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VLCC Utilization Up in November

Dec. 13, 2018

In November, VLCC utilization increased to the highest level observed since the beginning of the year at 60.55%, nearly as high as the level observed in November 2017 (60.58%).  Through the first 11 months of the year, utilization has averaged 59.99%, compared to 61.95% in the same months of 2017 (Figure).  Although both ton-day demand and ton-day supply decreased month-on-month, the pace of declines in the latter was greater than the former, placing upward support for utilization.  Ton-day demand decreased by 1.0% month-on-month in November, a slight acceleration from the prior rate, while ton-day supply ...

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More US Crude to Come

Oct. 17, 2018

The latest US Energy Information Administration (EIA) official monthly shows the continued strength in US crude production with July up to 10.96 million b/d, a gain of roughly 270,000 b/d month-on-month.  This also marked one of the higher months for crude exports with 2.1 million b/d observed in July, compared to 2.2 million b/d in June.  Since this period, volumes have declined considerably amid a narrowing of the Brent-WTI crude differential, which averaged just US $3.27/bbl over July compared to US $6.85/bbl in the prior month.  The lower ...

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The Return of Brazilian Demand

Oct. 10, 2018

The Brazilian economy is on track to expand by 1.8% this year, a downward revision from the International Monetary Fund’s (IMF) initial expectation of 2.3% in January.  This downward revision is due to lower than expected consumption, exacerbated by fuel strikes observed across the country, placing a halt on the transportation of goods.  As a result, refined product demand found pressure in May, particularly for gasoline and diesel with the former finding additional weakness in a preference for ethanol consumption due to higher fuel pricing.  We are beginning to see demand pick up yet again; however, a ...

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The Middle East Cleans Up

Sept. 20, 2018

The Middle East stands as the largest crude export region in the world with about 20 million b/d of outflows annually; however, what is perhaps less realized is its growth potential as a clean product export region.  We are beginning to see a fundamental change in the Middle East petroleum industry, with initiatives from government entities to diversify away from reliance on upstream revenues and towards a wider scope of product exports.  As a result, the Middle East has expanded refinery capacity to reach 9.4 million b/d as of the end of 2017 from just 8.4 ...

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The Rise and Fall of West African Crude

Aug. 9, 2018

West African crude supply has faced recent pressure due to aging oil fields in both Nigeria and Angola as well as pipeline constraints in the former; however, pressure is likely to be relieved in the second half of 2018 and moving into 2019.  According to JBC Energy, Total’s Kaombo project came online with an initial production capacity of 115,000 b/d, while a second FPSO is projected for 2019, bringing levels to 230,000 b/d.  Unfortunately, this will only provide a short-term boost to Angolan production through 2019 as chronic underinvestment in prior years will come to ...

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Conflict Shakes Middle East Exports

July 26, 2018

Saudi Arabia has announced a temporary halt on oil shipments via Bab el-Maneb with immediate effect after reports of two tankers attacked by Yemen’s Houthi militia surfaced mid-week.  It’s been reported that the two vessels were owned by Bahri (Saudi National Shipping Co.) and that no injuries or spills resulted from the incident.  Bab el Maneb separates Yemen and East Africa and is one of the largest shipping channels in the world, allowing Arabian Gulf petroleum exporters access to the Suez Canal and in turn the European market.  A halt of flows through this channel is sure to ...

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A Potential Monumental Shift

July 9, 2018

US President Trump criticized OPEC for the recent rise in fuel prices, citing that the US pays for defense for many of the groups’ members and therefore, OPEC should make an effort to increase crude supply to pressure global pricing.  Additionally, Iranian President Rouhani hinted at the idea that Iran could disrupt the flow of crude exports out of the Arabian Gulf, while an Iranian Revolutionary Guard commander explicitly stated "If they want to stop Iranian oil exports, we will not allow any oil shipment to pass through the Strait of Hormuz." 

A disruption of this magnitude would result in ...

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Trans-Atlantic Crude Spread Gets Squeezed

June 28, 2018

The US crude export market continues to boom with the latest preliminary weekly estimates from the US Energy Information Administration (EIA) showing a record 3.0 million b/d.  The main driver continues to be a wide discount for WTI crude versus other global benchmarks as North American crude supply growth outpaces demand, projected at 15.7 million b/d by the end of 2018.  This is largely a function of rising crude output in the US and Canada; however, recent news indicates that supply outages in the latter could threaten this trend.  The world’s fourth largest oil producer ...

