have been documented recently in this space (see 12 April 2013 Opinion), and their predicament has worsened as the Brent benchmark has strengthened in the meantime.
Frequently Cited Oil Spread Moderates on Evolution of Transportation Options
May 10, 2013
The Brent-WTI spread’s blowout in late 2010 through 2011 made and lost many a small fortune. The spread was largely a result of unforeseen increased production running into transportation bottlenecks, creating an opportunity for everyone from railroad to barge owners as traders and refiners sought out lower cost inland crude (LLS, on the other hand, has continued to track Brent relatively closely). The response to these opportunities, along with record crude oil inventory builds in the United States, has led to a tightening of the spread thus far in 2013 (though it should be noted that 2012 saw a similar move to date).
Consequences of the Confluence of “Peak Demand” and an Expanding Production Boom
May 03, 2013
Conservationists and industry have been at odds over the ability of crude oil to continue to serve as a primary conduit for meeting the energy needs of an ever-expanding population and associated economic output almost since the inception of commercial-scale crude oil production. Although preceded by other doomsayers, the theory of “peak oil” is most frequently associated with “Hubbert’s peak,” which argues that oil production rates generally follow a bell-shaped curve, tapering off once infrastructure investment reaches a point of diminishing returns and the resource begins to be depleted. While production has struggled in some regions (notably in the North Sea), a common argument among commodity analysts of late has been that we are approaching not “peak oil” in a supply sense, but rather “peak demand.”
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