Last week we examined a few of the key events and developments for the DPP and CPP tankers markets as well as global oil supply and demand for 2020. This week we will attempt to highlight a few key trends that we see emerging in the oil and tankers markets, in anticipation for a year without pandemic-related restrictions and a return to “normal”.
Looking at the global oil supply and demand environment, we naturally expect both oil demand and supply to rebound from the negative numbers of 2020. What is key though is that according to our latest numbers, demand ...
A Year-End Review
Dec. 24, 2020
As the tumultuous 2020 comes to a close, we wanted to take this opportunity to write a short review of the events that left their mark on the markets, keeping the focus on oil supply and demand fundamentals and their influence on the as Crude/DPP and CPP tanker sectors.
In terms of oil supply & demand, the numbers have in-fact created some deep valleys this year, with a hopeful slingshot reversal in 2021. The coronavirus pandemic kept people in their homes, and crude oil as well as its products such transportation fuels started filling up storage tanks instead of cars ...
A Positive Export Picture for Brazil Crude
Dec. 18, 2020
Brazil, and generally the East Coast of South America has been a permanent segment of any discussion regarding crude oil supply and demand throughout the year. The reason is the relatively steady output and export volumes that have been coming out of the country, even during the peak of lockdowns amid the coronavirus spread. In this weekly highlight, we attempt to take a quick look at what the future of crude oil production and exports may look like for the region, focusing on Brazil, by far the largest producer in it.
Beginning with some fundamentals, Brazil’s economy has underperformed ...
Refinery Closures and their Impact
Dec. 11, 2020
We have previously discussed refinery capacity additions outpacing underlying demand growth due to the resurgence of coronavirus infections, with unfavorable refining economics resulting from the subsequent lack of demand for products as well as the above average level of product inventories. A somewhat “natural” outcome, we predicted, would be to start seeing more consolidation, conversion of existing crude distillation units to storage terminals or biofuel processing facilities, and in some cases, outright closures.
Indeed, for the past few weeks we continuously see news reports on refinery closures, especially in Asia where the processing capacity expansions of 2019 - 2020 that reached ...
Thoughts on Iran and Venezuela in the Context of a Biden Administration
Dec. 4, 2020
Beginning with Venezuela, a Biden administration could potentially be considered more “lenient”, thus opening-up a path to diplomacy rather than the heavy-handed approach from the Trump administration. But, even under ideal circumstances - Venezuelan production declines are not easily reversible after chronic under-investment, considering also that maintenance has been minimal at best over the last few years. The main importers of Venezuelan heavy, sour crude have historically been the US, China and India. These barrels would substitute other heavy sour barrels (mostly AG). With that in mind, if those three buyers were to increase, the impact is more Aframax demand from ...
A Growing Aframax Trade?
Nov. 20, 2020
A few days ago, we saw another crude oil cargo leaving Northern Europe with destination the US Atlantic Coast. While not that significant as a singular event, it gives us the opportunity to discuss a potential rising trade in the Aframax sector. It has been our position for a while now that it is very likely to start seeing more crude cargos from Northern Europe to the US East and Gulf coast and in order to explain that, we have to start by looking at the crude balance for both regions.
With a pandemic that doesn’t seem to slow ...
HSFO on the Rise
Nov. 13, 2020
As promised on last week’s highlight, we are interested in exploring the potential scenario of high sulfur fuel oil (HSFO) pricing very close or even at par with very low sulfur fuel oil (VLSFO) in the near-term. As we had predicted, VLSFO and not MGO became the fuel of choice after the IMO 2020 regulations took effect on January 1st. Despite, or better, because of that, scrubber installation became a “hot” topic during the time leading up to the transition as shipowners wanted to take advantage of the, at the time, expected high price spread between the two ...
A Surge in Drydocking (Vol. 2)
Nov. 6, 2020
One of the main topics of the weekly highlight for the previous month is coming back in the spotlight. VLCC drydocking activity in October surpassed even our previously elevated expectation, recording the highest level (40) in recent times. This did not come as a surprise since we have already discussed how very few ships went in for drydocking during the first half of the year amid a pandemic and very high freight rates. Despite our anticipation though, the numbers we saw for October are nothing short of extraordinary.
According to the latest available data, 40 unique VLCCs have entered drydock ...
US Crude Export Scenarios - Updates
Oct. 30, 2020
Given the US is the largest crude oil producer in the world, it is worth taking a closer look at the potential scenarios that can develop for the region and its exports. We have touched on this subject a few months ago and we always like to take a fresh look and approach and data is refreshed and updated. As with other aspects of the crude markets, we like to focus on the crude balances as it has been demonstrated that they remain a main driving force of exports and imports in a region.
