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Venezuela: Will Sanctions Relief Boost Market?

May 20, 2022

This week, news about the US government exploring possible sanctions relief scenarios for Venezuela became a hot topic, especially as inflationary pressures have sent gas prices at the pump soaring.  While some analysts claim this, for now, could only be an incentive to bring the Maduro government back to the negotiating table, it is worth exploring the potential impact on the crude tanker markets.

Current Venezuela crude oil production stands at about 650,000 b/d according to the latest data from JBC Energy (Figure 1).  This figure is likely to trend upwards even without sanctions relief, especially after some ...

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Tankers – When Does Investing Makes Sense?

May 13, 2022

There is a misconception that cyclicality in the tanker markets follows the changes in oil supply and demand.  Historically cyclicality in tankers has less to do with underlying oil fundamentals and more to do with owners’ tanker contracting behavior.  To put it simply, when market returns are favorable, owners are increasing tanker orders and filling up yard capacity (this is true for all segments, not just tankers).  Naturally, these vessel orders lead to the next high supply environment, whereby this oversupply pressures earnings, stalling ordering and resulting in the next upward cycle as deliveries grind lower – a situation we are ...

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Crude Balance Revisions: More Headwinds

May 6, 2022

Revised global crude data is beginning to verify the tightness observed in the physical markets after the Russia-Ukraine war began.  For April, we saw the projected balance length increase to 691,000 b/d, likely the highest surplus for the entire year, but still far from adequate to produce any meaningful results for the tanker markets.  In fact, despite the length, we project an estimated 0.15 million b/d of draws for the first half of the year. 

With demand on refineries expected to increase going into the summer months in the northern hemisphere and structural challenges from Russian ...

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CPP Fleet Utilization Spikes

April 29, 2022

Clean tanker utilization has exhibited a strong upward trend since the beginning of the war in Ukraine, predominantly for the LR2 and MR2 sectors.  This jump can be attributed to two main factors.  On one side, most nations are moving past the pandemic and global demand for products is picking up.  On the other side, it represents an effort from traders to meet demand in Europe (mainly) from refining centers in the East of Suez but also the US Gulf, especially now that significant volumes from Russia are “lost”. 

There are still numerous questions regarding the future of product supply ...

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CPP Vessel Contracting & Fleet Profile

April 22, 2022

CPP vessel contracting activity has been significantly lower than the same period last year, with only a total of 9 orders for MR2 tankers, compared to 29 MR2 orders for Q1 2021 (Figure 1).  Similar to the DPP sector, subdued activity can be partially attributed to shipyards being close to their full capacity (on mostly other type of vessel orders such as containerships) as well as the very high steel prices that make a newbuilding uneconomical for the long run, even if the current volatile environment is currently benefiting rates.

With our multivariate models pointing to the price of steel ...

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Weekly Highlight DPP Fleet Ordering Activity and Profile Page 14

April 8, 2022

DPP vessel contracting activity remained very low during the first two months of the year with only two Aframax tankers ordered in January (Figure 1).  Steel prices continue to be very high and shipyards have limited capacity -owing to strong ordering for other types of vessels such as containerships and gas carriers-, pushing prices of newbuildings upwards. In the current context of increased market uncertainty and volatility due to the situation with Russia and Ukraine, our multi-variate models project average DPP tanker asset prices to slightly increase this year and proceed to stabilize throughout the period 2023 to 2025. 

This ...

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Sanctions Removal Scenarios

April 1, 2022

We have counted over 80 VLCCs of over 15 years of age changing hands since January 2020, the majority of them going to previously unknown entities, mainly in Asia (Figure 1).  Out of those “ghost ships”, about 40% has been observed to load in Iraq, perform STS operations near Malaysia or turn off their AIS transponders.  All of these actions point to those tankers participating in illicit trading activities most likely with Iranian or Venezuelan barrels.  As we have discussed in previous reports, these tankers are part of the oversupply problem given they are taking potential cargos away from conventional ...

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VLCC Fleet Development Overview

March 25, 2022

The cumulative net fleet growth for VLCCs in 2022 is forecasted to reach 36 vessels after the latest data revisions.  By end of February, we have estimated that another eight VLCCs have returned to trading from floating storage, with the balance now at pre-pandemic levels.  This has added more pressure on rates especially since the current market conditions of steep crude contango remove any incentives to store crude for economic gains.

We expect March to be a month of heavy delivery schedules, with ten VLCCs projected to join the trading fleet from the yards and another three likely to do ...

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Preliminary Look at the EEXI Impact on VLCC Tankers

March 18, 2022

Taking a break from current events, this week we look at the upcoming EEXI regulations and the results of our preliminary analysis of the impact on VLCC tonnage.  EEXI, like EEDI refers to an efficiency level that a vessel in service will be required to achieve, measured as maximum grams of CO2 emitted per capacity (dwt) ton-mile under reference conditions for each vessel class.  The entry of this index into force will likely come at the first quarter of 2023, with the first year possibly taking the form of an adoption period before shipowners are required to take action to ...

