|
2011 Top Charterers: Tryin' to Catch Me Tradin' Dirty
January 06, 2012 |
| Tsunamis, revolutions, and sovereign debt crises – oh my! 2011 was a year for the history books and now one we can collectively put to rest. This first week of the New Year, we reflect on the trends that have evolved in the tanker market of the past 12 months. Nominally, total dirty fixture levels generally remained the same in 2011 versus the previous year, however the VLCC and Suezmax sectors saw increases while the Aframax and Panamax sectors experienced declines. |
| |
No Need for Speed
December 30, 2011 |
| As 2011 comes to a close, many are breathing a sigh of relief and taking some much needed time to relax. This past year’s tanker market has shown us that even in the non-stop world of global marine transportation there is virtue in slowing down. As low freight rates have been accompanied by high oil prices, tanker owners trading in the spot market have been begrudgingly applying the majority of their voyage revenues towards exorbitant bunker bills. Many independent owners have pushed for lower voyage speeds. Adjusting and optimizing speed has a material impact on earnings as the relationship between speeds and bunker consumption is not linear. |
| |
Let it Snow
December 23, 2011 |
| While the weather in New York is not yet frightful, rates this week have been quite delightful for product tanker owners trading tonnage in the Atlantic Basin! Time charter equivalent earnings on the Transatlantic trade from UK Continent to the US Atlantic coast rose to almost $22,000 per day this week, or over twice as high than the year to date average and about $2,000 more per day than VLCCs trading from the Arabian Gulf to the Far East. As we discussed a few weeks back, increased activity out of the US Gulf has been an important source of support for MR rates as PADD III refiners ship surplus distillate to markets abroad. This week thin availability of prompt tonnage emboldened product tanker owners to leverage higher rates as charterers sought to turn over inventories before the year end. Although the market appears to be cooling coming into the Christmas holiday, temperatures in the United State’s largest heating oil markets are still unseasonably warm. If the weather turns bitter, it could very well keep the pre-holiday rally in product tanker rates going into the New Year. |
| |
The World is Flat
December 16, 2011 |
| Christmas is just around the corner. If you’re a member of the Worldscale Association, Santa Claus may have already brought you a brand new blue book. The organization has released its schedule of 2012 nominal freight rates. Beginning in January these flat rates will be used as the point of reference for freight paid on various crude oil and petroleum product tanker trades. Worldscale provides a convention for negotiating freight of crude oil and refined petroleum products and an index to gauge the relative strength and volatility of the market. Annual adjustments to the flat rate underlying this metric are driven primarily by changes in port charges and bunker prices. Once again, flat rates are on the rise for 2012. In a sample of benchmark trades, 2012 flat rates averaged about 20% higher than 2011 levels reflecting the dramatic increase in fuel costs seen over the course of this year. However, more generous flat rates do not necessarily suggest that total freight paid by charterers or owners’ earnings will rise accordingly. History shows that tanker market participants will instead recalibrate their point scales at the beginning of the year to achieve their existing commercial expectations. |
| |
Finding Strength in Numbers
December 09, 2011 |
| Even though the industry may have been busy on this week’s holiday party circuit, news suggests that business is still getting done between the networking and canapés. It was announced on Tuesday that Mitsui OSK Lines / Phoenix Tankers, AP Moller, SAMCO and Ocean Tankers have signed a letter of intent to form a new tanker pool. While the deal has yet to be finalized, this new pool is expected to begin operation in February 2012 and control a combined fleet of around 50 VLCC tankers by the end of next year. Economies of scale and increased market presence achievable through pooling have helped companies reduce costs, streamline operations, and improve information flow, three significant advantages in these troubled markets. While some speculate that further consolidation of the VLCC market is a bullish signal for freight rates, strength in numbers is not likely to be a quick fix against flabby fundamentals. |
| |
The Brazilian Kickoff
December 02, 2011 |
On Wednesday, November 30th the Council on Foreign Relations held the Rio de Janeiro Investment Conference in New York City to discuss prospects for Brazilian growth and the role of foreign investment in Brazil’s rapidly growing economy. Much of the discussion centered on challenges and opportunities in the Brazilian energy sector, which will be pivotal in the country’s economic prospects. Development of the enormous crude oil discoveries in Brazil’s pre-salt basins could help to bring the country’s output to up to a projected 8 million barrels per day (mbd) by 2020. This production level would easily put Brazil in the top five of producing countries, with export capacity expected to be around 4.5 mbd over the same time. The technological challenges of developing these reserves have led some to express skepticism about the achievability of Brazil’s ambitious targets. However, there is no denying the massive potential for incremental growth in Brazilian crude oil supply, which is bound to further amplify the importance of Atlantic Basin trades in global tanker demand.
|
| |
Keep the Gravy, Pass the Shale!
November 23, 2011 |
| As the United States prepares to celebrate the bounty of
the harvest this Thanksgiving holiday, some refiners in the mid Continent and US
Gulf are celebrating an abundance of another sort. After years of declining
domestic crude oil output, development of unconventional and offshore reserves
and general advances in technology have led to dramatic increases in US crude
oil production. The increased output from continental shale oil deposits along
with increased Canadian imports to inland delivery centers have aggravated
transportation bottlenecks in the Midwestern United States. This boost has also
contributed to a persistent discount of inland grades to similar price marker
crude oils. Refiners in a position to do so have enjoyed bumper margins
processing these so called “advantage” crude oils, which have served to somewhat
displace import barrels. However, the degree to which domestic crude oil barrels
will stand in for long haul imports going forward will ultimately hinge upon the
quality required by the nation’s refiners and the pricing of domestic supplies
relative to imported streams. |
| |
The Export Gulf
November 18, 2011 |
| The high price of imported crude oil and decreased domestic consumer demand seen over the course of this year has resulted in uncertain prospects for some US refiners. However, even as some have suffered, others have been able to shift their focus to foreign markets. This year has seen the United States emerge as a net exporter of finished petroleum products. US Gulf refiners have led this trend, accounting for 75% of American volumes shipped abroad. The most noticeable increases have been in distillate fuel oil exports. While much of these increased volumes are being sent to traditional European consumption centers, increased import requirements from countries economies closer to home have also served to draw barrels out of the US Gulf, and may continue to support product tanker demand in the Atlantic basin. |
| |
Made in China
November 11, 2011 |
| It is difficult to deny the severe tanker oversupply situation. Worldwide oil demand has recovered globally surpassing its 2007 peak, despite languishing demand in mature economies. The resultant shift in trade flows and increased volumes on the water have boosted ton-mile demand, but that alone has not been enough to lend support to freight rate levels. While China is certainly doing its part to support the tanker market from a demand perspective, the country also has the ability to significantly impact vessel supply. |
| |
To Some Avail
November 04, 2011 |
| The pre-Halloween snow storm on the US Atlantic coast and the impending winter weather in the northern hemisphere are stoking tanker owners’ hopes for any kind of a market rally. The fourth quarter has sometimes been known to be lucrative for tanker owners as completion of refinery maintenance, seasonal petroleum demand and reduced daylight hours have historically increased demand for ships. An uptick in freight rates in the last weeks of October has many hoping for more signs of a winter upswing, but fundamentals remain strained, dampening the degree of upside potential. That said, situational shortages of suitable tonnage could facilitate market movements over the coming months. |
