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Industry Opinions


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.
Ethanol RIN Volatility has Consequences for US Trade Volumes
March 15, 2013
The Renewable Identification Number (RIN) market administered by the US Environmental Protection Agency (EPA) has largely been a boondoggle from its inception. A RIN is a number assigned to individual batches of biofuel that are then used by regulated entities to prove that they are in compliance with the EPA’s Renewable Fuel Standard (RFS) program. Companies that produce more RINs than they need can sell the credits to those that need to purchase them in order to be in compliance. Not unlike other purported market solutions for mandating increased renewable energy production, the tradable RIN market has been beset by wild volatility and frequent cases of fraud. EPA in fact estimated in 2012 that there were approximately 140 million illegitimate credits in circulation.
Opportunity for Recovery of Venezuelan Oil Production?
March 08, 2013
Hugo Chavez’s death earlier this week was notable from several perspectives, not the least of which is from that of global crude oil production. His time in office, beginning in 1999, saw the implementation of a series of provocative policies. Viewing Venezuela’s main geopolitical leverage to be its status as one of the world’s larger oil exporters, several of these policies were aimed at centralizing control of Venezuela’s crude oil. Unfortunately, the execution of this ambition – and the associated lack of foreign investment – resulted in increasingly inefficient production as the country largely fell behind from technological and institutional knowledge standpoints.
VLCC Orderbook Poses Challenge for Earnings Outlook
March 01, 2013
VLCC sector earnings continue to languish as recent rate movements broke through previously estimated seasonal support levels. TD1 spot rates have fallen into the teens, while other Baltic VLCC routes have also dropped precipitously in the new year. Furthermore, time charter rates are well below our assessment of the vessel’s breakeven level of approximately $28,700, despite the fact that newbuild prices have fallen to $90MM.
Chinese Growth Provides Impetus for Fluid Crude Oil Supply Mix
February 22, 2013
Chinese oil majors have been on a substantial buying run over the past four years, peaking at $35bn worth of mergers and acquisitions activity in 2012 according to Dealogic. As a result, IEA’s chief economist, Fatih Birol, was quoted in the Financial Times earlier this week saying that the country is “set to become a major producing country outside of its borders,” rivaling the domestic production of OPEC countries Kuwait and the United Arab Emirates.
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