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Rough Seas on the Route to Recovery

June 21, 2018

The Mediterranean market stands, in our view, as a growth story for tanker demand, indicated in our 2018-2022 Tanker Market Outlook in the context of rising crude production in the Caspian Sea and Libya.  Although confident in growth, we also understood that some level of risk surrounded Libya due to domestic tensions.  Towards the conclusion of 2017, it seemed as though tensions had cooled, allowing upstream operations to gain ground with crude production finishing the year at about 1.0 million b/d (Figure).  Since then, we have observed output levels remain elevated, just over 1.0 million b/d ...

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Suezmaxes Find Utilization Support

June 19, 2018

Throughout May, we observed Suezmax freight rates make considerable gains compared to the previous month with TD6 trading up about 16% month-on-month.  Gains along this trade as well as others can be attributed to 63.4% utilization in May versus 62.1% the prior month (Figure).  This is driven by stronger demand fundamentals against vessel supply (which declined month-on-month) as the Black Sea/Mediterranean market continues to provide support for this sector.  We count roughly 124 loadings in this region in May, a 65% gain month-on-month and the highest levels since 2014, when our vessel position data begins.  Spot fixing ...

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More to Come Down the Road

May 10, 2018

Tanker freight rates have experienced weakness this year as persistent over ordering in previous years come to fruition in the form of an unbalanced market.  The fundamental relationship between transport demand and vessel supply truly dictates the direction of the market as our remotely-sensed vessel position data points to declining vessel utilization.  Using an exponential regression, we calculate the R Squared of the combined VLCC and Suezmax utilization (independent variable) on the combined TCE earnings to be 0.81, a strong correlation statistic.  On an equal weighted average, we note TCEs declined about 70% in the first four months of ...

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Europe Pulls US Crude

April 25, 2018

Interest to ship US crude into the European market has been rising in recent weeks, driven by a combination of increased demand in the latter and favorable crude pricing.  Suezmax and Aframax spot activity to load end April/early May has increased in the US Gulf with a strong preference to travel trans-Atlantic.  European refinery runs are beginning to ramp again as maintenance season comes to an end with JBC Energy projecting just around 120,000 b/d of offline capacity for June, coming off 900,000 b/d in May.  A recent uptick in refinery runs is providing upward ...

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Chinese Product Push

April 18, 2018

Asian refining margins remained relatively stable over the first quarter of 2018 with Singapore margins largely supported by a stronger middle distillate segment.  Growth in product exports out of this region has been quite strong over 2016/2017; however, we note a weakening of this trend in the second half of 2017 and into this year, excluding China which has observed the contrary.  According to official data from the Joint Organization Data Initiative for Oil and Gas, towards the end of 2017, China’s gas oil/diesel balance rose to a height of 476,000 b/d over November/December ...

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Mexico’s Clean Imports on the Rise

April 10, 2018

The Caribbean refining sector remains under pressure with recent market reports indicating that utilization declines have exceeded the typical seasonal decline for this period.  JBC Energy estimates that Mexican refinery utilization dipped to a low of 33% in February, from a high of 65% in July 2017, amid lower crude throughputs at six Pemex refineries (Figure, orange arrow).  Levels at these refineries averaged less than 550,000 b/d in February, down about 385,000 b/d versus the same period in 2017, when utilization was around 51% of capacity.  Even though the Madero and Minatitlan refineries returned online late ...

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West Africa Under Pressure

March 21, 2018

Suezmax rates in West Africa have come under pressure recently, with TD20 last assessed at WS 52.5, about 9% lower than the year-to-date average.  Rates made considerable gains towards the WS 70 level at the start of the month in concert with a tightening of the regional position list, which fell to the lowest level since the beginning of the year.  In general, Suezmax demand out of West Africa has been quite strong this year with a 31% rise in spot market activity year-on-year, according to our commercial fixture database.  We note considerable growth in volumes bound for Asian ...

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Dubai Weakness Promotes AG Exports

March 15, 2018

In McQuilling Services’ March Short-Term Outlook, we expressed our expectation of higher crude demand out of the Arabian Gulf in the near term due to recent weakness in Dubai crude pricing.  In our report, we note the expansion of the Brent-Dubai crude differential, averaging about US $3.04/bbl through the first half of March, up from US $2.61/bbl in February.  The growing presence of US crude flows to Asia is likely a supportive factor as we observed February crude exports average roughly 1.5 million b/d, according to preliminary estimates by the US EIA, which compares ...

