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A Springtime Rally
March 16, 2012 |
| Anyone following the tanker market during the last few years knows that bright spots have been few and far between. This week, however, VLCC spot market rates took upward strides bringing time charter equivalent earnings to levels not seen in quite some time. The combined uptick in fixing activity and waning vessel availability in the Arabian Gulf is a perfect recipe for shipowners in the spot market. |
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Timing is Everything
March 09, 2012 |
| In the mid-1970s, the idea of creating a vast reserve of petroleum in the US to buffer the nation from future crude oil supply shocks gave birth to the US’ Strategic Petroleum Reserve (SPR). It was hoped that establishing the crude oil reserves would cushion American citizens from gasoline supply angst. In times of need, the President would be able to call upon these vast crude oil reserves as a means of keeping America’s refineries fed. While an acute supply pinch has not yet been felt, talks of a crude oil release from the SPR have surfaced in Washington as benchmark crude oil prices rise. At present, the United States appears to be well supplied with gasoline and other refined products which would call into question the true motives behind such a move, should it happen. Instead of Americans with gas pump woes, the beneficiaries of an SPR release might sooner be commercial players in the physical and paper crude oil markets, and those in a position to provide related marine transportation as needed. |
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This Voyage is Rated TC14
March 02, 2012 |
| The refined product imbalance between the United States and Europe is a structural blessing for trading companies and ship owners alike. Ship owners can increase the utilization of their assets with very little, if any, repositioning costs by securing cargoes both coming and going. Likewise, trading companies are able to capture arbitrage opportunities on top of existing contract movements. Recently, increased US Gulf exports of clean products have focused the attention on this traditional back-haul trade lane. Charterers have had mismatched hedging instruments for the ex-US Gulf trade lane as paper traded on the opposite trade lane, TC2, has been primary tool utilized. The introduction of the new Baltic Exchange Clean Tanker Index – TC14 - should be seen as a positive development for the market as it will enable participants to more effectively manage freight exposure and could facilitate increased trade. |
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How Much Is That Tanker In The Window?
February 24, 2012 |
| Between the protracted inaccessibility of credit and mixed optimism on recovery in the freight markets, tanker asset prices have behaved erratically. Absolute price levels and the relationship between prices for newbuildings and secondhand tonnage are driven by the earnings potential of ships with prompt availability. While both newbuilding and secondhand prices have softened in the past year, a disconnect remains between charter rates and asset prices. Movements in asset prices have historically been mirrored across tanker segments, but nowadays varying strengths within the charter market and differences in sector fundamental outlooks could soon be dividing the pack. |
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MOTIVAting Trade Patterns
February 17, 2012 |
| For the past year, discussions of the Arabian Gulf to United States VLCC market have been largely focused on deciphering the true monetary returns to ship owners who embark on this 80 day round trip gamble. Languishing crude oil demand in the United States has sapped volume from the trade while roundtrip time charter equivalent earnings have been negative. A recent resurgence in crude oil movements, however, highlights an upcoming structural change that could help lend vital life support the VLCC market by creating a new element of sustainable westbound demand. Motiva Enterprises is due to expand their existing Port Arthur, Texas facility by 325,000 barrels per day with a reported start-up during in the first quarter of 2012. |
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Suez-min?
February 10, 2012 |
| Acute bleeding in the refining complex around Philadelphia has started to erode a stalwart tanker trade. The West Africa to US Atlantic Coast Suezmax trade has been facing its demise since Sunoco’s announcement to exit the refining business and the closure of ConocoPhillip’s trainer facility. Poor refining margins caused by persistent high prices for sweet West African crude oil have pressured refiners for some time now (see “Importing is Light Sweet Sorrow.”) The convention of million barrel cargo stems in West Africa and draft restrictions on the Delaware River make Suezmaxes a logical choice to service this trade. Now, the ships that were longstanding beneficiaries of a somewhat niche business have quickly become its victims. |
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Tightening the Screws
February 03, 2012 |
| While the European Union’s (EU) announced phased embargo on imports of Iranian oil may be stale news to some, views on the eventual ramifications of this move continue to swirl in the oil market. The EU’s timetable to wean its members off Iranian oil extends to the beginning of July. Over this span, the hope is that trade patterns will adjust to find sufficient replacement barrels so as to mitigate any oil supply or price shock. An estimated 20 percent of Iran’s roughly 3.2 million barrels/day crude oil and condensate exports is taken by EU. Replacement of this flow amounts to less than half Libya’s outage that 2011 market’s successfully endured. How oil price will likely adapt to this dislocation of Iranian oil, especially if protracted, is still under debate. |
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A Shift to Transshipment
January 27, 2012 |
| Recent closures of local refineries in the United States, the neighboring Caribbean islands and Europe will create increased demand for product tankers in the Atlantic Basin. Last week, HOVENSA LLC announced that it will commence shutting down the remaining 350,000 bpd capacity at St. Croix, HOVENSA’S facility. When it is converted into a storage terminal, a profound displacement of trade dynamics into and out of the Caribbean will occur. To further exacerbate the region’s product supply dynamics, this week financial troubles at Petroplus called into question the future of 660,000 barrels per day of European refining capacity. |
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Key-Stonewalled
January 20, 2012 |
| This week President Obama rejected a permit for the Keystone XL pipeline. If ever built, the pipeline would further open the taps for crude oil supplies from Canada to the US Gulf Coast. Most pipeline construction projects typically do not require a presidential stamp of approval, but the cross-border nature of Keystone XL mandates one. Not only is the pipeline an important crude oil artery between the United States and Canada, it has become an important political test of President Obama as he struggles to balance conflicting interests. Regardless of whether President Obama’s ultimate plans are to green-light the project, this week’s decision might provide enough motivation to accelerate approval on alternate Canadian pipeline projects to services other markets. |
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Iran-dom Acts
January 13, 2012 |
| With the tanker market largely tuned into the potential effects of a closure of the Straits of Hormuz, there is a chance that broadly sweeping policies to be enacted by the United States have been somewhat overshadowed. While sanctions with Iran are nothing new, the past few weeks have seen President Obama place increased emphasis on efforts to dissuade foreign central and private banks from dealing with the pariah state. |