Looking at a high-level picture of ...
A Short Outlook on Refining
Oct. 23, 2020
The story of the interaction between oil supply and demand is, of course, closely related to the future of the refining sector. In 2019 and 2020, we saw the most significant refinery capacity expansion in the Far East and Southeast Asia regions (Figure 1). It is worth noting that contrary to the production side, refining additions are usually projects that have begun some time ago, so their completion time was not likely to be affected much by the global pandemic.
Back to the Far East and SE Asia, we have already seen the additional capacity playing its role in supporting ...
A “Mild” Winter for the Tanker Market
Oct. 16, 2020
If there is one thing in the tanker markets that all analysts can agree on, that is its seasonal nature. Despite various events that may be affecting the market one way or another, there is a certain cyclicality to be observed every year, one that culminates in a typically firmer winter market.
That, of course, along with myriad other things we used to take for granted has come to be upended by a global pandemic that began in the Far East in the last months of 2019 and has since expanded the globe, bringing unprecedented economic pressures in almost all ...
Cargo Switchovers and the CPP Market
Oct. 9, 2020
Last week we discussed if the DPP tanker market has reached the bottom, with a fixture done at single WS digits -something that even the most seasoned brokers have a hard time recalling ever happening. This week we want to highlight a more specific trend in the CPP sector, that of cargo switchovers.
Throughout this time of depressed freight rates, we have been talking about some opportunities in the CPP sector, such as the emerging naphtha trade from West to East. By analyzing product balances, we are confident that the trade has the potential to continue, showing limited support in ...
Is it the Bottom Yet?
Oct. 2, 2020
Over the last couple of months, the DPP market has gone through a tremendous downward correction, as we have to consistently adjust the Y-axis of our charts in order to display the spot market freight rates. Just when we are wondering whether we have reached the bottom and hoping for the normal “winter market” for the 4th quarter, the Suezmax tanker, Nissos Sifnos, is reported to have been fixed at WS 9 for Basrah Oil Terminal / Mediterranean.
Although this vessel happens to be a newbuild tonnage which typically fix at a lower-than-market level, this reported fixture has well-demonstrated the ...
All Eyes on Libya
Sept. 25, 2020
The discussion on the status of Libyan crude oil production has been a contested topic almost since the beginning of the blockades in the country’s oil producing facilities back in January. In fact, as analysts we have been trying to project developments in the region, especially after the destruction of demand due to the pandemic followed by OPEC’s biggest production cuts in history. With such fragile balances in the global supply and demand environment for crude oil, it is understandable how the recent announcements for the return of production in Libya is making headlines.
The commander of the ...
Floating Storage: Is There a Second Wave?
Sept. 18, 2020
We couldn’t help but devote some time into assessing whether the recent “chatter” about a second wave of floating storage has the potential to become a reality and thus support tanker rates; rates which have been suffering by all accounts lately. In short, we feel that there isn’t enough yet to warrant such a development, but as we have seen lately, stranger things have happened.
The conversation began when a well-known trader fixed at least 5 VLCC tankers on short-term time charters, presumably to be used for floating storage purposes - well after the observed peak in May-June (Figure ...
The Time for VLCC Drydocking
Sept. 11, 2020
We have touched on the subject of drydocking and scrubber installations a couple of times this year so far. The number of ships entering drydock to retrofit scrubbers or for regular maintenance has always been an important piece of the tonnage supply puzzle. Especially in the VLCC sector, the market has historically shown a tendency to find some support when a large number of ships comes off the trading fleet. A good example of that was the period August-September 2019 when we observed a flurry of scrubber retrofits in preparation for the IMO 2020 regulations.
This year, the discussion on ...
Another Motivator for Ship Deletions
Sept. 4, 2020
We have been following the news of the VLCC New Diamond that suffered from a boiler explosion and was set ablaze in the Indian Ocean, near Sri Lanka. Of course, the main tragedy has to do with the one crew member out of a total of 23 who lost his life in the accident, but we can’t help but also consider the potential implications for the environment as well as the economic ones. In the center of this accident, often overlooked, was the fact that the vessel was reported to be a 20-year-old tanker that was still operating normally ...
The Hurricane Pattern on CPP Freight rates
Aug. 28, 2020
The Hurricane Laura has roared throughout the US gulf region this past week, resulting significant delays or closures in major ports and ship channels, especially in Louisiana. A chemical leak has also been reported near Lake Charles on Thursday with shelter-in enforced around the area. According to Platts, two Lake Charles refineries and five more in Texas were closed in advance of Laura’s landfall, over 2.3 million b/d of refining capacity. The five Texas refineries should restart soon after the safety inspections.
