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Tanker Opinions

Capitol Hillbillies: Awash In Black Gold
May 30, 2014
As US domestic crude oil production continues to grow, so does the speculation of whether or not exports will be permitted. Since domestically produced crude oil tends to be of the lighter/sweeter variety and the penchant of the US refining complex is for heavy/sour crude, it stands to reason that we are structurally long the wrong grade. To those in the know, the qualities of each crude oil grade prevent it from being a truly fungible commodity – a fact that seemingly continues to escape most politicians. To date, the export of crude oil has proven to be a difficult sell. Although exports may happen on a case-by-case basis, a widespread repeal of the ban seems unlikely under the Obama regime. That said, fervor and momentum appears to be building as new research and opinion is published on the subject. However, make no mistake, misinformation on the crude oil market and related economics will continue to be the flavor in Washington until at least 2016.
 
Gasoline and Hot Dogs
May 23, 2014
This Memorial Day weekend could be poised to bring late spring tidings to product tanker owners trading in the Atlantic Basin. A simple year‐on‐year comparison reveals that the US could be caught shorter‐than‐usual this season as far as gasoline is concerned. A peek into gasoline inventories indicates that they appear to be trending lower in the face of rising seasonal demand. The US Department of Energy’s Energy Information Agency, or EIA, reports that weekly demand for gasoline is in the range of 9.1 million barrels per day for the total US. While there is a fair bit of noise in the weekly reporting numbers, this total demand marks an increase of around 450,000 barrels per day of demand on a four‐week moving average basis. Conversely, inventories are reportedly lower than last year. While the opportunities for rising imports present strong demand fundamentals for product tankers, tonnage oversupply could certainly preclude a positive response in spot market rates.
 
A Shaking of the US Gulf Coast Crude Oil Cocktail
May 16, 2014
The increase in domestic crude oil production is widely reported to have flipped US import requirements on their heads. While this holds true for light/sweet crude oil producers, there appears to be even more dependence on heavier/sourer crude oil suppliers in spite of the shale oil boom. With traditional light/sweet suppliers like West Africa and Europe out of the fray, it is easier to observe the net results of forces that dictate from where the US sources its imports. Investments and long-term relationships will support long-haul trade to the US, benefitting VLCC ton-mile demand. However, Canada’s position as a supplier to the US Gulf Coast presents looming competition to such seaborne imports.
 
Shipbuilding’s Slippery Slope
May 09, 2014
In general, it is difficult to engender sympathy for shipowners. To market insiders, the plight might be somewhat easier, but one could make the case that market cyclicality is largely within their collective control. Although demand and trade growth are dictated by forces well beyond the confines of offices and board rooms, the booms and busts of the market are largely vessel supply related. The delayed nature of the shipbuilding process only serves to complicate matters as shipowners must evaluate how favorable they expect market conditions to be when their vessels hit the water. While shipyards take the opposing position, it could be argued that they are even more exposed than the ship orderer; shipyards face the threat that orders will be cancelled if the mood isn’t right. As orderbooks swell on the tide of positive sentiment, observers question, how much is too much?
 
The Burmese Crude Oil Python
May 02, 2014

When thinking about the prognosis for tanker demand growth, the most immediate threat, second to the construction of a canal, is the development of overland transportation.  Pipeline projects are typically painstaking efforts that involve buy-in from inherently conflicted stakeholders.  Federal and local governments, citizens, regulators, oil companies and refiners must come together to balance transportation economics against political interests in a multi-billion dollar arena: not an easy task.  As such, these projects are extremely sensitive to the ebbs and flows not only of the broader economic health of ultimate consumer markets, but political wills that characterize oil trade, more often than many would prefer.  One project in particular, the Sino-Burma pipeline, raised eyebrows amongst the VLCC shipowning community when it threatened to significantly reduce voyage time between the Middle East and China by avoiding the Straits of Malacca.  A closer look at the project particulars reveals that this once-feared venture could end up being more help than hazard. 

