One characteristic of the current year is that global refining capacity is shrinking by close to 638,000 b/d according to the latest data from JBC Energy (Figure 1). We have observed closures and conversions increasing since 2020, with the bulk of the reductions transpiring in Northern Europe as the region is intensifying its decarbonization push and the move away from fossil fuels. A similar story is developing in North America, this time around the US West Coast where refinery consolidations and conversions to biofuels production facilities have also become prominent this year.
Going forward, we note the division ...
Demand Revisions: Will They Support a Crude Tanker Recovery?
Nov. 12, 2021
Revisions on global supply, demand and the resulting balance have been the norm lately given the uncertainties brought by the ongoing pandemic and pockets of resurging infections (especially in Europe), the global supply chain bottlenecks as well as inflationary pressures and the possible fiscal responses from governments and central banks.
OPEC and allies decided to stick to the 400,000 b/d monthly supply increase in their November meeting, while a few days later the organization revised its 2021 oil demand forecast down by 160,000 b/d to a total of 5.7 million b/d. Despite that, JBC ...
MR Activity into E.C. South America
Nov. 5, 2021
In the past week or so we have seen increased activity in the USG on the MR2 sector and as a result freight rates have quickly reached yearly highs. One particular trade of interest is to the East Coast of South America, a trade that we have been highlighting in our recent Tanker Market Outlooks due to its potential for growth both in the short and medium term. In fact, the TC20 USG to South Brazil route has seen a sizeable freight increase from WS 122.5 in the beginning of last week to WS 190 today.
Demand for clean ...
Fuel Oil Spread Ebbing and Flowing
Oct. 29, 2021
With decarbonization dominating discussions around fuels these days, the reality is that the vast majority of the merchant fleet is and will continue using conventional bunkers for its needs. Before alternative fuels were the main topic, the IMO 2020 regulation brought VLSFO to global bunkering hubs and with it the discussion on the viability of scrubbers. The economic case for them was based on the price differential between high sulfur and low sulfur fuels.
This price differential has allowed vessels with scrubbers to increase their TCEs by consuming cheaper high sulfur fuel oil. As an example, our calculations for the ...
VLCC Liftings and End-User Demand
Oct. 22, 2021
The current energy crunch, mainly in Europe and Asia has pushed refining margins up to their pre-pandemic levels in almost all global regions. A surge in demand mainly in the northern hemisphere during the summer months has brought product inventory levels down, effectively clearing the buildup observed during the first nine months of 2020. According to JBC Energy, core product average inventories for Q3 2021 were about 1.3 million b/d lower than the 5-year average levels.
Robust end-user demand appears to be continuing through Q4, although as we have noted before, oil demand does not always translate in ...
LPG Supply/Demand Highlights
Oct. 15, 2021
LPG demand has been making headlines recently, mainly due to the recent pricing volatility in the Asian markets, but also in the West of Suez (Europe/US). Asian markets are currently increasing LPG stocks in anticipation of winter heating demand, tightening the market as petrochemical facilities ramp-up their feedstock requirements amid an improving global economy. One result of this pricing strength for LPG was observed in August/September when demand shifted to naphtha as a feedstock, supporting LR volumes and freight rates on the benchmark TC1 AG/Japan trade. This week, reports by Platts and other sources pointed to a ...
Opportunities in the LR1 Space
Oct. 8, 2021
Since our Tanker Market Outlook back in January we have placed emphasis on opportunities that may arise in the LR1 sector. This often-overlooked tanker has the versatility to compete with the larger LR2 on some trades, as well as with MR2s for smaller cargo stems. The trades in the LR1 space are far less consolidated than the larger tankers given it is flexible enough to operate in many areas and under many scenarios. Despite that, we have identified some “pockets” of interest.
Overall, the global LR1 ton-mile demand is projected to grow on average by 1.1% in 2021, followed ...
VLCC Floating Storage Update
Oct. 1, 2021
This coming week, OPEC and allies are meeting to decide on whether they will remain on the current plan of production increases of 400,000 b/d until the end of the year or modify it to better address rising global oil demand. This is especially important if we consider the current energy crunch China is facing, as well as pressures from Europe and the West who are experiencing increasing gasoline prices, more so after hurricane Ida and other storms shut in production and disabled refineries in the US Gulf region, but also due to the concurrent rage in natural ...