Simultaneously, the CPP freight rates have jumped phenomenally in the East side of Atlantic Basin ...
What to Expect for the DPP Tanker Demolitions
Aug. 21, 2020
We have done a lot of work utilizing historical data to find a way to determine when a ship has a good probability of exiting the trading fleet based on age and other characteristics. For example, in our analyses in the past, we have shown that 67% of 24-year old VLCCs in a given year exit the trading fleet and so on. Another interesting piece of information that can help paint a picture of the supply side of the tanker market is combining age information with known drydocking schedules. This becomes especially important this year as due to the global ...
Mid-Year CPP Earnings Review
Aug. 14, 2020
Following on the mid-year review we did last week for the DPP sector, this week we are looking at how earnings evolved for the clean product tankers in a year that so far has proven to be extraordinary.
The global demand crisis brought in by the coronavirus pandemic and subsequent lockdowns affected CPP tankers the same way it did with the DPP sector. Almost overnight, product prices took a big hit and the markets switched into a steep contango structure. The combination of cheap products and an opportunity to sell in the future for a potential profit led to a ...
Mid-Year DPP Earnings Review
Aug. 8, 2020
As we are over the mid-year mark in a year when not many things have been “normal”, we decided to look back and examine the main events that have shaped earnings in the DPP tanker sectors to date. The beginning of August signifies the end of the “chapters” of additional floating storage as well as the deepest OPEC cuts in history.
The two main events affecting the tanker market were the global coronavirus pandemic that led to a destruction of oil demand and the short-lived price war initiated by Saudi Arabia in early March. Despite the lack of demand, almost ...
A Look at the VLCC Fleet development
July 31, 2020
In the crude market, we have seen historically that about 60% of all volume is carried on VLCCs. This alone makes these giants the main sector to look at when it comes to trying to assess how the CPP markets and dirty tanker fleet will develop in the near and long-term. As we are approaching the middle of Q3 2020, we are starting to have a clearer picture regarding the VLCC fleet development for the entire year. Trying to assess the sector becomes even more significant in a year when pretty much every event since its beginning has been out ...
Naphtha Balances and Emerging Trades
July 24, 2020
During the past few months, we have been discussing potential opportunities in the clean tanker sector, particularly in the development of floating storage. Last week we took a closer look in the LR2 floating storage space, noting that it has likely reached its peak. According to data and forecasts on product balances, we expect LR2s to start leaving floating storage and returning to the trading fleet. Despite that, we still see some trades with the potential to become stronger, especially after data on fundamentals like product balances seem to confirm our initial assumptions. This week, we look at naphtha balances ...
LR2 Floating Storage Development
July 17, 2020
Assessing clean products floating storage can be a little challenging during normal times given the increased price sensitivity of petroleum products as it compares to crude oil, as well as technical considerations such as the degradation of some fuels after a 60-day storage period or longer. Despite that, in the past few months the contango structure of the market has signaled some big opportunities and as a result, we saw a strong increase in floating storage on LR tankers, especially LR2s, which are most commonly used for such purposes.
Looking at the latest available data, we see that the big ...
US Crude Exports Outlook
July 10, 2020
The past few days revealed some new and interesting data regarding possible developments for crude oil exports from the US. In our previous discussion on the subject we highlighted the possibility of steady or even increased exports in 2021 based on an assessment on how the WTI price will move relative to Brent and the incentives this may create for more AG barrels to reach US refineries. This week we are focusing on the short-term, exploring the possibility of US crude oil export coming off to significantly low levels in the following months.
By looking at historical data we found ...
The Beginning of the Drawdown
July 2, 2020
In previous weekly highlights and various of our reports, we have discussed potential scenarios regarding the development of floating storage for crude oil and products. Specifically, we projected that given the OPEC+ cuts, observed balances and the expected demand recovery after the pandemic lockdowns, floating storage would reach a peak in June and ships would start discharging and re-entering the trading fleet by July. As we are now “officially” in the second half of the year, we are going to take a look at floating storage in the VLCC sector.
We have been monitoring VLCC tankers using satellite data and ...
The Small Surprises in the US Crude Export Market
June 26, 2020
There have been too many “surprises” in 2020 with the world spinning to the rhythm of a pandemic and major geopolitical shifts. This week we are looking deeper into the US market and some unexpected developments in the US crude export market.