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Steel Prices Are Rising….For Now

March 6, 2018

The US administration recently proposed the implementation of 25% and 10% import tariffs on steel and aluminum in an effort to support production of metals at home.  Critics claim that the increased cost of importing resources will likely be passed along to the consumer and businesses, negatively impacting economic growth; however, supporters believe this is a necessary step towards “America first” policies and revitalizing US industry.  It remains unclear how these policy changes will impact prices; however, regarding the tanker market, a rise in global steel prices could prove beneficial to the rebalancing efforts.  February steel prices are estimated at ...

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Caribbean Fundamentals Pressure Demand

Feb. 27, 2018

In our 2018-2022 Tanker Market Outlook, we explained our future expectations of weaker Aframax demand along the Caribbean > US Gulf trade, which accounts for roughly 4.7% of total sector ton-mile demand.  In January, we stated “On the other side of the Atlantic, the benchmark Caribbean > US Gulf trade collapsed by 11.3% in 2017 as a result of lower Venezuelan exports at the expense of longer-haul trades.  In 2017, Venezuela’s crude only exports to the US are estimated total 25.5 million tons.  Slowing Venezuelan production is expected in the medium term with as much as 300,000 ...

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Tonnage Supply Adjustments

Feb. 22, 2018

Port delays extend the duration of a voyage and reduce tanker availability.  In extreme cases this can have a significant impact on short-term freight rates. Over the past years, we observed how extended delays can create upward pressure in the market.

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Asset Market Review – VLCC

Feb. 20, 2018

Over the course of 2017, VLCC tanker values exhibited price depreciation for the second consecutive year, as the market fundamentals put pressure on earnings.  Newbuilding contracts averaged US $82.8 million (basis Korea/Japan), a decline of 8.5% from 2016 average values; however, the second half of the year is pointing to a firmer market as yard capacity remains constrained and owners, backed with charter coverage, look to capitalize on the lowest annual prices since 2003 (Figure). 

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European Aframaxes

Feb. 15, 2018

In 2017, Aframax demand rose 0.6%, largely in-line with our January 2017 forecasts.  Growth was observed in European regional trading, with the Southern Europe > Northern Europe route climbing 10.3%, while the intra-regional Southern European trade grew by a similar 10.1% as higher crude  supply from Libya and Ceyhan (1H) provided regional refiners with advantaged feedstock pricing and supporting both margins and product output.

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Deletion Forecast Methodology

Feb. 13, 2018

We continue to analyze and enhance our own forecasting methodologies with each annual Tanker Market Outlook cycle and this year is no different as we have improved our long-term deletion forecast methodology.  Deletions from the trading fleet can occur through demolition or conversion of tankers to storage operations.  In each of these cases, the owner has made a fundamental decision based on unique characteristics of their financial situation, market view and investment criteria.  In previous Tanker Market Outlook editions, our criteria for determining future deletions from the fleet were the 15th, 20th and 25th ship anniversary.  In ...

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CPP Tanker Ton-Mile Demand

Feb. 6, 2018

In examining bilateral country trade flow data, we recorded a 2.1% rise in CPP ton-mile demand distributed across the four tanker segments we analyze (Figure).  At 2.23 trillion ton-miles, CPP marine transportation requirements make up 17.3% of all tanker demand, the highest on record.  By comparison in 2000, CPP marine transportation accounted for just 7.79% of total tanker demand.

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CPP/Chemical Fleet Profile

Jan. 30, 2018

The product tanker and chemical tanker fleets reflect their more recent evolutions, particularly on the larger segments.  Correspondingly, owners’ interest is skewed towards LR2 (coated Aframaxes) and MR2 (Chemical) tankers with a surprising disinterest for new LR1 orders.  As of January 2018, we calculate the orderbook percentage of LR2s and LR1s at 15% and 6%, down from 20% and 12% at the same time last year, respectively.  

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West Africa Poised for Pressure

Jan. 26, 2018

Suezmax demand outpaced all other sectors in 2017, growing from 2.35 trillion ton-miles to 2.59 trillion ton-miles, about a 9.8% change supported by increased Middle East flows to Europe and long-haul trading  from the West (Southern Europe primarily) to the East.  However, we observed weakness in the West African Suezmax trades into Europe amid higher crude oil output in the latter and a sizeable shift of Brent-linked West African volumes heading to the East aboard VLCC tankers.  

