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Developments in the Red Sea

Dec. 15, 2023

Shipping and logistics majors A.P. Moller-Maersk and Hapag-Lloyd have ordered their ships to bypass the Bab el-Mandeb Strait on Friday after attacks on their vessels.  Maersk said its decision comes after a near-miss incident involving the Maersk Gibraltar on Thursday and another attack on a container vessel on Friday.  An estimated 17,000 merchant ships cross through the Bab el-Mandeb Strait each year (equating to hundreds of vessels per day). 

In evaluating the impact on tanker markets, we draw a parallel to our previous analysis highlighting a Suez Canal closure given that most vessels transiting the Suez also pass ...

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Dangote Refinery Developments

Dec. 8, 2023

A Suezmax tanker carrying 950,000 barrels of Agbami crude from Nigeria has been reported en route to Lekki, the nearest land port to Dangote’s offshore crude receiving terminal.  This marks the first crude feedstock for Nigeria’s 650k b/d Dangote refinery, a sign that fuel production at the new facility is finally starting to ramp up after years of delays.   The crude distillation unit has been designed to process 12 crude grades at one time and has been engineered to process three Nigerian crude grades -- Escravos, Bonny Light and Forcados. Once fully operational, the plant will yield ...

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Panama Canal Delays

Dec. 1, 2023

The Panama Canal has a capacity for 38-40 daily transits and has been operating at a total of 32 daily transits between the two docks.  According to the Canal Authority, the daily transit rate will be cut to 24 for late November due to an ongoing drought.  This will be reduced further to 22 in December, 20 in January 2024, and 18 starting Feb 1st, 2024.  The Panama Canal Authority then announced on Monday, November 27th it will add extra slots allowing ships to pay big premiums to transit the Canal.  The auctions allow vessels that have been waiting for ...

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Fuel Preference Analysis

Nov. 17, 2023

As we approach 2024, the CII regulatory requirements for reporting energy efficiency per vessel are coming into play, and shipowners are paying attention. Looking at NB orders from 2019, we see that 98% of VLCC owners opted for the scrubber option. If we compare that with 2023 YTD orders we notice that scrubber preference for VLCCs is in decline as 60% fewer vessels were ordered fitted with scrubber compared to 2019 (Figure 1) and instead shipowners are opting for dual fuel technology.  Suezmaxes follow a similar trajectory to VLCCs.  Meanwhile, smaller vessels show a different pattern, with LR1s favoring scrubbers ...

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Refining Capacity Update

Nov. 10, 2023

As we approach the end of 2023, we are seeing an increasing number of refineries in the Middle East delaying their full ramp up and we will not be surprised if with the next revision of capacity data, numbers shift firmly towards 2024 and beyond.  Still, the existing expansions (Al Zour, Jizan, Duqm) are expected to play a pivotal role in supplying the West, especially in the context of increasing winter demand for gasoil.  Indeed, Kpler data shows that European refinery utilization for October was at 80%, virtually unchanged from previous months and with the forecast pointing to an average ...

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Scenario Analysis: Israel Gaza War

Oct. 27, 2023

The tension in the Middle East has driven up crude prices on risk premiums, kickstarting heightened oil trading which in turn supported tanker ton-mile demand.  We are still in the middle of the conflict and there are multiple scenarios that could play out in the near future. An oil embargo against Israel, a disruption in the Strait of Hormuz by Iran, or a Suez Canal closure would have significant consequences in tanker demand and freight levels.

Scenario 1: oil embargo administered on Israel

According to Platts, Israel currently imports around 300,000 b/d of crude, with 60% of the ...

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Easing of Venezuelan Sanctions

Oct. 20, 2023

Weekly Highlight: Easing of Venezuelan Sanctions – 10.20.2023

On Wednesday, US officials announced the removal of sanctions against Venezuela’s oil and gas sector in response to a deal between Venezuela’s President Maduro and the country’s opposition in the 2024 presidential election.  Under the new guidelines, which extend for a 6-month period, American and foreign companies will be allowed to produce and export Venezuelan oil and gas and conduct business with state-energy company Petróleos de Venezuela (PDVSA). 