Impact of Cargo Switchovers on LR2 Utilization
Sept. 24, 2021
Tracking and measuring CPP demand on LR tonnage can be challenging at times, due to the fact that these vessels are able to switch between carrying clean petroleum product and carrying dirty ones such as fuel oil and crude. The practice is especially prevalent on the LR2/Aframax class since most of these tankers (especially the more modern ones) come coated with materials that allow both instances. To address that, we have developed a methodology that accounts for the actual cargo carried by these vessels when measuring ton-day demand, with some interesting patterns emerging.
After the intense volatility recorded in ...
CPP Fleet Profile and Contracting
Sept. 17, 2021
On a relative basis, freight rates for CPP tankers have outperformed the DPP vessels segments, due in large part to the supply side variable. In fact, in our recent TMO Mid-Year Update we reiterated our call for a healthier and speedier recovery of the CPP sector (following our January projection), aided by the number of CPP tankers that have been deleted so far in the year as well as a more tempered orderbook.
Continuing a multi-year trend, we note owners’ interests continue to lie within the LR2 (coated Aframax) and MR2 (Chemical – IMO II/III) sectors. Orderbook figures at this ...
DPP Fleet Profile and Contracting
Sept. 10, 2021
Since the beginning of the year and our Tanker Market Outlook, we have been noting the importance of the supply side dynamics in both DPP and CPP sectors, with an emphasis on the former given past two years saw historically very low deletion numbers. In our recent Mid-Year Update publication, we reiterated our position, especially since 2021 is shaping up to be another year of low DPP tanker deletions amid a depressed freight market.
Looking at the DPP fleet orderbook percentages, they have increased for VLCCs and decreased for Suezmaxes from the beginning of the year. For the former, the ...
CPP Ton-Mile Demand Development
Sept. 3, 2021
Continuing on the theme of tanker demand updates, this week we focus on the CPP sector. Since the publication of our January Tanker Market Outlook report, we have been constructive on CPP tanker demand growth, a position that we retained in our recently published TMO Mid-Year Update, owing to overall increasing demand for refined products as well as the structural benefits from expanding voyage mileages. Downside risk to clean tanker demand from Crude Tanker newbuildings is expected to continue for the next six months but subside by 2H 2022.
The aggregation of ton mile demand reveals an increase of 3 ...
DPP Ton-Mile Demand Development
Aug. 27, 2021
Through multiple years of enhancement, our tanker demand analysis has gradually switched to use the AIS-drive “Ton-day” as the measuring unit. However, the traditional “Ton-Mile” demand still serves as a key factor to reveal tanker’s transportation demand in our market fundamental analysis. In the August Mid-Year Update published this Wednesday, we have updated our tanker Ton-Mile projections for the next five years, separated by each vessel class.
After the difficult 2020, this year is not likely to bring the much-needed relief in the tanker markets, as we correctly predicted in the January. Our forecasts show that total crude and ...
The New Asset Price Forecasting Model
Aug. 20, 2021
Asset values are traditionally correlated with the corresponding earnings environment, with more statistically significant relationships attributed to the period rates. However, the recent climbing inflation rates, extremely tight yard capacity, surging steel prices have introduced significant bias to the correlation between asset values and tanker earnings. Despite the persistent weak tanker earnings in the 2nd quarter, newbuilding prices have reversely firmed and reached the highest record since 2016. Scrap prices, on the other hand, jumped from US $300/mt in mid-2020 to US $585/mt in August 2021, as these values are highly correlated with steel prices.
To measure the ...
Demand Revisions: Will there be another hard Winter?
Aug. 13, 2021
The resurgence of the COVID infection rates due to variants in both East and West of Suez markets have again put significant uncertainty on the pace of global crude demand recovery, including forecasts made by oil industry players.
The IEA made the news this week as the organization cuts its year-on-year oil demand increase in 2021 to 5.3 million b/d but raise the figure for 2022 to 3.2 million b/d. In its monthly report, the growth projection for the 2H of 2021 has been downgraded more sharply by 500,000 b/d, as new COVID19 restrictions ...