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Tanker Market Outlook Enhancements

Jan. 25, 2018

With each publication of our annual outlook, we continue to incorporate enhancements based on our internal review and feedback from clients.  This year is no exception and several enhancements in research, methodology and presentation have been included in the 2018-2022 Tanker Market Outlook.

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Shipping Finance Markets

Jan. 22, 2018

The fall in shipping deals witnessed since 2014 continued into 2017 as reported deals were valued at an 11-year low of US $28.9 billion (Table).  Investor sentiment remains weak as the total value of shipping deals in 2016 fell 40% year-on-year.  Institutions continue to exit the shipping space as market fundamentals pressure the earnings environment, reducing investor returns.  However, we do note that the emergence of leasing companies has increased the allocation of capital by “other debt” participants to 36%.  

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McQuilling’s Forecast Coverage Expands

Jan. 19, 2018

In this year’s Tanker Market Outlook, we have adjusted the benchmark VLCC route to TD3C AG/China (270,000 mt Ras Tanura to Ningbo) to better represent earnings in this sector in conjunction with the industry’s demand to do so.  We have expanded our coverage of the Suezmax sector to include the AG/Mediterranean (140,000 mt Basrah to Lavera) trade, giving us a better perspective on Suezmax earnings to the West.  

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McQuilling Forecast Performance - 2017

Jan. 18, 2018

Our overall forecast performance for 2017 was within 6.4% of actual market freight rates across the 19 trades that were monitored in the 2017-2021 Tanker Market Outlook.  This was achieved throughout a year that could be characterized by significant tanker oversupply, geopolitical tensions and e volving oil market fundamentals.  This metric is a measure of the absolute average of the total variation on a trade-by-trade basis, regardless of whether we overcast or undercast the market on each trade.  In other words, it is a measure of how close we came, on average, to the actual spot market rates observed ...

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DPP Tanker Demand Drivers

Jan. 17, 2018

In 2017, we recorded the average mileage for DPP maritime volumes to be 4,564, a 2.3% rise from 2016 levels and 6.8% higher than the beginning of the decade.  The most impressive gains were present in the Suezmax sector, whereby average voyage-mileage increased 3.6% in 2017 due to increasing Southern European flows to Asian refining centers amid crude pricing arbitrages.  VLCC mileage increased 1.2% to 6,689 miles in 2017 as a decline in Middle East flows to the West were offset by market gains in Atlantic Basin exports to the Asian refining complex (Figure ...

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Tanker Fleet Utilization

Jan. 16, 2018

The concept of  real time  demand using remotely sensed vessel position data is predicated on the ability to draw  conclusion  about a vessel’s condition at a certain point in time.  The ability to capture daily demand is a step change in current methodologies of assessing ton-mile demand.  Historically, tanker demand (measured by ton-miles) relied upon lagging data,  often times  incomplete and revised at a later point.  Delving further into daily demand data, we explored the delineation of the data to account for disadvantaged tankers.  At this stage, the definition is simplified to include vessels that are over the age ...

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Tonnage on the Water

Jan. 15, 2018

A beginning inventory figure for the  eight vessel  classes we track is extracted from our proprietary database during the Tanker Market Outlook process. For the clean sectors, we historically calculated supply for product carriers and IMO 3 class vessels only; however, are now including the Chemical IMO 2 fleet due to its increasing utilization for the marine transportation of refined products amid volatile chemical tanker demand.  Chemical ships with an IMO II/III designation are evaluated on a monthly basis to determine whether their classification has changed and updates are reflected in our inventory numbers.

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Unrest in the Middle East

Jan. 12, 2018

Tensions in the Middle East rose significantly in the second half of 2017 amid increased internal conflict within Iraq.  The Iraqi conflict between the central government and the Kurdish Regional Government (KRG) made headlines at the close of September 2017 as the KRG conducted a referendum to become an independent nation from the central government.  Included  within  the referendum was the city of Kirkuk, which the central government of Iraq viewed as a method to consolidate Kurdish control over oil infrastructure.  As a  result  the Iraqi military conducted an operation to regain control of the Kirkuk area, its oil assets ...