From a historical perspective, between 2010 and 2016 (pre-US sanctions), Venezuelan crude oil production ranged between 2.0 and ...

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Conflict in the Gaza Strip

Oct. 13, 2023

Weekly Highlight – 10.13.2023

There is concern that military clashes between Israel and Palestinian Islamist group Hamas could escalate into a broader conflict.  While Israel produces very little crude and has a total refinery capacity of about 297,000 b/d, markets are worried the conflict could expand and disrupt wider Middle Eastern supply, worsening a deficit expected to last into the end of this year.  At the time of writing, we have not seen notable disruption in traffic through the Suez Canal and the Hormuz Strait, nor increased war premium in these chokepoints.  However, if a wider conflict ...

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Imbalance in Refinery Runs

Oct. 6, 2023

European refiners have struggled to build diesel stocks over the summer due to the outages at the Pernis, Bilbao and Donges refineries and most recently the unexpected haul of Shell’s Hycon plant in Rotterdam due to a gas leak.  Similarly in the US (especially the Atlantic Coast), we have captured a capped crude intake in the summer months.  According to US EIA, crude input in PADD 1 refineries sharply dropped from 803,000 b/d in April to an average of 719,000 b/d in June/July despite the healthy margins. The lower refinery run could be explained ...

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LPG Dynamics in Focus

Sept. 22, 2023

The VLGC owners have experienced an extremely strong year, with rates achieving their highest levels since 2015.  One of the primary catalysts behind this robust performance is the burgeoning demand for LPG in the Far East, particularly in the context of Propane Dehydrogenation (PDH) plants which convert propane into propylene and further to plastics.  Platts has reported the inauguration of two PDH plants in China during the first 8 months in 2023, and an additional five plants to become operational by year-end, each boasting 600-660,000 mt/year capacity.

On the LPG supply side, the two primary load regions for ...

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Mexico's Pemex Refinery Impact

Sept. 15, 2023

According to Mexico’s Energy Minister Rocio Nahle, the nation’s Dos Bocas refinery operated by state company Pemex is expected to run at its full capacity by the end of this year.  The refinery, with a capacity of 340,000 b/d, is projected to mainly consume local heavy crude.  The tightening crude balances in Mexico could result in less available exports to the US Gulf, where the heavy Maya grades have been very attractive post OPEC+ production cuts.  With approximately 70% of the Mexico>US Gulf volume being carried by Aframaxes, the surged growth in Aframax Caribbean>US ...

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Russian Price Cap and Recent Cargo Flows

Aug. 25, 2023

The Russian price cap has always had two objectives: reducing Russia's revenues from oil exports and ensuring that oil continues to flow to global markets. If Western maritime services are used, attestations must be kept showing Russian oil was bought under US $60.  In July, Russia’s leading Urals-grade crude began trading at above $60 a barrel—above the cap the Group of Seven economies set for Russian oil last December to allow Russia to continue selling and keep global prices low while still choking off revenue to Moscow. Analysis suggests that a large portion of its exports are ...

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CII & Alternative Fuel Analysis

Aug. 18, 2023

Analysis of VLCC’s CII rating basis 2023 requirements for the past 5 years show how on average half of the VLCC fleet falls in D&E CII category – meaning that they would have to provide a management plan of how to improve their CII rating to at least midpoint of C rating for the following year.

An ageing VLCC fleet (on average 12 years old) and limited new orderbook will not likely see the CII ratings improving for the sector.  However, when we look at the VLCC newbuilding orderbook, we find that 79% or 11 out of 14 vessel ...

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China Deflation Fears

Aug. 11, 2023

Weekly Highlight 8.11.2023 – China Deflation Fears

The latest inflation data released over night showed China’s consumer and producer prices contracting for the first time since 2020. Slowing demand at home and abroad, combined with a real estate market that continues to struggle has caused suppliers to rapidly cut prices. Deflation would have the potential to slow the Chinese economy even further, prompting calls for additional stimulus measures.

Contrary to the US and EU which have been trying to quell inflationary pressures, China faces concern of stagnating growth and falling prices (Figure 1).  If there is an extension ...

