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Tanker Opinions

Another Rumble in the Jungle
July 03, 2014
Although the last of the African soccer teams have left the World Cup in the round of 16, the importance of African nations in the worldwide crude oil markets is poised for a more positive fate. Take Angola for example. The first commercial oil discovery in Angola, then a Portuguese colony, was made back in 1955. After Angola gained independence in 1975, a civil war broke out that lasted for 27 years. As seen in Fig. 1, despite this conflict, Angolan production gradually increased, reaching almost 750,000 barrels per day by 2000 - most of which came from offshore fields off the coast of Cabinda. However, the hostilities did delay the development of several deepwater fields that were discovered in the 1990s. When the internal conflict ended in 2002, production quickly ramped up until 2008 as multiple deepwater fields came online. Angolan production peaked in 2008 at approximately 1.9 million barrels per day. Since then, the country’s production has been stagnant, mainly due to technical challenges as well as steep decline rates associated with some of these fields.
 
Redefining Refining: Separating Condensate from Crude Oil
June 27, 2014
This week’s kerfuffle was prompted by a Wall Street Journal (WSJ) article that boldly claimed:

“The Obama administration cleared the way for the first exports of unrefined American oil in nearly four decades, allowing energy companies to start chipping away at the longtime ban on selling U.S. oil abroad.”

Well, that’s one way to sell newspapers. While not entirely true in the way the WSJ would have one believe at first blush, the express permission via a Private Letter Ruling by the Department of Commerce Bureau of Industry and Security (BIS) that grants two companies, Pioneer Natural Resources Co. and Enterprise Products Partners LP, the ability to export stabilized condensate does raise some existential questions.
 
Eastbound or Down
June 20, 2014
Although the term ‘energy independence’ has significantly receded from US policy vernacular since the advent of shale oil and gas, recent geopolitical developments in Iraq and the Ukraine lend support to arguments made by Keystone XL proponents. Energy independence was a key platform item for President Obama in his first campaign, and perceived or real environmental concerns aside, it seems somewhat hypocritical that crude oil, which is essentially on the US’s doorstep, would not be welcomed with open arms. This week, a Senate panel passed a bill that could permit the Senate to circumvent President Obama on the approval of the project. But, not so fast! The Senate majority leader, Harry Reid, still seemingly stands between the pipeline and its people. Since this decision, it could be argued that the prognosis for Keystone XL’s approval has improved, but even without this particular pipeline Canadian crude oil is and will continue to find its way to (and even out of) the US Gulf.
 
Putting the Mess in Mesopotamia
June 13, 2014
Things appear to be heating up in Iraq, and not just the temperature. Sunni militia, mainly affiliated with the Islamic State of Iraq and greater Syria (ISIS) captured territory in the northern part of the country, including Mosul the second largest city in Iraq, and Tikrit, closer to Baghdad. So far the Sunni insurgents have not threatened the oil rich territory around Kirkuk and the southern part of the country. But their rapid conquests raise fear the country is in its way to a brutal ethnic battles and civil war, with the potential of sucking in international powers and neighboring countries.
 
The World Cup Runneth Over
June 06, 2014
As the World Cup kicks off next week, many a watchful eye will be drawn to the pastoral pitches of Brazil. Like many countries that host international sporting events, a flurry of construction and knock on fuel demand will likely ensue. Aside from the short-term economic benefits of being a host nation, larger transitions are taking shape in the Brazilian petroleum industry that will yield broader ramifications for the tanker market for many years to come. The last decade saw Brazil transform from a net fuel importer to a crude oil producing powerhouse. But Brazil’s existing refineries, not unlike the United States', were built to handle a crude oil type of yore: that said, new refining capacity is due to come on stream in the next few years that will more effectively process the Brazilian crude oils of today. As a result, Brazil will likely evolve into a more balanced petroleum nation perhaps to the detriment of demand for certain tanker sectors.
 
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. 

 

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