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Industry Opinions

 

S.P. aRe Becoming Irrelevant?
September 13, 2013
The recent flux in light-sweet crude oil supplies in the Atlantic Basin highlights the United States’ recent strides towards crude oil self-sufficiency. Although short-term upward pressure on crude oil prices appears to have temporized for the moment, threats to supply, if only perceived, can have wild impacts. Typically, if crude oil prices get too high, the powers that be in Washington reach for the Strategic Petroleum Reserve (SPR) taps. While the tenet of the SPR is expressly to meet supply shortages, moderating price levels for consuming constituents is certainly an added benefit. According to the US Government, “If hurricanes or other unexpected physical conditions disrupt either crude oil imports or domestic production, the Strategic Petroleum Reserve (SPR) is ready to make replacement oil available to the extent approved by the President and/or the Secretary of Energy.” However, now that the United States is awash in crude oil, the SPR’s utility as a political tool is significantly reduced.
 
Liby-honest: How lost crude oil flows could be a boon for clean
September 06, 2013
Recent developments in Libyan crude oil production, exports and refining are eerily reminiscent of conditions experienced in the spring of 2011, when civil unrest brought crude oil production and export to a grinding halt for several months. Since then, the country has undergone significant political change and, to its credit, restored most of its crude oil export capacity. That is, until recently. Libyan crude oil production has reportedly dropped below 150,000 barrels per day: roughly one-tenth of what is considered to be its true production capacity of 1.5 million barrels per day. The resultant drop in demand for Aframaxes is an obvious threat to shipowners in the Mediterranean, however broader concerns have rippled toward refiners as they struggle to find light-sweet replacement barrels to support refining economics.
 
Adding Fuel to the Eco Ship Fire
August 30, 2013
The historically weak freight environment continues to batter the earnings of tanker companies the world over. The high and low tides of revenue opportunities have introduced a persistent theme of cost control by bringing accute attention to the bottom line. At first, the tightening of the proverbial belt was a concern for charterers as it registered the possibility of slack maintenance – something has got to give, afterall. However now, new technology in the form of eco ships provides a clean opportunity for shipowners to save money without to augment operational integrity.
 
Post-Panamax Stress Disorder
August 23, 2013
On its 99th birthday, the expansion of the Panama Canal poses an existential question for its namesake tanker sector. Speculation on the obsolescence of the segment is a timely topic of discussion since the commission of a third set of post-Panamax locks is due in late next year, or early 2015. While historically engaged in regional, dirty trading, Panamaxes must now face a different course. The decline of the fuel oil trade in the Caribbean and the much-anticipated emergence of long-haul clean products trades presents a crossroads for the sector.
 
Summer Dreams for Suezmaxes
August 16, 2013
The languishing West African Suezmax trade saw a much needed boost in activity last month. The upswing can likely be credited to the recent collapse in the West Texas Intermediate (WTI) and Brent crude oil price spread. Freight rates for the West African Suezmax market were once a stalwart of the tanker business, but the recent tumult of the of US East Coast refining complex introduced an unforeseen amount of risk to this trade. First, the outright closures of refineries reduced the call on foreign imports from West Africa. This development was later compounded by the rapid increase of US domestic crude oil production: another death knell to the Bonny- Philadelphia trade on 130kt, otherwise known as TD5.
 
Mexico’s Production: Taking a Hit Below the Border
August 09, 2013
The steady decline of Mexico’s crude oil production not only poses threats to the nation’s GDP, but also to the health of the tanker market in the Caribbean basin. Mexican crude oil exports have fallen by a striking 1 million barrels per day (mbpd) since 2004 with total production rates now hovering around 2.5 million barrels per day. Now however, with support from President Enrique Pena Nieto, private investors may have the opportunity to reverse the country’s crude oil fate. While Mexican exports have primarily supported the Aframax trade in the Gulf of Mexico and the Caribbean, increasing relationships between China and Mexico should shift tonnage demand from Aframaxes to larger tankers over time.
 
US Crude Production Helping Drive Dynamic Clean Market
August 02, 2013
With United States crude oil production rising to levels unseen in 22 years, the US must find consumers with whom they can place this excess oil. However, the US cannot export any of this crude oil with the exception of limited quantities to Canada due to self-imposed regulatory constraints. Thus the US is left to refine much of this crude and then export it, causing an increase in product tanker movement ex-United States Gulf (USG) to the South American, Central American, and West African (WAF) zones. Although the US oil surge is having a positive effect on US product tanker movement, it is hurting the already weak European refining and product tanker markets, and could prove to have longer-term negative effects on European refiners if current conditions persist.
 
Canadian Crude Oil Prices Back from the Brink
July 26, 2013
From 4Q2012 to 1Q2013, the Western Canadian Select (WCS) crude oil benchmark experienced historically low prices during a period when Canadian crude oil production underwent rapid growth that shows no signs of slowing (see 8 February 2013 Opinion). WCS’s struggles were caused by this influx in crude oil production and the resulting transportation bottleneck. While the building of TransCanada Corp.’s highly contested Keystone XL pipeline could provide relief to this supply glut, the project awaits U.S. regulatory approval, making it unlikely that construction will even start by 2015, according to TransCanada CEO Russ Girling. Yet recently WCS has seen a sudden reversal of fortune as its prices are rapidly converging with Bloomberg’s U.S. Sour Crude Oil Index prices, revived by drastic increases in crude oil transportation by rail. As a result, the spread between the two crudes has decreased from $59.87 per barrel in December of 2012 to $20.42 per barrel at the time of printing. A recent Bloomberg article highlighted the success of producers of Canadian heavy oil, as their stocks “have returned an average of 15 percent in the past three months… [while] an index of global oil stocks rose 7.6 percent in the same period.” Although more pipelines could still be built even if plans for Keystone XL falter, rail cars appear to be providing at least a temporary solution to the bottleneck issue surrounding Canadian crude oil.
 
WTI-Brent Spread Reflects Dynamic Refinery and Infrastructure Pictures in US
July 19, 2013
There is increasing optimism that the economic recovery in the United States is on firm footing and strengthening. Indeed, the main concern articulated by many investors in the US is that the Federal Reserve will start to slow the growth of money supply due to continued economic recovery. Part of the reason for the comeback in the US is the rapid growth of domestic crude oil production. This phenomenon has received no shortage of attention from both the press and analysts, and the suddenness of it caused a supply glut within North America as transportation infrastructure struggled to keep pace. West Texas Intermediate (WTI), a popular light-sweet inland crude oil pricing benchmark, consequently fell in relation to the more globally traded Brent benchmark. The so-called “spread” between the two peaked near $30 a barrel in 2011, but has almost returned to parity as of this writing.
 
VLCC Spot Rates: A Rare Bright Spot
July 12, 2013
Dirty tanker rates are in a well-documented and, for owners, tiring slump that leaves earnings levels well below their peaks seen almost five years ago now. VLCC rates have arguably been hit the hardest from peak to trough, although that provides little to no consolation to other vessel classes. In a rare bright spot for the sector, rates for several spot VLCC voyages have bounced in the past week. Worldscale rates for the voyage from the Persian Gulf to the US Gulf (TD1), which have languished in the teens for much of 2013 thus far, threatened to break into the thirties before seemingly plateauing in the high twenties for the first time since a brief spell last fall.
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