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Industry Opinions


Aframaxes: Up and Down, But Don’t Count Them Out
January 24, 2014
The past few weeks have proven to be a wild ride for the Aframax sector. Although freight rates are falling precipitously, recent volatility suggests that this market may still have a heartbeat yet. For the majority of the past few years, spot Aframax time charter equivalents (TCEs) have bumbled along at lackluster levels save for the occasional rate spike here or there. In addition, waning demand on stalwart trades, such as the Caribbean to US Gulf, have called into question broader fundamentals for this tanker sector. While the recent run-up in spot market rates may ultimately prove to be short-lived, it brings to light a tanker asset class that has been largely overshadowed by its bigger sisters in recent years.
Rising Wave of Investment in VLCCs
January 17, 2014
Capital from private equity firms has been markedly reshaping financing options for shipowners. Recently, much has been said about the purchase of new build Medium Range (MR) tankers for service in the clean product trade. However, this week there was a high profile deal in the large crude tanker segment, the acquisition of the Maersk’s VLCC fleet by Euronav. The crude tanker sectors had been attracting less attention from investors in 2013, but this deal highlights the willingness of private equity firms to provide large crude tanker owners access to financing.
Saudi Arabian Crude and the US Market
January 10, 2014
Over the past few years US domestic crude oil production has supplanted foreign crude oil imports. To the extent that they possibly can, domestic refiners have shifted to local grades that have trended at an often significant price discount. Interestingly, however, fixture activity on the Arabian Gulf to US Gulf trade route remains robust. In efforts to remain competitive, Saudi Arabia has priced US-bound crude oil at a discount compared to prices posted to Asian customers. The chart below represents total reported spot fixture volume from the Arabian Gulf to the US Gulf. While monthly volumes may experience volatility, it is interesting to note the overall positive trend despite the US domestic shale oil revolution.
The East Has It: Top Reported Dirty Spot Charterers for 2013
January 03, 2014
The rankings for the top charterers of 2013 remain largely unchanged from last year with number one seed Unipec outpacing its nearest contender Shell by nearly double the volume. Total reported spot market activity for dirty tankers increased in 2013 by 3.6% over last year, which marks less growth than the 5% growth seen the year prior. Suezmax tankers experienced the largest gains in number of reported fixtures with an increase of more than 9.4%. VLCCs experienced a modest increase of 1.2%, while Aframax activity increased at a healthy clip of 4.5%.
Caribbean Crude
December 27, 2013
Caribbean crude oil has historically been a main feedstock for US Gulf Coast refineries. However, the recent surge in US inland crude oil production, combined with the steady imports from the Arabian Gulf, has greatly reduced demand for Caribbean crude oil grades in the US Gulf. The chart below highlights this declining trend in imports which amount to the equivalent of one Aframax cargo per day, or approximately 500,000 barrels. In response, Caribbean oil producers have been in strategic pursuit of growing markets in the East.
Lower Flat Rates, Higher Worldscale Rates in 2014
December 20, 2013
The time of year has come for the Worldscale Association to publish its schedule of nominal freight rates, “flat rates”, for port-to-port tanker routes. The flat rates are published on a dollar per metric ton basis reflecting the various costs associated with calling a particular combination of ports. The spot market convention of Worldscale rate is a percentage of the published flat rate that reflects prevailing market conditions of vessel supply and demand. The 2014 flat rates released this week declined year-on-year from those published in 2013. On a practical basis, the change in flat rates merely results in an adjustment of Worldscale rates in order to maintain voyage revenue parity. With this decrease in quoted flat rates, owners will be looking for higher Worldscale rates at the start of the New Year in order to keep their daily timecharter equivalents stable. Flat rates declined between 4%-6% from 2013 for the major routes as seen below, the first decline since 2010.
Suezmax Salvation?
December 13, 2013
Last week, the Suezmax sector finally began to cash in on the freight rate gains exhibited by their larger VLCC cousins over the past two months. Historically, these two markets have tended to move in tandem since both vessel sizes service West African export requirements. Because cargoes in West Africa are generally stemmed in one million barrel parcels, charterers can arbitrage the differential in freight rates by co-loading two cargoes on one VLCC instead of chartering two Suezmaxes. As a result, strong VLCC rates have allowed for upward movements in Suezmax rates. While this current uptick in freight rates might merely be seasonally-lived, longer-term positives exist for this semi-slighted sector. Two additional factors helping to drive the Suezmax market outside of the general correlation with VLCCs are the growth in exports from West Africa to the East and a potential balancing of the orderbook against possible demolition candidates aged 15 years or older that is likely to take place in the next few years. In theory, the possibility of crude exports from the US also presents an intriguing theoretical opportunity for the segment in two distinct ways.
Back In Black
December 06, 2013
It is well documented that 2013 has been a far cry from a banner year as far as tanker earnings are concerned. However, it seems the market has somehow remembered its tradition of bringing seasonal tidings to the good boys and girls of the ship owning community. VLCCs have been earning north of $50,000 per day on the benchmark Arabian Gulf – Far East trade since mid-November. Perhaps even more striking is that VLCC earnings for the Arabian Gulf – US Gulf trade are now positive, when calculated on a round-trip basis. Even though the crude oil tanker market has been hobbling along at break-even levels for the better part of the past three years, the recent uptick in rates should not be seen as a sign that general conditions are poised for a full recovery. For those that have recently tuned into tanker market freight trends, the below gives some insight to historical rate seasonality.
European Clean Product Exports
November 27, 2013
Refinery utilization rates in Europe have been steadily trending lower as crack spreads have declined, challenging owners to turn a profit. European refineries have struggled to remain competitive as high Brent prices have impaired profitability resulting in fewer product exports. There are currently 748,000 bbls/d of refinery capacity that is either for sale or under strategic review (i.e. facing possible closure). Since 2009, approximately 7% of European refineries have closed, and Bloomberg notes that there is still a 15% overcapacity in the market, with additional closures likely.
Venezuelan Clean Product Taper
November 22, 2013
Following the death of Hugo Chavez in March of 2013, Nicolas Maduro took over as interim president of Venezuela. Maduro, Chavez’s hand-picked successor, narrowly won a general election several weeks later, with a hair thin 1.5% margin. Since then, Venezuela has experienced a period of hyper-inflation, military take overs of retail shops and widespread consumer goods shortages. This week, he was granted emergency decree powers, giving him dictatorial control over wide segments of the country and economy. The effects of state mismanagement have affected the state run oil company, PDVSA as well. The company has experienced an increasing number of production related issues, declining investment in refining projects and numerous refinery fires and outages. PDVSA sold a $4.5 billion dollar bond issuance last week, but will not be using any of the money to expand oil production capacity, but rather to service debt and provide hard currency for day-to-day operations.
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