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Bearish Market Sentiment due to Economic Slowdown

Aug. 4, 2023

We wanted to draw a comparison to today’s environment and the early 1990’s recession in the US.  Prior to the 1990 recession, the economy was weakening as a result of restrictive monetary policy enacted by the Federal Reserve.  Their stated intention was to reduce inflation and thereby limit economic expansion.  The immediate cause of the recession was a loss of consumer and business confidence in tandem with the 1990 oil price shock.  We now find ourselves in a similar environment where the Federal Reserve is raising interest rates (the Fed’s benchmark rate is now at a 22-year ...

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Spike in CPP Atlantic Basin Market

July 28, 2023

Clean tanker market in the Atlantic Basin have found significant support in the past two week with rates jumped almost 50%.  The benchmark TC2 (MR2 gasoil UKC/USAC) rates surged from WS 115 on July 18th to WS 175 at the time of printing.  The demand increase during the summer driving season certainly is one of the main reasons, but also the tight product supply from refineries in the US.  According to EIA, crude input in PADD 1 refineries sharply dropped from an average of 674,000 b/d in June to 625,000 b/d so far in July ...

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Tankers’ Embrace of New Technology

July 21, 2023

Building on our recent NB story (Weekly Blog June 23rd: Tanker Newbuilding Market: Cautiously Optimistic), we would like to further analyze the state of embrace of new technology. VLCCs, the largest and most expensive tankers, can better adopt new technological solutions as the marginal cost of installations will be less than on smaller ship types – making a lot more financial sense. As an example, a scrubber-fitted VLCCs saved as much as $20,000 in daily fuel costs compared with VLSFO consumption in March 2022 when Russia’s invasion in Ukraine pushed bunker prices up significantly. Figures support this when ...

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Spotlight on Guyana

July 14, 2023

Guyana, a country of less than one million people, is poised to be the world’s fourth largest offshore oil producer, placing it ahead of the US, Qatar, Mexico, and Norway.  A consortium led by ExxonMobil discovered the first major oil deposits in 2015, more than 100 miles offshore of Guyana.  Crude exports from Guyana nearly tripled in 2022, driven by rising production (poised to reach 1.4 million b/d by 2030) and solid demand from Europe in the aftermath of the Ukraine invasion.  There are two FPSOs currently producing – FPSO Liza Unity and Liza Destiny – with the newly ...

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The Trouble with Sticky Inflation

June 30, 2023

Inflation in major developed economies is yet to be tamed.  The UK’s situation is currently the most acute as wages and “core” prices, excluding food and energy, are rising by approximately 7% on an annualized basis.  Yet even as headline rates elsewhere have dropped as the energy shock has faded, core inflation has been stubborn.  In both the US and the Euro area, CPI for May dropped slightly but still exceeded 5%.

Many governments are adding fuel to the fire by running budget deficits on a scale typically seen during economic slumps.  In the UK, mortgage rates are surging ...

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Tanker Newbuilding Market: Cautiously Optimistic

June 23, 2023

Tanker newbuilding prices have been on an upward trend since 2021, bolstered by rising prices of raw materials (Figure 1), inflationary pressures in labor markets post Covid, and the tight shipyard capacity due to an orderbook full of container ships and gas carriers. Tanker owners scarred by the low earnings environment from 2017 to 2021 were not ready to jump on that bandwagon resulting in historically low tanker newbuilding orders in the past two years.  The year 2023 had only 9% of the global yard capacity used for tankers, compared to 38% for container ships.  However, now that container freight ...

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Saudi Arabia Production Cuts

June 16, 2023

Saudi Arabia announced last week a unilateral production cut of 1 million b/d.  This output cut is slated for July and comes on top of previously announced curbs, which would be extended until the end of 2024 while Russia, the second largest OPEC+ producer, made no commitment to cut output further.  The Saudi announcement came soon after OPEC+ (including Russia) said the group had agreed to stick to current production targets until the end of the year.  The broader 23-member group accounts for close to half of the world’s oil output.  Saudi Arabia will now produce 9 million ...

