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Industry Opinions


Do You Need to Clean Up Your Act?
March 14, 2014
One critical decision a shipowner faces when ordering an Aframax is whether or not to coat the vessel’s tanks to allow for clean refined product carriage. In the few years leading up to the market peak in 2008, anticipation and excitement for long-haul refined products trades gained momentum. New refineries to be built in the Middle East would forever change the commercial landscape of the tanker market. Refined product ton-miles would grow to the detriment of the crude oil trade. The onset of the financial crisis forced companies looking at investment in, or expansion of, refineries to pump the brakes on such ideas. With worldwide petroleum demand in question, the sense of urgency for refining projects quickly dissipated. Eventually, worldwide fuel demand growth was restored, but many of the proposed refining projects were not. With an ever-changing outlook, the long-haul product market continues to be shrouded with uncertainty. The question remains not when, but if, large scale export refineries will ultimately turn on their boilers.
Ukraine in the Membrane
March 07, 2014
The recent developments in Ukraine serve as a stark reminder that crude oil and natural gas supply security for captive consumers are only as sure as their provider’s next false move. Russia and Saudi Arabia regularly interchange positions as the world’s largest oil producer, depending on OPEC production quotas, heightening market sensitivity to sabre-rattling of any sort. As tensions in Ukraine, Crimea and Russia mount, it is not yet clear the full extent to which the conflict will impact natural gas and oil supplies. To be sure, however, if trade barriers solidify, the ramifications for the oil and tanker markets will likely be significant.
Venezuela: Squandering a Gold Mine
February 28, 2014
While it is difficult to assess the degree to which daily life in Venezuela has deteriorated since president-elect Nicolas Maduro has taken the reins, general consensus indicates that the situation will likely get worse before it gets better. Anecdotes of consumer good shortages widely pepper the international press and sound alarms for international companies with exposure to Venezuela. As recently as 2000, Venezuela was producing upwards of 3.5 million barrels per day of crude oil. However, the nationalist agenda, oil worker strikes and crumbling financial conditions led to a decade of infrastructure neglect which has ultimately cost the country 1 million barrels per day of production – or, at current prices, nearly $980,100,000 per day in revenue. Today, the United States imports roughly 800,000 barrels per day of crude oil from Venezuela, but the current state of domestic Venezuelan affairs could impact its refining system increasing Venezuela’s reliance on the United States.
Is the Dragon Draggin’?
February 21, 2014
For most of the past decade, China has been the saving grace for the tanker, and other, shipping markets. While economic malaise pervaded in the West, China’s economic dragon appeared difficult to tame. Recently released data suggest that China’s incremental demand growth for transportation fuels may not be as robust as some originally anticipated. It is important to understand that this does not suggest a contraction in Chinese demand, but rather a moderation in its consumption growth rate. In general, the outlook at this point still appears rosy, but the recent moderation should be heeded as a warning sign for shipowners, especially those going all-in on the China bet.
Leaving Some with a BITR Taste
February 14, 2014
The market landscape for crude oil and refined product trades has an inherent element of shifting sand, presenting an organization like the Baltic Exchange with certain challenges. The Baltic Exchange is a centuries-old institution that, among other services, oversees a collective of member shipbrokers who contribute daily freight rate assessments for the wet and dry bulk shipping markets. The freight rates that are collected by the Baltic Exchange are in turn used by both charterers and shipowners, as well as other market participants, as a reliable metric of freight pricing for internal and external financial calculations. Although the birth and death of trade lanes is a natural market evolution, such developments pose questions of relevancy to the Baltic Exchange’s data collection efforts. While the decision to discontinue a certain set of assessments due to perceived obsolescence is objectively simple, it could have broader implications for commercial market participants that have freight contracts dependent on these rates.
No Longer Just A Pipe Dream
February 07, 2014
Despite a recently released environmental impact study with a more favorable than expected outcome for would-be shippers, it remains unclear whether the controversial Keystone XL Pipeline expansion will receive final approval from the US State Department. It was logically concluded that regardless of pipeline approval, Canadian tar sand oil will continue to be produced and ultimately move to the US Gulf through means of transportation. While much ado continues to surround the Keystone XL Pipeline in particular, great strides to alleviate crude oil supply congestion at Cushing, OK are starting to take shape. In fact, the southern parts of the Keystone system, the Gulf Coast Pipeline, commenced operation last week in this effort.
The Super Bowl Shuffle: Heating NYC and the Northeast
January 31, 2014
With NFL Super Bowl hype in full swing, native New Yorkers are raising their collective eyebrows at the city’s ability to deliver what it has promised. When hosting a national event such as this, the question of infrastructure is on the top of everyone’s mind. Belying tough exteriors, the recent extreme cold in New York has registered the chilling notion of the delicate heating oil infrastructure in our backyard and elsewhere along the East Coast. A strong demand for heat, combined with regulatory specification changes that impact the type of fuel used, has increased tension in an already fragile system.
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.
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