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Crude Oil Supply Outlook

Jan. 11, 2018

Global crude supply growth is projected to rise by 1.5 million b/d, despite continued efforts from OPEC and non-OPEC countries to reduce output levels, according to data from JBC Energy.  After feeling declines of about 545,000 b/d year-on-year in 2017 the Middle East is expected to make modest gains of 135,000 b/d this year.  This figure could change considerably if we see a reduction of compliance or a failure of the extended accord; however, both are unlikely through 2018.  

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Petroleum Demand Outlook

Jan. 10, 2018

Looking back on 2017, global oil product demand rose by approximately 1.5 million b/d amid a combined 884,000 b/d of additional gasoline and diesel/gasoil demand.  Global demand levels are poised to rise 1.3% year-on-year in 2018 amid higher requirements for all refined products excluding fuel oil which is expected to experience demand declines of 0.7% year-on-year, according to JBC Energy (Figure 1).  The highest amount of growth expected this year is within the jet fuel/kerosene sector with 2.1% growth year-on-year, while demand for diesel/gasoil and gasoline is on track to ...

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Crude Flows: West to East

Jan. 9, 2018

The Mediterranean/Black Sea has grown as a West to East crude exporter with 23 VLCCs loaded in this region bound for the Far East and South East Asia in 2017 versus 17 in 2016.  Considerable growth has also been witnessed in the Suezmax sector with 176 vessels loaded for East discharge in 2017 compared to 109 in 2016.  The growth of crude output in Kazakhstan coupled with redirected Russian barrels from the Baltic Sea to the Black Sea has supported this market, which we expect to continue in 2018; however, we note that increased production cut compliance in Kazakhstan ...

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Global Crude Storage

Jan. 8, 2018

Data from the International Energy Information Administration (IEA) indicates that OECD oil stocks (including strategic petroleum reserve) rose about 140 million barrels year-on-year to average 4.6 billion barrels in 2016 as Brent crude oil pricing consequently traded down nearly US $10/bbl to average  US  $43.50/bbl.  This trend significantly changed with the turn of 2017 as OPEC led efforts to reduce crude production coupled with record refinery throughputs supported a drawdown of global storage volumes.  While data for the fourth quarter of 2017 has yet to be released, when comparing the first three quarters of 2017 to ...

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Economic Pressure in European Politics

Jan. 5, 2018

The European Continent experienced political volatility this year amid presidential elections, independence disputes, and Brexit negotiations.  Chancellor Merkel secured a fourth term at the head of Germany, providing confidence in staying the current course as opposed to the prospect of new leadership and policy uncertainty.  Despite this, GDP growth in Germany is forecast to fall from 2.0% in 2017 to 1.8% in 2018, likely to be dragged down by the overall performance of the Euro Area. 

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2018 European Product Balances Shrinking

Jan. 4, 2018

According to JBC Energy, it is estimated that the European region (Northern Europe + Mediterranean) will produce 22.9 million b/d of refined products in 2017, while demanding 20.9 million b/d, which would imply an 182,000 b/d rise in product balances year-on-year, basis 20.7 million b/d demand and 22.5 million b/d supply in 2016.  

Both regions have supported clean product trading with ton-mile demand out of Northern Europe over the first nine months of 2017 averaging 2% higher than 2016’s full year average, while the Mediterranean has observed significant growth of ...

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OPEC Accord Continues

Jan. 3, 2018

At the start of 2017, the Organization of Petroleum Exporting countries and non-OPEC production cut agreement was implemented to cap oil output levels, reduce global supply and support crude pricing.  With the majority of OPEC members included in the agreement apart from Nigeria, Libya and Iran, official monthly production data from OPEC tells us that total oil output from the group was reduced by an average of 620,000 b/d year-on-year, through the first 11 months of the year.    Russia was also major contributor, keeping production relatively flat year-on-year at 10.9 million b/d, a 300,000 b ...

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The US Crude Export Market Emerges

Jan. 2, 2018

The main driver behind the interest in US crude has been pricing incentives as considerable pressure has been placed on WTI in comparison to other benchmarks.  US crude production rose 4% year-on-year to an average of about 9.2 million b/d in 2017, while Canadian output is also up around 4-5% in 2017.  As a result, the North American crude balance is on track to expand by 4.7% in 2017 to 14.2 million b/d putting significant pressure on WTI relative to Brent.  The wide differential between these benchmarks and the upward pricing pressure on Dubai due ...

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