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Weakening Demand Cycle and Potential Contango Structure

June 21, 2024

Economic activity was surprisingly resilient during the 2022–23 period despite elevated levels of global inflation.  As inflation converges toward target levels and central banks pivot toward policy easing, a tightening of fiscal policies aimed at curbing high government debt levels, alongside higher taxes and lower government spending, is expected to weigh on growth. With major commodities priced in US dollars, the rallying dollar we have seen over the past few years has made commodity prices more expensive for buyers around the world and puts downward pressure on demand.  The subsequent fall in headline inflation since 2022 reflects a combination ...

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Potential Hurricane Season Volatility

June 14, 2024

The US is forecasted to have an above-average 2024 Atlantic hurricane season starting June 1st with a near-record number of storms.  Hurricanes serve as one of the key downside risks for US Gulf refineries to shut or reduce their runs, tighten US’s product balances and limit the available exports.  Alongside the seasonal maintenance in Spring and Fall, we saw PADD 3 refinery utilization shapely reduced month-over-month by 11.5% in Sep 2017 (Hurricane Harvey), 3.1% in Aug 2020 (Hurricane Laura) and 6.9% in Sep 2021 (Hurricane Ida).  These hurricanes have also put a halt on crude and ...

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China’s Export Quotas

June 7, 2024

Last month, China issued 18 million MT (136.7 million barrels) of export quotas in the second batch, comprising 14 million mt for gasoline, gasoil, jet fuel and 4 million mt for fuel oil.  With the new allocation, the total export quotas for clean products amounted to 33 million mt in the first two rounds, up 18% from the corresponding rounds in 2023.

We expect China to continue releasing export quotas for the rest of the year, reaching approximately 47 million MT for 2024.  This is supported by the healthy margins due to the cheap unconventional feedstocks but slower domestic ...

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LR2 Switchover Update

May 31, 2024

LR2 switchovers play an important role in tonnage supply, as both Aframax and LR2 fleet sizes are directly impacted by these activities.  Tracking by our proprietary commercial database, we have identified a net increase of 51 LR2s joined the dirty-trading market from Sep 2022 to Dec 2023, in line with the huge earning advantage of dirty-Aframaxes amid the Russian sanction impact.  The surged conventional crude tanker demand in the Atlantic Basin as well as new demand to export Russian crude from Western ports to Asia have pushed the average earnings for the Aframax AG>Singapore to US $60,600/day ...

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New Refineries in West Africa

May 17, 2024

The continued refinery ramp-up in West Africa (mainly Dangote) has started to impact tanker demand and created new trade lanes in the Atlantic Basin.  According to S&P Global, the Dangote refinery has secured crude supply at only 300k b/d of the max capacity at 650k b/d from the Nigeria’s national oil company NNPC, which lead us to believe the gap will be fulfilled by other light grades including imports from the US.  Since the beginning of this year, we have captured four VLCCs and one Suezmax have been sailed/booked to import US crude to Dangote ...

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Trans Mountain Pipeline Aframax Lightering Analysis

May 3, 2024

Earlier this week, Reliance Industries purchased 2 million barrels of Canadian crude from Shell for July delivery.  This marks the Indian refiner’s first oil purchase from the Trans Mountain pipeline.  Shell will perform ship-to-ship (STS) transfers to move approximately four 500,000-barrel cargoes of Access Western Blend (AWB) onto a VLCC for final discharge to the Sikka port, where Reliance operates the world’s largest refining complex.  The 2-million-barrel stem is reported to be $6/bbl less than ICE Brent for September.  Therefore, we estimate the crude is sold at ~$80/bbl on the delivered basis as ICE Brent ...

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Kirkuk-Ceyhan Pipeline Update

April 26, 2024

The month of March marked as the 1st full year since 400k b/d of the overall capacity for the KRG pipeline was halted, a pipeline which once handled about 0.5% of global crude supply.  This pipeline flows from Northern Iraq to the Turkish port of Ceyhan.  Political tensions between the Iraqi government, the autonomous Kurdistan Government (KRG) and Turkey have curtailed the ability to formulate an immediate solution to bring back the throughput, a perfect bypass of not only the Red Sea but also the Hormuz Strait and the Suez Canal.  


However, the Iraqi government is planning to ...

