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Industry Opinions


Will Slow Ordering Provide Foundation for Aframax Rate Recovery?
May 24, 2013
Dirty tanker rates have extended their period of languishment in a prolonged slump that will be memorable in the future for both its severity and persistence. Continuing their performance from last year, dirty rates have at least found a support level thus far in 2013. This is little consolation, though, as it simply suggests that earnings are at or below owners’ marginal costs. Aframax spot rates have shown some resilience, and have demonstrated a generally positive, though mild, gain since the middle of last year. They are up slightly year-over-year.
“Three Speed” Economic Environment Batters Europe
May 17, 2013
The “three speed” recovery – a phrase of choice of the IMF – refers to varying rates of economic growth in emerging markets, the United States, and demographically-challenged areas such as Europe and Japan. Emerging market economic growth has been the saving grace of tanker demand in severely overbuilt crude tanker sectors. The economic rebound in the United States is partially credited to extraordinary growth in crude oil production that, while initially negative for tanker demand, has not been all bad news as it has pushed volume to emerging longer-haul trade lanes. Even Japan showed a monetary policy-induced mirage of growth in the last quarter. Europe, on the other hand, continues to lag behind, and Eurozone optimists were disappointed earlier this week when the region reportedly entered the longest recession of the European Union’s existence. The challenges faced by European refineries have been documented recently in this space (see 12 April 2013 Opinion), and their predicament has worsened as the Brent benchmark has strengthened in the meantime.
Frequently Cited Oil Spread Moderates on Evolution of Transportation Options
May 10, 2013
The Brent-WTI spread’s blowout in late 2010 through 2011 made and lost many a small fortune. The spread was largely a result of unforeseen increased production running into transportation bottlenecks, creating an opportunity for everyone from railroad to barge owners as traders and refiners sought out lower cost inland crude (LLS, on the other hand, has continued to track Brent relatively closely). The response to these opportunities, along with record crude oil inventory builds in the United States, has led to a tightening of the spread thus far in 2013 (though it should be noted that 2012 saw a similar move to date).
Consequences of the Confluence of “Peak Demand” and an Expanding Production Boom
May 03, 2013
Conservationists and industry have been at odds over the ability of crude oil to continue to serve as a primary conduit for meeting the energy needs of an ever-expanding population and associated economic output almost since the inception of commercial-scale crude oil production. Although preceded by other doomsayers, the theory of “peak oil” is most frequently associated with “Hubbert’s peak,” which argues that oil production rates generally follow a bell-shaped curve, tapering off once infrastructure investment reaches a point of diminishing returns and the resource begins to be depleted. While production has struggled in some regions (notably in the North Sea), a common argument among commodity analysts of late has been that we are approaching not “peak oil” in a supply sense, but rather “peak demand.”
The Growing Presence of the United States as Energy Exporter
April 26, 2013
A combination of increased crude oil production and slumping refined product demand has shifted refinery marketing dynamics in the United States. US distillate exports have increased from 1.01 million barrels per day (mbpd) in 2012 versus 172 thousand barrels per day (kbpd) in 2000. Although much attention has been placed on this five-fold increase, gasoline exports have also increased from 162 kbpd in 2000 to 505 kbpd in 2012. These higher transportation fuel exports are indicative of continued shifts in market forces, changing domestic consumption patterns, and reactions to regulatory changes.
Will Mexico Join North American Production Boon?
April 19, 2013
Declining production, coupled with low levels of investment in domestic refineries and crude exploration have diminished Mexico’s role as a major crude oil producer and exporter. Mexico’s domestic crude oil production and export volume have fallen by nearly 1 million barrels per day (mbpd) since 2006. At the same time, steady economic growth has increased domestic demand for refined products, so import volumes have increased by nearly 400 thousand barrels per day (kbpd) since 2009. A new president gives some observers hope that the country can reverse these negative trends and generate crude oil production and export growth, while also reducing refined product imports.
Struggling European Refinery Economics Continue to Impact Trade Flows
April 12, 2013
Economic growth prospects in Europe continue to be uneven – and generally tenuous at best – across the continent as it grapples with issues of insolvency, austerity, and demographics. Signalling weakness in oil demand, the short-dated part of the North Sea Brent benchmark forward curve briefly reverted into a contango forward pricing structure earlier this week for the first time in the better part of a year.
Tax Implications Could Weigh on South Korean Crude Imports
April 05, 2013
While much of the world’s attention is currently focused on escalating tensions between North and South Korea, the oil markets have also been keeping an eye on the Korean peninsula. South Korea is weighing eliminating tax rebates on refined product exports, provided those products were refined from crude sourced from countries that have free-trade agreements (FTAs) with South Korea. Although many are concerned that this change could reverse recent increases in crude shipments to South Korea from the North Sea, the effect on the tanker market could in fact be relatively subdued. More substantial impacts on tanker demand would be predicated on additional FTAs being signed that are currently in negotiation.
China-Russia Crude Oil Deal Largely Bypassing Tanker Market
March 29, 2013
Although most media reports were previously suggesting that major Sino-Russian energy negotiations were faltering, relations between the pair took a high-profile positive step last week as it was announced that OAO Rosneft will double its crude oil exports bound for China to over 620 kbpd while China National Petroleum Corporation will become a partner of Rosneft’s in upstream Arctic projects. The two countries also indicated that they plan to announce additional pipeline capacity between them later this year. This development is significant as China attempts to secure crude oil for the substantial amount of refinery capacity that is estimated to be brought online in the country in the near term.
Curb Your Enthusiasm
March 22, 2013
The shipping industry has been working the conference circuit in the New York metropolitan area this week, and some of the heavier hitters have not hesitated to offer strong opinions about the direction in which tanker ordering should be headed. They varied across the spectrum of course, but there was no shortage of advocates of viewing the current earnings environment as an opportunity to purchase new vessels in anticipation of a future rate recovery.
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