 

 
Suezmaxes: Around The World In More Than 80 Days
April 25, 2014
The staggering decline in crude oil trade volumes between West Africa and the United States has led many to cursorily dismiss the Suezmax sector on the whole. Diminished light‐sweet crude oil import requirements by the United States, and little reason to believe in their near‐term return, has rightfully called the relevance of Bonny ‐ Philadelphia as the benchmark trade into question. Afterall, without its beloved TD5, what is a Suezmax to do? With few noteworthy developments elsewhere in the market, it is a time for pause: where have all the Suezmaxes gone?
 
Thinking Outside the Triangle
April 17, 2014
Although US refined products exports largely underpin medium-range (MR) product tanker demand in the Atlantic Basin, there is little evidence of similar stability in US Gulf – UK Continent (TC14) freight rates. In many of the crude oil trades, high demand for crude oil in a particular market leads to high demand for ships and, often, robust freight rates. Because the Atlantic Basin refined product market is short-haul in nature and driven by traders’ arbitrage activities, it is far more fickle. Teasing out trends in the to and fro trades between the US and Europe can be quite challenging, as product prices, freight rates and where the cargo ultimately ends up are highly interdependent. For shipowners, the ability to secure cargoes and get paid roundtrip freight in both directions is an attractive proposition, yet one that is without guarantee. Furthermore, the seemingly inverse relationship in freight rates between the two benchmark transatlantic trades may highlight just how savvy charterers have become.
 
Liquefied Petroleum Gold
April 11, 2014
While the large crude oil tankers slip into what seems like a second quarter slumber, buzz continues to build around the liquefied petroleum gas (LPG) sector. Press headlines tout the recent success of LPG shipowners, many of whom are finally able to relish the fruits of their labor. Freight rates on the sector’s the largest vessels, Very Large Gas Carriers (VLGCs) are in uncharted territory, topping $100 per metric ton this week on the benchmark Arabian Gulf to Japan trade. As the supply for LPG continues to grow with increased natural gas and crude oil production, incremental seaborne transportation requirements will mount. As with other shipping markets, oversupply concerns are omnipresent, but, for now, the near-term future for LPG shipowners appears to be graced by the Midas touch.
 
Moonlighting in the Sunshine State
April 04, 2014
A recent, This Week In Petroleum, published by the US Department of Energy’s Energy Information Agency (EIA) suggested that a shift in Florida’s gasoline supplies could be underway. Florida is essentially entirely dependent on gasoline imports from neighboring states or other countries, the majority of which require marine transportation. The EIA suggested that due to a shortage in Jones Act tonnage and high transportation costs, incremental gasoline cargoes would likely be increasingly sourced from foreign markets. Although it is true that spot market freight rates for tankers under the Jones Act are at all-time highs, the cost of transportation for units moving gasoline from places like Houston, Pascagoula, Mississippi and Convent, Louisiana to Florida has been well-established through term charters for quite some time. Additionally, the volatility in foreign-flag freight rates breaks any semblance of sustained arbitrage. Nestled between the trading and storage hubs of Houston and New York, Florida serves as a balancing point for foreign and domestic freight rates, driving seemingly disparate markets toward parity.
 
Quoth the Raven: Exxon Valdez
March 28, 2014
This week marks the 25th anniversary of the infamous Exxon Valdez oil spill, an accident that would forever shape the marine industry. While the oil industry at large is no stranger to public scrutiny, misinformation and/or media hype, it could be argued that the tanker industry has it particularly tough. In fact, it could be concluded after the Exxon Valdez had an impact disproportionate to the actual magnitude of the spill. Thankfully, the improvements in procedures, vetting standards and operational safety, many of which were initiated by the Exxon Valdez spill, ensure that nearly all of the 50 some-odd million barrels transported by sea daily are delivered without incident.
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