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Sanctioned Russian Fleet Impact

April 5, 2024

As the US tightened sanctions enforcement, major refineries in India announced they have stopped buying Russian crude carried by the Russian fleet mainly owned by Sovcomflot, a trend likely to expand to buyers in the Far East.  Two scenarios could emerge when Asian buyers walk away from Russian oil and/or Russian ships: 1) an increase of “shadow” Aframax fleet for Russia > India+China demand if crude exports remain at similar level (or possibly higher due to drone strikes taking out refinery capacity); 2) a substitute of Russian crude with imports from the Middle East and US Gulf by conventional ...

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US Crude Balances and Exports Update

March 22, 2024

McQuilling has updated our latest forecasts for US Gulf crude balances and exports.  According to our model, US Gulf exports are likely to trend negatively in April and May, a net reduction of 430,000 b/d compared to the Q1 average.  We highlight the rationale below:

1) Near the end of Q1, major refineries in Europe and Far East will enter the seasonal maintenance period which will pull crude demand and imports lower.  These two regions happen to be the main importers of US Gulf crude, therefore, putting downside pressure on crude exports from the US Gulf region.

2 ...

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DPP Export Dynamics in the AG

March 15, 2024

Following on last week’s note highlighting export dynamics in the AG, we discuss the impact for AG voyages for both VLCCs and Suezmaxes.  Regarding the monthly change in VLCC movements ex AG (including KSA, but also Iraq, etc.), we note an uptick in AG VLCC flows in 2024 to both Ain Sukhna (for full discharge) and for partial discharge with continued transit directly to European refineries.  This marks a notable change from the previous 3 months, particularly December 2023, when all VLCCs sailed around the Cape of Good Hope. 

However, we anticipate the VLCC AG>West flow to slow ...

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Crude and Product Import/Export Dynamics

March 8, 2024

Top-line fundamentals show a tightening crude balance in Saudi due to continued voluntary cuts maintaining output at ~9.5mbd; however, a return of refinery utilization in the country of approximately 0.6 mbd between Feb 2024 and May 2024 (likely aided by strengthening distillate cracks during European maintenance season), will convert previous crude exports to product exports, particularly to the European market.  As such, we anticipate lower crude volumes ex AG to Europe in the coming month(s), but instead favor increasing product flows, favoring LR demand - in fact, that trend line continues well into the year, assuming no change ...

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OPEC Production Cut Scenario Analysis

Feb. 23, 2024

As we approach the next OPEC meeting on April 3rd, a survey released Friday (Feb 23rd) by Bloomberg, indicated oil industry participants and analysts are betting OPEC+ will extend production cuts beyond the first quarter of 2024.  Of the 17 traders and analysts surveyed, 14 of them expect that OPEC+ will not make any changes to its current production plans in the coming quarter.  The rationale for keeping production plans stable is that crude production has been above the demand levels since the beginning of this year and OPEC+ has had to keep oil off the market in order to ...

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Brief Red Sea Scenario Analysis

Jan. 26, 2024

The tensions in the Middle East have driven up the risk premium on crude prices.  There is concern that military clashes between Israel and the Palestinian Islamist group, Hamas, could escalate into a broader regional conflict, with markets worried the conflict could expand and disrupt wider Middle Eastern supply.  Given the uncertainty of the situation, we look into a few potential scenarios and discuss changes in tanker demand.

In the scenario where the Red Sea choke point is completely shut down due to continued attacks, our scenario analysis anticipates owners to reroute around the Cape of Good Hope, significantly boosting ...

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Libya’s Force Majeure

Jan. 12, 2024

Protests in Libya continue to keep approximately 300,000 b/d of supply off the market following the shutdown of Libya’s largest oil field last week.  The shutdown could weigh on January Esharara exports from the Zawia terminal.  Prior to the force majeure, Libyan oil fields and terminals have enjoyed a relatively disruption-free 12 months, making last year's crude exports the second-highest since the civil war in 2011.   However political instability has been recurring since the overthrow of Muammar Gadaffi over a decade ago and now threatens the country’s exports headed into 2024.  The recent shutting of ...

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OPEC vs Non-OPEC – The Upcoming Year

Jan. 5, 2024

The new year has the potential to feature a shifting dynamic between OPEC and non-OPEC producers.  OPEC+ garnered much attention with significant production cuts during the course of 2023.  The de-facto leader, Saudi Arabia also extended their voluntary cut of 1 million b/d that had previously been announced in June.  They cited weakness in oil prices driven by financial speculators and also concern over the forward-looking economic outlook as part of the rationale.  This sets the stage for more geopolitical volatility headed into 2024, usually a good omen for tanker owners.  To this effect, the markets will also be ...

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