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Industry Opinions

 

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.

 
A Product Tanker Investment Hypothesis, Overextended
October 12, 2012
Today’s release of the long-awaited Medium-term Oil Market Report (MTOMR) by the International Energy Agency (IEA) featured a more relaxed oil market forecast for the next five years -- driven by weaker global demand growth, stronger North American supply and rising Iraqi production capacity. The agency went to great lengths to dramatise a “deeply transformed” global oil map, as a rebalancing of regional supply and demand would drive crude trade flows lower, but boost longer-haul product movements. Of course, the market has embraced this product tanker investment hypothesis for years, and the fundamentals remain still intact, so this is hardly new news. Still, the IEA’s assertion that China would become a “new powerhouse in product exports” may be a fanciful overextension of this hypothesis.
 
Slowing Fleet Growth Makes a Reappearance
October 05, 2012

Although the current macroeconomic environment is weighing on both the dirty and clean tanker sectors, the earnings performance of these two markets has diverged since 2010 from different supply trajectories. After single-hull removals slowed dirty tanker fleet growth during 2009-10, supply has accelerated from heavy deliveries, aggravated by the 2010 ordering burst. In contrast, the abrupt halt in clean tanker ordering that started in 2008 has flowed through the orderbook, slowing product tanker fleet growth. Continued declines in clean growth, coupled with regional refinery displacement, has underpinned the product tanker hypothesis for years, but weaker dirty tanker fundamentals and sustained supply growth have contributed to an increasingly-gloomy outlook for the sector. Slowing deliveries, continued demolition and restrained ordering, however, are suggesting further deceleration in dirty supply growth, which should drive the ultimate recovery in the dirty sector by 2014.

 
Oversupplied Suezmaxes Fight for Market Share
September 28, 2012
Facing rapid fleet growth and limited organic volume from its traditional load regions, Suezmaxes have had to fight for market share from other dirty vessel classes. Continued deliveries of Suezmaxes have driven 9% growth in the fleet this year, overwhelming tepid demand growth in its traditional load regions of West Africa, the Black Sea and the Med. Instead, Suezmax fixtures have cropped up in atypical load regions – with higher AG liftings and a surge in Caribs-East cargoes providing the tonne-mile impetus to keep sector utilisations from crashing any lower than they have.

 
Mexican Oil Production Stabilises
September 21, 2012
Mexico's state oil monopoly, Pemex, announced today that the company produced 2.550 mbpd of crude oil in August, compared with 2.523 mbpd in July, marking its highest level of output so far this year. The company also reported a 19.9% jump in crude exports from the month earlier, to 1.347 mbpd, with a large jump in exports to Asian and other customers excluding the US and Europe. As the world's seventh largest oil producer, Pemex has managed to slow a dramatic decline in production at its largest aging fields, most notably the giant Cantarell field. In 2008, oil reform legislation opened up the nationalized industry to more private investment, which could help Pemex raise its production towards 3 mbpd by 2018, with an incremental 130-160 kbpd of supply available by 2014, according to the company.
 
Rising Oil Market Uncertainty Surrounds Tanker Market
September 14, 2012
The recent Oil Market Report (OMR) from the International Energy Agency (IEA) was unremarkable in its lack of revisions to its forecasts. The agency kept both oil demand growth estimates and non-OPEC supply forecasts roughly unchanged, while providing small baseline adjustments to demand. Beneath this forecasting calm, however, the agency highlighted the conflicting forces that are leading to greater oil market uncertainty. Increasing tension between ample crude and tighter product stocks, tepid oil demand and accelerating security concerns in the Middle East are all contributing to the confusion. Rising refining margins are encouraging higher-than-expected crude runs, potentially buoying tanker demand, but supply disruptions and demand destruction remain a medium-term concern.
 
Tightening European Diesel Market yet to Stimulate MR Demand
September 07, 2012
A series of refinery outages in the Atlantic Basin and anticipated seasonal maintenance have sharply tightened regional gasoil balances and have sent European diesel prices soaring. Typically, this would open up the trans-Atlantic arbitrage and encourage US Gulf diesel cargoes into Northwest Europe or the Med, stimulating MR demand. Unfortunately, the explosion and fire at Venezuela’s 645 kbpd Amuay refinery, temporary USG refinery closures from Hurricane Isaac and the August fire at Chevron’s Richmond refinery have all combined to remove supply and push diesel prices higher in the USG. With a closed arb and plentiful tonnage, MR freight rates on the Baltic TC14 route for 38 USG-UKC have languished. As Europe heads into its Autumn refinery maintenance season and as supplies come back on line in the USG, an reopening arb should stimulate activity.
 
Tanker Optimism Must Wait for Macro Improvement
August 31, 2012
Like tanker company earnings reports, the Poten Weekly Tanker Opinion has made for grim reading in recent weeks, with discussions of flagging IEA demand outlooks, rising US crude production driving sharp cuts in crude imports and the prospects of scrapping 15-year old tankers. The relentlessly-negative tone is due, not so much to the dire current earnings environment, but to the uncertain global macroeconomic outlook. Dirty tanker supply should slow meaningfully during 2013, and provide a powerful underpinning to the next tanker market recovery, but until the global economy rebounds and supports strong oil demand growth and crude runs, near-term tanker prospects will remain mired in low utilisations and earnings.
 
Tanker Earnings and the Value of a Third Special Survey
August 24, 2012
Miserable dirty tanker earnings and strong marine fuel prices are placing unrelenting pressure on tanker owners. With the dirty tanker market clearly out of supply/demand equilibrium -- from both weak demand fundamentals and continued supply -- the market requires more drastic supply measures. Owners have begun to scrap 20-year old and younger vessels, as they become less marketable in a weak market, but they may have to consider the economics of paying for a third special survey, at 15 years of age, and then trading the vessel -- versus the scrap value of the vessel.
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