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KRG Pipeline Update

June 2, 2023

Oil production in Iraq’s Kurdistan region has experienced a significant decline due to the prolonged outage of the export pipeline to Turkey’s Ceyhan port. The pipeline shutdown, which has lasted almost two months, was initiated by Turkey following an arbitration ruling by the ICC. As a result, Iraq’s nationwide crude oil production has been adversely affected, with the Kurdistan Regional Government (KRG) incurring substantial financial losses. The pipeline outage originated from an ICC ruling that ordered Turkey to pay damages of US $1.5 billion to Iraq’s central government for unauthorized oil exports conducted by the ...

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Debt Ceiling Scenario Analysis

May 19, 2023

There continues to be a deep divide in the US Congress over the debt ceiling and federal spending, prompting worries that lawmakers may not be able to raise the limit in time to avoid a possible default on debt payments.  Democrats want the debt ceiling to be raised without conditions attached while Republicans demand spending cuts as a condition for raising the limit and want to start negotiations in the White House. The US Congress limits how much money the government can borrow and once that limit is reached, lawmakers must raise or suspend the ceiling before the Treasury Department ...

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NB Tanker Orderbook – Demand Support

May 12, 2023

The previous two years have witnessed a significant slow-down in new tanker contracting by historical standards.  This is largely due to rising new build prices paired with above average lead times for vessel delivery resulting from tight shipyard capacity (LNG/container orders).  In fact, these two variables along with inflation and interest rates are the driving influences in our newbuild pricing model.  As such, we monitor the direction of steel prices and changes to yard capacity regularly to provide visibility on the direction of yard prices. 

Following a major lull in owner contracting, the beginning of the year has witnessed ...

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China’s Crude Balance – Support for VLCC

May 5, 2023

Much attention has been paid to the easing of COVID-19 restrictions in China and the implications this may have for their economic growth and subsequent oil demand in the country.  The deficit for China’s crude balance is forecast to deepen, reaching -11.7 million b/d in August.  Although a widening crude deficit generally results in higher imports, the situation could be more complicated for China as the country has significantly built up its inventory levels during the COVID-19 period.  Comparing China’s net crude imports (JODI Oil) and crude balance (Kpler), we have observed a large gap between ...

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OPEC+ Production Cuts

April 14, 2023

Saudi Arabia and other OPEC+ countries announced they would cut production further by 1.16 million b/d from May to December 2023.  This output cut adds to a reduction of 2 million b/d agreed to during the 33rd ministerial meeting in October 2022.  However, McQuilling holds a different view than others on the potential reason for this sudden production cut – more due to the potential for a protracted recession on the horizon instead of its revenge for the United State not filling SPR as promised.  Based on the long-term macro-observation, when OPEC cuts lead to a crude ...

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USG Export Activity

March 31, 2023

This week we highlight the strong activity for cargo loading out of the US Gulf.  This level of activity is expected to persist through the summer months due to strong US crude export levels.  Based on our multi-variable regression model, McQuilling forecasts that US crude exports are projected to reach its peak in the mid-year before trending lower towards the 4th quarter. The main contributing factor is the US Strategic Petroleum Reserve (SPR) release, as DOE announced a total of 26 million barrels will be released from April to June, or approximately one extra Aframax loading every other day.  In ...

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HSFO/VLSFO Spread Analysis

March 24, 2023

Due to recent geopolitical and market developments, we consider the possibility for convergence in bunker prices within the VLSFO and HSFO market in the near-term.    Al-Zour, a 615,000 b/d refinery that began exporting products last November, is poised to become a large supplier of VLSFO.  The VLSFO barrels are likely to be exported from Al-Zour in the coming months and could limit the upside to crack spreads.  Furthermore, the availability of cheaper Russian HSFO has provided strong incentive to defer a shift to VLSFO.  These factors in tandem could create downward pricing pressure for VLSFO.

When considering HSFO ...

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Banking Contagion - Deja Vu

March 17, 2023

This past week has been dominated by headlines about Silicon Valley Bank, Credit Suisse, and the health of the banking sector in general.  After a 24% decline it its stock on Wednesday of this week, Credit Suisse struck a deal with the Swiss central bank to borrow up to 50 billion Swiss francs (approximately US $54 billion).  This comes after the chairman of Saudi National Bank, Credit Suisse’s largest shareholder, said it wouldn’t increase its investment stake in the firm.  Now that the bank has addressed the market’s immediate liquidity concerns, it will need to stem customer ...