VLCC Drydocking: No Supply Side Relief
Aug. 6, 2021
In previous highlights we have demonstrate that the DPP tanker market is likely only going to find recovery with a relief coming from the supply side. Aside from typical tanker additions and demolitions, there are other supply side variables we also took into account, including drydocking activity, floating storages and vessels taken out of the trading fleet due to sanctions or being arrested.
Drydocking, especially when it happens in irregular patterns can become a supporting factor for VLCC rates as tankers are removed from the trading fleet for approximately one month. In our analysis, we see that 2018 was the ...
Emerging CPP Trades in South America
July 30, 2021
In previous weekly highlight sections, we have demonstrated a strong correlation between crude/oil product balances and import/export tanker demand for each region. This analysis has enabled us to identify emerging trends regard to future cargo flows as well as changes on tanker demand. For this week, we are looking at possible strengthening CPP trades for the South American region, both east and west coasts.
The East Coast South America market is expected to see strong recovery in gasoil/diesel demand throughout the next five years, increasing about 120,000 b/d (Figure 1) for the period. In the ...
LR2 Floating Storages Fully Unwind
July 23, 2021
As we projected in the 2021 Tanker Market Outlook published back in January, the CPP market continues to outperform the DPP market in the 1H of the year and is expected to grow further for the rest of the year. Although the oil product demand is recovering at a much faster pace than crude demand, the CPP tanker market benefited significantly from the support on the tonnage supply side – one of them being the fast unwinding of floating storages.
Due to the Price War and global Pandemic, both crude and oil product (including gasoline and jet) prices went into steep ...
Updated VLCC Demand/Supply Outlook
July 16, 2021
The discussion on the tanker markets is gaining “heat” as we move towards the second half of the year with some analysts expecting a quick, spectacular recovery, while others including ourselves, observing a more tempered outlook. A recent refresh of our supply/demand models for the short-term continues to project a healthy demand-side recovery from increasing crude length in key regions (Middle East, West Africa); however, the existing overhang and continued rise in vessel supply, may effectively wipe out the demand gains, should owners continue to forego vessel retirements.
To visualize these fundamental developments, we graphed our expected increase in ...
OPEC+ Indecision and the Impact for Crude Tankers
July 9, 2021
The current “spat” between de-facto OPEC leader Saudi Arabia and the UAE almost feels inevitable in hindsight. The UAE has strategically set out a plan to diversify the country’s economic profile, most notably through the development of commercial centers in Dubai and Abu Dhabi, with the former a major hub for financial services industries as well as tourism. At the same time, the UAE has invested in increasing its crude production capacity to around 4.0 million b/d, coinciding with the introduction of Murban crude to the broader financial trading system.
In short, the UAE is asking for ...
The Effect of the Dangote Refinery
July 2, 2021
The Dangote refinery is currently being built in Nigeria, with the government of the country recently making the news with an additional stake purchase in the project. Since its inception it has been a project criticized by many regarding its progress, with many analysts believing that it will never be completed. What we know so far though is that construction continues, even if at a slower pace due to covid and other factors, and that it is likely for the huge plant to partially come online sometime in 2022. At least close to 380,000 b/d of refining capacity ...
Voluntary Carbon Offsets and Shipping
June 25, 2021
In mid-June, the Marine Environment Protection Committee (MEPC) formally adopted amendments to the MARPOL Annex VI that requires ships to reduce greenhouse gas (GHG) emissions by combining technical and operational methods. The merchant fleet will be required to calculate their Energy Efficiency Ship Index (EEXI) and establish each vessel’s annual operational carbon intensity indicator (CII). The CII is an attempt to link GHG emissions to the transport work of ships.
This has been another step taken by the IMO towards the goal of halving shipping emissions by 2050. In reality though, there have been market participants and regulators who ...
CPP Tanker Supply Fundamentals
June 18, 2021
This week we highlight supply side developments for the CPP fleet, including an updated look at net fleet growth in 2021 and a summary of the CPP fleet’s orderbook and age profile to contextualize our views for the medium term. Starting with the current year, from January to May our vessel tracking data captured a return of five LR2s to the trading fleet from floating storage operations, 11 newbuilding deliveries and a net of four dirty-trading LR2s switching back to carry CPP cargoes. Compared to the DPP fleet, the CPP market has observed healthy tanker exits so far this ...
