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Industry Opinions


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. 


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.
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