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Aframax Demand in the Spotlight

March 10, 2023

The situation in Europe remains fluid and we continue to expect to see a large rerouting of flows during the course of 2023.  For Europe we expect to see increased imports from the Middle East, West Africa, US Gulf, Latin America, as well as regional crude grades.  One route in particular we will be keeping a close eye on will be US Gulf to Europe.  Europe is likely to be the most significant demand generator for the class for 2023 based on inflows to substitute Russian barrels although it could lose a very large share of export demand.  The Aframax ...

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EU/Russia Update

March 3, 2023

Given the one-year mark of Russia’s war against Ukraine, we thought it be useful to assess recent developments as it pertains to our industry.  From an energy security standpoint, one could argue that Europe has fared better than initially feared.  Months after invading Ukraine, Russia cut off an estimated 80% of the gas it had previously sent to Europe.  At the time of writing, Europe looks set to avoid fuel shortages that had been forecast last fall after Russia curbed gas pipeline supplies to the region.  Germany will be a particularly important country to monitor as they used to ...

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VLGC – Significant Increase in Net Fleet Growth Putting Pressure on Earnings

Feb. 24, 2023

On a global basis, our proprietary calculations of ton-mile demand reveal another strong year of growth for global LPG transport demand to 657 billion ton-miles for 2022, a 5.3% year-on-year increase after a 12.1% jump just a year ago (Figure 1). Ton-mile demand originating from the US Gulf region has been the primary contributor to VLGC demand over the last few years, although our models point to a more modest growth after 2024.  The Middle East is also expected to add LPG length till 2027 although exports are likely to head to the Indian subcontinent instead of the ...

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Regulatory Update Part 2: EEXI/EEDI Analysis

Feb. 17, 2023

EEXI/EEDI (Energy Efficiency Existing/NB Ship Index) was included in the MARPOL Annex VI 2020 revision and formally adopted in June 2021. It requires ships to reduce greenhouse gas emissions by combining technical and operational methods. Technically it’s measured as grams of CO2 emitted per capacity (dwt) tom-mile under reference conditions for each vessel class.

From January 1, 2023 it is mandatory for all ships to calculate their Energy Efficiency Existing Ship Index (EEXI). As mentioned previously for the CII at this point it’s a fact-finding mission. Shipowners are tasked with data collection of their fleet’s ...

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Regulatory Update Part I: CII Analysis

Feb. 10, 2023

Since 2019, ships of 5,000 GT and above have been reporting their fuel consumption data mandated by the IMO DCS. From 2023, cargo, cruise, and RoPax ships must calculate CII (Carbon Intensity Indicator) with a required rating of C or better. A verified Ship Operational Carbon Intensity Plan, or SEEMP Part III, is to be kept on board from 1 January 2023 to document how shipowners plan to achieve their CII targets.

CII is the CO2 emitted per capacity transport work during a calendar year, adjusted by correction factors (to be finalized at MEPC 78 in June 2023) that ...

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Breakeven Tanker Asset Analysis – What makes sense to buy?

Feb. 3, 2023

The disconnect between prevailing time charter rates and asset prices remains wide, as asset values continue to find support from inflationary pressures, healthy earnings momentum, and tight shipyard capacity, which in-turn have dissuaded owners from divesting out of existing tonnage as replacement costs are high.  We are beginning to see a divergence in the relative value achieved from operation in mid-sized tankers compared to larger tonnage in response to shifting trade patterns.


To assess the disparity between charterers and owners’ positions, we evaluated estimated break-even time charter equivalent earnings over a 5-year investment period using today’s asset prices (Table ...

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Economic Headwinds

Jan. 20, 2023

Against a backdrop containing various forms of geopolitical risk in 2023, one major concern for both consumers and business operators will be the health of the global economy.  Price pressures have eased at the end of 2022 as central banks worldwide have fought high inflation while the global economy continues to grapple with the possibility of recession.  Officials in the US, the world’s largest economy, have increased rates at the fastest pace since the 1980’s to cool the economy and bring down inflation, which is running near a 40-year high.  High inflation, elevated energy prices, and rising borrowing ...

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