Is Shipyard Capacity Running Out?
June 11, 2021
In last couple of weeks, we have taken a deep look at different aspects of tanker fleet development moving forward, essentially arriving to the conclusion that in order for the market to recover, shipowners will have to delete some of their older tonnages and slow down the pace for tanker ordering. Instead, so far in 2021 we have seen a lot of vintage tonnage changing hands for what looks like premium prices as a well as a slew of orders for new tankers. All that while freight rates remain very low and in some cases below OPEX.
Although predicting owner ...
US Crude Imports Scenarios
June 4, 2021
In addition to this week’s news of OPEC and its allies maintaining their April plan for gradual production return, there was a story regarding the increased volume of oil imports from Russia to the US. Checking the latest Energy Information Administration (EIA) data confirms the trend, with 197,000 b/d of Russian crude imported in March, the highest number reported since 2012. This development supports our call from January this year (in our Tanker Market Outlook report), that a tightening crude balance in the US caused by disciplined shale production and returning refinery throughput would incentivize increasing sour ...
VLCC Fleet Development: Newbuildings and CPP Trades
May 28, 2021
For this week’s highlight, we continue the same overarching theme of the VLCC fleet development. Through our analysis over the years, we have found out that about 63% of DPP marine demand is carried out by VLCCs, as compared to 23% on Suezmaxes and about 13% on Aframaxes. This statistic reveals that typically, as the VLCC market moves, so does the entire market, in a similar direction. In addition, as we noted last week, even if a few of these very large tankers are added or removed from the trading fleet, it could have a measurable impact.
Recently, we ...
VLCC Fleet Development: Ocean Tankers
May 21, 2021
We regularly look into the VLCC fleet and how it is expected to develop, as well as try to analyze the impact of various events that we become aware of. The reason is that given the size of a single VLCC, even small numerical adjustments in the total number of ships in the fleet tend to have a meaningful impact in the ton-mile demand and supply balance - something that inevitably “spills over” to the smaller classes as well.
For this weekly highlight, we are going to look at one of the events that have been discussed recently and had impact ...
India Demand Implications
May 14, 2021
India is the world’s third largest crude oil importer and it has been on the news lately due to a massive surge in COVID-19 infections that brought renewed movement restrictions and measures in an effort to address the problem. For this week, we are going to look at some of the headline numbers for crude demand in the country and explore some possible scenarios for the near-term.
The new coronavirus crisis in the country started to become apparent in mid-April, when infection numbers started to surpass 200,000 a day. Soon the government ordered new expanded lockdowns that had ...
US Fuel Demand and Imports
May 7, 2021
In the past couple of years and thanks no less to a global pandemic, any market outlook contains the word “volatility” in generous amounts. Analysts are always looking for ways to “anchor” a projection to indisputable data and sometimes we are indeed seeing that despite the volatility, the overarching story remains true to the outlook. This week, we take a look at potential CPP import scenarios for the US ahead of a fast-approaching summer driving season.
The pandemic has had the entire world on lockdown with dire consequences for global oil demand. Even now, we see that wave after wave ...
Supply Scenarios and their Impact
April 30, 2021
We receive a lot of questions from colleagues and clients regarding the current state of the tanker market and, of course, the outlook we see for the short and mid-term. In short, our analysis shows that the current tanker market is essentially in the hands of owners and their decisions on how to develop their fleets going forward.
To reach this finding, we looked at different tanker supply scenarios with the VLCC market as a reference, this time wanting to provide a simple visual that can tell a cohesive story. In this analysis, demand and supply data in the VLCC ...
Where do Vintage VLCCs Go?
April 23, 2021
There have been a few news articles lately discussing the strength of the secondhand VLCC market, in spite of overall VLCC earnings remaining very low in an oversupplied market. This paradoxical market behavior is raising some very valid questions. Who buys these VLCCs, what are they doing with them and why are they not being scrapped, especially now that iron ore supply chain volatility among other reasons has brought scrap prices to high levels? To answer these questions, we dove into our AIS and commercial transaction information to observe the “behavior” of VLCCs over the age of 15 that have ...