We have seen that the combination of a huge drop in domestic demand with the low oil prices and the deep cuts from OPEC+ have all played a role in crude exports from the country to not suffer as much as initially expected. According to the latest data from the Energy Information Administration (EIA), total US crude exports ...
An Updated Look on Crude Balance
June 19, 2020
We are almost at the end of the second quarter of 2020 and the effects of OPEC+ implementing the biggest production cuts in history are becoming clearer. The structure of the cuts is now common knowledge, except for a change that was decided in a recent virtual meeting among OPEC and Russia. The organization and it allies agreed to extend the 9.7 million b/d cuts for one additional month until the end of July. The decision was made to better mitigate the oversupply issues caused by persistent low global oil demand and to allow for Nigeria, Iraq to ...
Another Black Swan Event in the Making?
June 12, 2020
We have not been short of “black swan” events since the start of 2020 with the market swaying from one side to another and traders and analysts alike redoing projections almost every month. This week had another potentially major event unfolding with the sanctioning of four ship-owning entities by the US’ Treasury Dept. Office of Foreign Assets Control (OFAC). The sanctions were brought upon tankers that loaded and transported Venezuelan crude oil between February and April 2020. There are multiple ways to look at the event and projections in the market and we will explore a few of them here ...
US Crude Exports May Find Support in 2021
June 5, 2020
2019 was by all accounts a record year regarding US crude oil exports. The upward trajectory that began after the shale oil boom in 2017 pushed crude exports to historically high numbers with a peak seen in February 2020 at almost 3.7 million b/d of American crude exported to international markets. These numbers kept lending optimism to market players, with a good example being the various projects we saw announced in the US Gulf regarding building offshore crude loading terminals.
In February though, we were not anticipating the magnitude of the coronavirus spread or the extensive lockdown measures ...
A Look at CPP Tanker Demand
May 29, 2020
As with the dirty product segment, our projections at the beginning of the year for tanker demand in refined products seem to belong to a distant past. Globally, the COVID-19 reality has taken its toll on product demand, especially for gasoline and jet fuels amid the lockdowns and lack of travelling. Even as the world begins to re-emerge from quarantine, it has become clear that we will not see an immediate recovery. What this means for CPP tankers is an overall slump in ton-mile demand for the year, but perhaps less than the crude side due to increasing mileages as ...
Highlighting Expectations for VLCC Demand
May 22, 2020
The extraordinary times we are finding ourselves in have led analysts to revising projections and conclusions that were produced months, sometimes even only weeks prior. Similarly, projections on tanker demand for DPP cargos do not follow any kind of “normal” based on previous years and a world without a pandemic. Despite that, a few fundamental things remain the same. Two-thirds of tanker demand is still generated by VLCC tankers and remain the focus of our analysis along with crude balances, which drive that demand.
Overall, our analysis of tanker demand projects a drop of 4.8% in 2020 compared to ...
Pressure on Refineries
May 15, 2020
In the recent inventory report from the Energy Information Administration (EIA), we saw for the first time in many weeks, the total commercial crude inventories (excluding SPR) decrease by 0.7 million bbl. According to the same report, total motor gasoline inventories also decreased by 3.5 million bbl. These two numbers alone show how some partial reopening of some US and European economies has led to an immediate increase in implied demand, albeit very slightly given that no country in the Western world is expected to immediately rebound to pre-coronavirus levels.
The positive sentiment created by the US inventory ...
A Slowdown that Makes Sense
May 8, 2020
The tanker freight rates in the past couple of weeks have exhibited a peculiar behavior by reaching intense highs followed by a period of slumping until essentially today where we are starting to see the situation stabilizing and, in some cases, reversing. This week, we will take a quick look at the market lull, the reasons behind it and what may be developing in the near future.
The combination of increased production and demand destruction for March and April was mainly behind the extraordinary drop in crude oil prices. The market went on to develop a steep contango structure that ...
A Scenario for Global Crude Balances
May 1, 2020
As of today, May 1, the agreed upon OPEC cuts are officially coming into effect. So far this week we have seen the oil markets go from abysmal bottoms to relative support given not only the production cuts but also somewhat positive news regarding progress with COVID-19 drugs and potential re-openings of some parts of the US and world economies this month. With that in mind, we take a look on how crude oil balances may evolve in the foreseeable future.
By using the latest available Data in April, we attempted to map out the changes in global crude inventories ...
