GIBSON WEEKLY REPORT
What matters for Tanker Flows ?
Weekly Tanker Market Report
Week 36 | 7th Sep 2018
In the tanker market, there are many factors not directly related to shipping but which could still have a major impact on shaping up both crude and product tanker flows. The prime example of that is the US shale oil revolution. The resulting surge in US crude production not only enabled a spectacular growth in short and long haul crude tanker trade but also supported an ongoing strength in seaborne exports of US clean products. Large scale pipeline infrastructure projects would be another good example. In Russia, a successful completion of the 1st stage of the East Siberia Pacific Ocean (ESPO) pipeline, including the link into China mainland, limited the export flow of Russian crude from the Baltic and Black Sea ports but at the same time boosted demand for Aframax tonnage in the Far East. Once the 2nd stage of the ESPO line is completed, due in 2020, this will translate into even more barrels being exported from the Russian port of Kozmino, located on the coast of the Sea of Japan. In contrast, a looming pipeline crunch in the US from the Permian basin to the US Gulf threatens to slow the growth in US crude exports in the short term. However, several pipeline projects are scheduled for completion in late 2019/early 2020; which, once online, are likely to offer a big boost to crude tanker trade out of the US.
Changes in regional refining capacity is also a critical factor that should never be ignored. In the Middle East, Saudi Aramco aims to start its new 400,000 b/d Jizan refinery later this year, while in Kuwait a new 615,000 b/d Al-Zour plant is pencilled to come online in 2020. Once these projects are fully operational, product exports are expected to increase substantially, as they did back in 2015/16 when a number of new regional refineries came online. This, however, also poses a threat to the Middle East crude exports, if barrels are diverted from export markets into domestic refineries. Will this be the case? Refining capacity in Asia continues to grow, supporting incremental demand for crude both from the Middle East and from further afield. We also are seeing a trend of national oil companies (NOCs) looking at refining projects in other countries, trying to secure the market for their crude. Earlier this week, Reuters reported that Saudi Aramco plans to deliver in October the 1st crude oil cargo to its joint-refinery project (RAPID) with Petronas in Malaysia. RAPID will contain a 300,000 b/d refinery and a petrochemical complex, with refinery operations set to begin next year. According to the same source, Aramco will supply 50% of the refinery crude oil, with the option of increasing it to 70%. As the Middle East oil companies build their presence in the downstream sector overseas, this suggests that the negative impact on the regional crude exports, following new refinery start- ups, could be limited.
In contrast, the future trade dynamics are likely to be very different in West Africa, following the start-up of the massive 650,000 b/d Dangote Oil refinery in Nigeria. The refinery is officially planned to start operations in 2020; however, the latest Reuters report indicates that the project could be delayed until 2022. Once the refinery comes online, it will have double negative implications for the tanker market. Crude exports are likely to come under downward pressure and, as Nigeria is a large importer of products, these are also likely to decline.
Of all the factors described above, the new refinery in West Africa represents perhaps the biggest threat to tanker trade. Nonetheless, as US crude exports are expected to continue to grow in the medium term, this will help to mitigate the threat to dirty trade, and possibly offset it completely. West African product flows are still likely to change dramatically. However, if the Dangote Oil refinery proves to be a success, could we also witness a change in direction of the trade, with the surplus of Nigerian products being exported both regionally and across the Atlantic?
Crude Oil-Middle East
VLCC Charterers do their utmost to hold off showing their last decade positions here and, with this apathetic attitude, rates have drifted off a little against a gradual build-up of tonnage available for the remainder of the month, which is also likely to suppress any potential optimism going into the last quarter of the year. Last done levels are 270,000mt x ws 52 for a generic AGulf/China run and 280,000mt x ws 18.5 via Suez for a voyage to the USGulf. The MEG has simply been suffocated by exceedingly long Suezmax tonnage supply. Even a spurt of late week Basrah cargoes could not lift the current levels of 140,000mt x ws 27.5 to the West and no less than 130,000mt x ws 80 East. Next week, will see October dates worked; however, with tonnage still long on supply, more of the same is expected. Fresh tests at the start of this week in the AGulf highlighted the change in the Aframax landscape. Two quiet previous weeks passed, resulting in a build- up of tonnage. Consequently, when Charterers entered the market this week, the axe on the rates came down. AGulf to Red Sea rates dropped from $900k (last done) to $600k, whilst AGulf-East rates dropped down to 80,000mt x ws 107.5-110 levels.
Crude Oil-West Africa
The week started with Suezmax Owners in a bullish mood but this was purely sentiment driven. The majority of fixtures concluded this week have been at 130,000mt x ws 72.5 to Europe. The week has ended on a slightly firmer note West at ws 75 to Europe but, levels to the East have now softened to 130,000mt x ws 82.5. Limited interest throughout the week, combined with the faltering AGulf market, ensures Owners here are facing an uphill task in securing last done levels. Some consolation and potential ray of hope is that the USGulf market remains healthy enough to provide a viable alternative to any Owner committed to coming West. Last done is 260,000mt x ws 54 to the East.
Crude Oil-Mediterranean
With a couple of low fixtures concluded last Friday, put the cat amongst the pigeons in the Mediterranean Aframax market this week. Although most Owners could see reasons for the low fixtures being achieved and to be otherwise positive, it was hard for them not to discount follow-up fixtures from the previous highs. Consequently, vanilla Ceyhan/Med voyage rates slipped down to 80,000mt x ws 117.5 over the course of the week and a low of ws 115 was concluded for a CPC/Med voyage. Libya voyages achieved small premiums but, otherwise, rates remained pretty stable at the end of the week despite some heavy fixing. Suezmax tonnage has been in good supply this week and, in turn, levels have eased off to 140,000mt x ws 82.5 from Black Sea to European destinations and $2.85 million East.
Crude Oil-Caribbean
With storm Gordon flexing his muscles in the area, Aframax positions have become few and far between, giving Owners with a firm position the opportunity to secure some healthy premiums. Last done up coast is 70,000mt x ws 167.5, with there being every opportunity that further premiums to be achieved. In contrast, the VLCC market remains somewhat deflated, with limited interest from the USGulf region and even less from the Caribbean. Levels may well come off from last done, which stands at $5.3 million from the USGulf to the Far East and $3.65 million to West Coast India.
Crude Oil-North Sea
A week to forget for Northern Owners, as the perfect storm left vessels high and dry. Maintenance, an oversupply of vessels and a warm Med market has caused Owners to consider their options. At current levels, when looking at a general X-North Sea cargo, the returns are close to zero and, with vessels opening up short in the Baltic, Cont Owners are unable to compete. The Med market has attracted a number of ballasters, who will take what returns that they can get. The September outlook remains low but, looking ahead, Owners can hope for an uptick after the maintenance period is completed. VLCC interest keeps to its barest minimum here, expect levels to slightly come off in line with other load areas, which are also suffering. Expect levels around the mid
$4 million mark for a Hound Point/South Korea run and roughly $3.4 million for a fuel Rotterdam/Singapore run.
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