Initial Findings from an EEXI Analysis on the VLCC Fleet
April 16, 2021
The International Maritime Organization (IMO) set forth its Greenhouse Gas (GHG) Strategy in 2018 with the goal of reducing carbon intensity by 40% up to 2030 and by 50% up to 2050 from a 2008 baseline. With this strategy, the IMO tightened the parameters of the Energy Efficiency Design Index (EEDI). The EEDI refers to energy efficient ship design, setting the minimum required efficiency while leaving design and technology considerations to builders. The EEDI applies to vessel being built or that will be built.
In November 2020, the IMO amended MARPOL Annex VI to include a new efficiency standard, the ...
Bunkers and Freight; Fact or Fiction?
April 9, 2021
The question of if and how bunker prices affect freight rates, admittedly, is one that gets repeated quite frequently. After multiple years of forecasting and market modelling, our answer to it is that, under “normal” market conditions, bunker prices do not play a significant role in how tanker rates develop. For example, when HSFO price dropped to nearly a half in 2015 from a year ago, VLCC benchmark TD3 freight rates trended significantly higher; when HSFO bunker gained US $100/mt in 2017 from 2016, TD3 reversely lost almost 23% year-over-year.
However, with the bunker price surge in the last ...
An Update on VLCC Floating Storage
April 1, 2021
It would not be an exaggeration to say that tanker market participants were on edge today as the OPEC+ decision was revealed to the market. The agreement from today’s meeting could be considered a surprise, this time benefiting tanker owners as production levels are set to rise beginning in May and trend higher through July, at least. As part of the accord, Saudi Arabia will return 100% of its 1.0 million b/d voluntary cuts between May and July, skewed more heavily towards the latter months. In addition, OPEC+ members (including Saudi Arabia) will add 350,000 b ...
Impact of Suez Canal Blockage
March 26, 2021
As it is now global news, the containership “Ever Given” run aground while in northbound transit through the Suez Canal on Tuesday. The 400-meter-long vessel is stuck in a way that is blocking all traffic from that spot of the Canal, with the Egyptian authorities suspending effectively all transit in order to facilitate operations to refloat the boat. So far, the companies that have been involved cannot estimate how long this will take, with some mentioning it could last days or even weeks.
According to Reuters, about 12% of global trade passes through the Suez Canal daily and hundreds of ...
LR Cargo Switchovers
March 19, 2021
An interesting statistic we have been tracking for some time now is that of tanker switchovers from clean to dirty and vice versa. The one sector we see these transitions more prominently is the Aframax/LR2 and in lesser extent the Panamax/LR1. These vessels show higher flexibility to “adapt” to market conditions as opposed to the larger crude tankers such as Suezmax and VLCC, which we usually see carrying clean products only under special circumstances such as when they are newbuildings and just out of the shipyard.
The reason this statistic is important is because it affects the supply ...
Examining the VLCC Supply
March 12, 2021
We have been reading in recent news about relatively large orders for VLCC tankers have been placed, so far predominantly on South Korean shipyards. Only this week, Shell confirmed the chartering of ten VLCC newbuilds that will be equipped with dual-fuel engines and news circulated about a Greek shipowner that doubled their initial order of four VLCC to eight. In this low-freight environment, the price of newbuildings tends to be on the lower side although it also raises questions to the expectations on tanker freight in the near future. This week, we are going to look at where we are ...
A Look at Iran Sanctions Relief Scenarios
March 5, 2021
As the US presidency officially changed in January of this year, questions regarding the new administration’s approach on sanctioned nations (Iran, Venezuela) as well as the overall energy policy have been increasing in frequency. We have already seen efforts to promote a “greener” plan on energy production, steering away from fossil fuels and into heavier investing for renewable sources. At the same time, it makes sense to expect that the Biden administration could be more lenient towards sanctioned nations, potentially opening up additional pathways to diplomacy.
For this week, we are going to focus on the potential scenario of ...