Scrubber Investments, Another Virus Victim
April 24, 2020
The conversation on scrubbers in the tanker sector has been somewhat suspended lately and for good reasons. First, global quarantine measures have left shipyards either closed or with little personnel, resulting in backlogs and delays. Second, tanker freight rates are soaring, making any gains from bunker fuel price differentials assume a secondary role in the voyage economics. Third, with the collapse of crude oil prices, bunker prices have followed suit and we have been observing the price difference between VLSFO and HSFO shrink daily. This week, we look at this price spread and how it affects an investment in a ...
The New LR2 Trades from The Far East
April 17, 2020
In previous weeks we looked at opportunities in floating storage for the clean sector and specifically LR2 tankers. This week we are taking a quick look into new potential trades and ton-mile demand for the same sector -specifically for gasoil cargos.
This arises from the contango market and the natural arbitrage that seems to be emerging between the Far East and Europe. Using the latest available data, we see how refineries in the Far East have already started to bounce back to production along with easing of restrictions due to the coronavirus spread. Refinery utilization rates are increasing in April ...
More Surprises on Floating Storage
April 3, 2020
In the past two weeks we examined the economics of floating storage, looking at VLCCs and crude storage as well as LR2 tankers and gasoline storage. This week we are going to take a final look at what led to this surge in floating storage as well as the signs of a possible reversal. We are referring of course to yesterday’s tweet by US President Donald Trump, who claimed that an agreement for production cuts between Saudi Arabia and Russia may be close. This would not be of much importance if it wasn’t followed by a truly unprecedented ...
LR2 Floating Storage: Almost There
March 27, 2020
Last week we examined the possibilities and conditions regarding floating storage for crude oil. Increased supply from OPEC and the complete collapse of demand for crude oil and oil products due to the coronavirus has created potential opportunities not only for crude storage but also for clean petroleum products on LR2 tankers. For this week, we look at that sector.
With almost 3 billion people on stay at home orders worldwide, the first products to experience fall in demand and prices are gasolines and jet fuels -with some sources reporting that airlines are already looking for jet fuel storage ...
Does Floating Storage Make Sense
March 20, 2020
Just a few days ago, Saudi Arabia’s fallout with Russiahad the former increasing oil production to over 12 million b/d for April and discounting its official selling price (OSP) forcrude in order to gain market share. As a result, oil prices retreated to levels not seen in many years and the markets started showing a contango structure. The promise of a cheap current contract and a higher future price create the ideal scenario for someone who has the capacity to store product for future or sell it later.
Floating storage activity could be ...
VLCCs Rejoice in Oil Market Chaos
March 13, 2020
In the beginning of March, OPEC and the countries it is collaborating with (known as OPEC+) met in Vienna to discuss crude oil production going forward. After what was reported as marathon talks, the outcome of the meeting was entirely unexpected. Russia, the largest member and producer of OPEC+ allied countries and Saudi Arabia, the de facto leader of OPEC failed to reach an agreement on the actions of the organization going forward. The disagreements became so pronounced that in an entirely surprising move, Saudi Arabia essentially dissolved OPEC+ and announced that after the current production cuts expire at the ...
A Quick Look Into the Proposed USG Terminals
March 6, 2020
Since 2018 and along with the significant gains in US crude oil production, there have been announcements regarding the development of terminals in the US Gulf capable of loading VLCC tankers. These proposed investments seem like a natural outcome following the boom in crude oil exports from the US. At the moment there is only one operational terminal that can load the large ships (Louisiana Offshore Oil Port -or LOOP). Additional VLCCs depend on smaller ships for lightering operations, which allow them to receive full cargo.
According to the latest available information, there are at least seven proposed docks or ...
COVID-19 Impact on Crude Oil Demand
Feb. 28, 2020
We have been talking extensively about the subdued global economic outlook going into 2020, supported by data from global organizations such as the IMF and OECD, which have been revising their predictions for growth downwards throughout 2019. Despite that, numbers for 2020 were generally more positive than 2019 until the emergence of COVID-19 or Coronavirus, that has already disrupted markets, with the near-term future remaining unknown.
Towards the end of last week, markets were showing positive signs after news that new infections were generally slowing down. However, information regarding a significant spread of the virus to South Korea and Italy ...
Phase 1 Trade Agreement Implications
Feb. 24, 2020
Since the signing of the “Phase 1” trade deal between the US and China, the latter has been gradually removing tariff barriers on imports of products and services included in the deal. In the latest announcement from the country earlier last week, China said it is ready to accept applications for tariff exemptions for close to 700 products originating from the US. Liquified natural gas and crude oil were mentioned among those products. This is seen by some as a sign that China is intending to make good on their Phase 1 promise to buy close to US $200 billion ...