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Crude Balance Revisions

March 11, 2022

The latest data from JBC Energy reveal the difficulties OPEC and allies have been facing to produce up to their assigned quotas, with the exception of core members such as Saudi Arabia and Russia.  After a 350,000 b/d global balance deficit in January, and with demand at the refinery level not slowing down, the expected February surplus came only up to a meager 89,000 b/d (Figure 1).  Combined with the very high crude prices throughout the month, there was little to no incentive to build up inventories and support crude tanker demand.

The war in Ukraine ...

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Further Analysis on Potential Russian Sanctions

March 4, 2022

Using historical numbers, we estimated that upwards of 50 Aframax and 4 Suezmax cargos per month from the Baltic could be at risk.  In the Black Sea, despite most volumes coming from Kazakhstan and Azerbaijan, a complete halt of marine traffic could lead to up to 39 Aframax and 22 Suezmax cargoes per month lost due to lack of ship supply (Figure 1).  Substitutive barrels are being met by regional sources at present (Libya, North Sea) to augment left-over Russian crude liftings from prior purchasing. 

In 2021, about 4.7% of Med and 5.7% of Baltic Suezmax cargos was ...

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Russian Crude and Product Highlights

Feb. 25, 2022

With uncertainty and volatility the main themes in the tanker markets this week, we look at high level numbers for Russia’s crude and product supply and exports in an attempt to quantify a full sanctions scenario.

Current Russian crude oil production stands at 10.9 million b/d divided among large and small producers.  Out of this volume, approximately 5.9 million b/d are consumed domestically in the country’s refining system.  From the remaining balance, JBC Energy data reveals that about 4.6 million b/d are destined for exports, with China responsible for taking about 30 ...

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Project Investment Conundrum

Feb. 18, 2022

The “battle” between charterers and owners is alive and well in today’s projects market, precluding long-term time charter contracts from being executed.  The disconnect between prevailing time charter rates and asset prices has likely never been wider, as asset values have found support from inflationary pressures and tight shipyard capacity, which in-turn have dissuaded owners from divesting out of existing tonnage as replacement costs are high.  In that though, is the conundrum:  asset prices are not reflecting demand/supply dynamics, but owners are unwilling to invest in modern tonnage at these levels because charterers are pricing contracts to reflect ...

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Iran Deal Implications

Feb. 11, 2022

The discussion about Iran and the potential sanctions removal has two main questions.  When will the Iranian barrels return (assuming talks progress further), and what will be the impact in the tanker markets.

To answer the first question, we looked back at the timeline of the Joint Comprehensive Plan of Action (JCPOA) in 2015.  The deal was concluded on July 14, 2015, and the UN Security Council endorsed it on July 20.  Exactly 90 days later, “adoption day” triggered Iran and the other members of the deal to take action to meet their commitments.  It was not until January 16 ...

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OPEC Price Wars: Who Benefits?

Feb. 4, 2022

In trying to determine what can cause a strong tanker market rebound, we looked at past events and under what conditions they occurred, excluding any events that affected only the supply side (e.g., the COSCO sanctions).

The first one was the 2014 price war initiated by Saudi Arabia and Russia against the fast-growing US shale oil producers.  At the time, OPEC producers exceeded their production ceiling almost every month and the US kept adding to its output leading to a market glut, that was exacerbated by a slowdown of China’s economy.  As a result of OPEC and Russia ...

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McQuilling Services Tanker Market Outlook 2022-2026

Jan. 28, 2022

McQuilling Services is pleased to announce the release of its 25th anniversary edition, 2022-2026 Tanker Market Outlook.  This 165-page report provides a detailed analysis of oil fundamentals, global economic and geopolitical context in addition to tanker demand and supply projections across eight vessel classes. The interaction of tanker demand and vessel supply variables is processed using advanced quantitative modeling to produce a five-year spot and time charter equivalent (TCE) forecast for eight vessel classes across 24 benchmark tanker trades, plus four triangulated trades.  Also included in the report is a five-year asset price outlook as well as one and three-year-time ...

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Refinery Runs: A High-Level Overview

Jan. 21, 2022

In 2021, total crude oil intake at the refinery level averaged 77.9 million b/d. some 3.1 million b/d higher than 2020 (Figure 1).  This was the result of a world with less mobility restrictions, especially as vaccination programs became more widespread and efficient and healthcare systems increased their experience in managing infections.  While this was a strong recovery figure, total intake did not reach pre-pandemic levels as many had predicted at the beginning of the year.  Some of the reasons for that were the emergence of new virus variants (primarily Delta) that spread rapidly and forced ...

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Is a Crude Tanker Recovery on the Horizon?

Jan. 14, 2022

As revisions on global crude balances become available, we like to dive into the data to attempt to extract insight as it relates to the tanker markets.  With a new year beginning, we are still in a very volatile environment, with a pandemic that lingers and new variants like Omicron once again generating more questions than answers for the global economy.  On top of that, inflationary pressures, high energy prices and supply chain bottlenecks, all add to the uncertainty surrounding economic recovery in general and the tanker markets more specifically. 

The latest data from JBC Energy reveal that the global ...

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