Examining the US Crude Supply Recovery
Feb. 26, 2021
Last week’s freeze and winter storm that swept through Texas brought low temperatures that in many cases had not been seen for generations. This kind of severe weather had a tremendous impact on US shale crude supply from the southern state. The freezing temperatures destroyed valves, pipes and other equipment and loss of power from an overwhelmed grid made it impossible for wells to keep pumping, resulting in a 1.1 million b/d less production according to the latest Energy Information Administration (EIA) estimates. The same combination of external factors led refiners in the region to shut down ...
Will Crude Demand Ever Truly Recover?
Feb. 19, 2021
A misconception we come across often in our industry is that oil demand and crude demand are one and the same. To clear this up right away, when we are discussing crude demand, we refer to demand at the refinery level. Oil demand on the other hand includes the total demand of refined products at commercial and industrial markets as well as other products, which do not require crude oil refining.
Another, perhaps, misunderstood element in the analysis of crude and oil demand is the relationship between refinery capacity and crude demand. While there is a positive correlation between the ...
A First Look at the VLCC Fleet Development
Feb. 12, 2021
Throughout the course of a year, we put considerable time and effort to monitor and project the tanker fleet developments. Extensive analysis and statistical models have shown how fleet utilization measured as forward month’s ton-day demand divided by current month’s ton-day supply is closely correlated to tanker earnings development. What that means in practice is that fluctuations observed in the total number of ships trading can have a significant effect in utilization statistics, therefore earnings.
The impact of relatively small fleet adjustments becomes more pronounced in the VLCC sector and in turn the VLCC sector has relatively the ...
Global Refinery Capacity and Utilization Expectations
Feb. 5, 2021
In 2019, we saw some significant refining capacity additions, especially in the Far East and Southeast Asia. In 2020, despite the absence of oil demand, a large amount of projects were completed, again most of them in Asia. In terms of the relationship between capacity and utilization we have noted many times that refinery capacity does not mean that all of it is utilized and indeed 2020 was a year of very low utilization rates amid low demand and a low margin environment.
As we move beyond 2020, we expect refinery intake to rebound, although it is unlikely to see ...
Thoughts on Decarbonization and Greenhouse Gas Reduction
Jan. 29, 2021
The International Maritime Organization (IMO) is calling for a 40% CO2 intensity reduction by 2030 and a 50% Greenhouse Gas (GHG) reduction by 2050 and we are seeing owners, charterers and other industry players initiating company-specific governance policies and analyzing investment initiatives into new engine designs and other technologies to meet IMO targets.
In 2011, the IMO agreed on a design standard known as Energy Efficiency Design Index (EEDI) to apply to new ships built from 2013 onwards. The baseline is the average efficiency of ships built between 1999-2009, measured by gCO2/ton-mile. Currently, the EEDI is in Phase 2 ...
An Initial Finding from the Upcoming 2021-2025 Tanker Market Outlook
Jan. 22, 2021
As with every year, we are preparing to publish our annual Tanker Market Outlook (TMO), a comprehensive report that includes deep analysis of tanker market fundamentals as well as our forecasts regarding freight rates, tanker demand and supply, as well as asset prices and time charter rates . For this week’s highlight, we will examine some of the key themes in the crude tanker segment from the upcoming report.
Global oil demand it is estimated to have fallen by 8.8 million b/d in 2020, thanks for the most part to the COVID-19 pandemic and the destruction of demand ...
Thoughts on European Crude Supply
Jan. 15, 2021
We recently saw the news coming out of Norway regarding the plans to increase its oil, gas and condensate production by 19% to 2.38 million b/d by 2024. For 2020, the country announced its total production reached 2.0 million b/d, a sharp 15% increase from 2019 levels despite production cuts in the second half of the year offsetting the exciting ramp-up from the Johan Sverdrup field. With this in mind, we wanted to take a look at crude oil supply from the European continent and its implications for the short-term.
We are used to seeing numerous ...
The Saudi Pledge
Jan. 8, 2021
Perhaps the most interesting, in terms of the oil and tanker markets, piece of news this week has been the result of the latest OPEC+ meeting in which Saudi Arabia pledged to reduce its own crude oil output by 1 million b/d for the months of February and March. At the same time, the organization and its allies decided to allow a 75,000 b/d production increase for Russia and Kazakhstan (cumulative) for the same time period. This was a surprise move by the Kingdom that signaled that it is more concerned with maintaining the current rally in ...