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Industry Opinions


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.
An Unsanctioned Iran?
November 15, 2013
United States and European Union-led sanctions against Iran have significantly reduced Iranian crude oil exports since they were first introduced in 2010 and then substantially tightened in 2012. In 2005, Iranian production amounted to nearly 4 million bbls/day, today production stands at around 2.6 million bbls/day shown in the chart below. During the past two months, exports have reportedly dropped to 715,000 bbls/day down from 1.17 million bbls/day in September. In apparent attempts to rejuvenate trade opportunities Iranian leaders made recent overtures to the international community suggesting they would moderate their nuclear enrichment programs. The election of the politically moderate Hassan Rouhani could be seen as the first step of a change in course. This is a sharp contrast from the rhetoric seen in 2012 when the country repeatedly threatened to close the Strait of Hormuz, a key shipping lane for Arabian Gulf exports. While the prospect of increased crude exports from the Arabian Gulf would seem like a net positive for VLCC demand, the impacts on the market are not that straight forward.
VLCC Rates Climb to Highest Levels in 2013
November 08, 2013
VLCC rates rose to $47,200/d (Worldscale 59) on November 8th for the benchmark Arabian Gulf to Far East voyage, the highest level since April 17th, 2012. Average rates for 2013 have been relatively low, but the late season spike this year has been more robust than any of the previous three years. Although a far cry from the earnings seen in the mid-2000s, the recent market improvements have spurred a renewed optimism among ship owners. The rate increase was higher this year due to two main considerations: ton mile demand growth due to continued strong demand from Far Eastern buyers, and a number of VLCCs being taken for niche cargoes in the Atlantic Basin.
Removal of Brazilian Subsidies to Back Out Clean Product Imports?
November 01, 2013
Brazilian transportation fuels subsidies have reduced costs for consumers, who have enjoyed longstanding market discount for gasoline and diesel. Currently the cost of the subsidy is borne by the state run oil company, Petrobras. As the cost of these imports is rising, the company is pushing for an end to price controls, a move which could reduce demand for clean product imports. Historically, until around 2010, Brazil faced a narrow gap between domestic demand and refining capacity, resulting in a modest amount of clean product exports. However, a trend of increasing miles driven per light duty vehicle has started rising quickly: 9,000 km/year in 2010, with forecasts of 13,000 km/year in 2015. The resulting increase in domestic demand was met by clean product imports, which peaked in 2011.
Caribbean Aframax Seasonal Hike Ahead?
October 24, 2013
Earnings for TD9 have been the highest average year to date, $12,700, since 2010 and compare very favorably to the 2011 average of $4,200. A rare Aframax summer surge was driven by delays at ports in the US Gulf and an increase in lightering work following the most recent Motiva outage in the mid-summer months. Owner resistance has been firm this year for earnings below $5,000/d or WS 80, helping maintain a floor for rates. Rates had approached that floor level very recently with several prompt ships in the region. But can owners look forward to the potential for a late season earnings jump?
Going GovernMental: EIA Closure and Reopening
October 18, 2013
Collecting oil inventories and trade flow data at a government agency is particularly challenging – especially when your agency has shut down. Although the United States government is now back in business, the closure left the financial oil trading community without its weekly benchmark – the Department of Energy’s inventory report. For these traders, correctly anticipating weekly movements in oil inventories can prove to be quite lucrative. The Energy Information Agency (EIA) within the Department of Energy (DOE) reports weekly data which is based on initial estimated volumes that are then revised over the subsequent two months. As such, the weekly benchmark tends to be more of a barometer of market sentiment rather than a reflection of physical reality.
Bunkers stable in 2013, ECA Changes ahead in 2015
October 10, 2013
Worldscale released their estimated bunker prices for 2014 this week. Over the past year prices have fallen from $686/t to $632/t for high sulphur and $779/t to $713/t for 1% low sulphur. Bunker prices have been highly volatile since 2009, when they rose from the mid $200/t range to the mid $600/t range by 2011 for high sulfur grades. In addition, during this time spreads ranged from $197/t in 2011 and $181/t in 2012 with a wide range of deviations from the average, making timing of purchases critical. However, in 2013 prices stopped their climb and have held near their year to date average of $607/t in the key bunkering ports of Rotterdam, Houston and Singapore. The steadying prices in 2013 have helped reduce the uncertainty in operating expenses for ship owners.
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