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Caribbean Uncertainty

Dec. 28, 2017

The Caribbean region has come under considerable pressure this year amid political uncertainty and depressed pricing for crude oil.  Colombia, Mexico and Venezuela are the major producers in the region and currently account for about 4.6 million b/d of crude and condensate production, which compares to just below 4.9 million b/d in the beginning of 2017.  All three nations have struggled from a lack of investment in the upstream sectors, which has been particularly tough since the oil price collapse of 2014.

From a crude balance perspective the outlook for this region is expected to pressure tanker demand; however, we note that in the outer years of our forecast fundamentals have the potential to improve.  Demand and supply forecasts from JBC Energy indicate that the balance of Caribbean crude for export is expected to fall from 2.4 million b/d this year to 2.1 million b/d in 2018 and 2.0 million b/d in 2019 amid large declines in production.  In our view, this trend will reduce cargo opportunities for dirty vessels and decrease utilization for those vessels seeking to triangulate from the Western Hemisphere back to the East.  As we move into the outer years of the forecast, we see a potential return of Mexican crude production on the back on higher upstream investment, which is likely to support a higher balance of crude; however, we note that the balance will likely remain well below 2016/2017 levels and demand for tankers is likely to remain subdued relative to these years.  We expand further on this topic in our 2018-2022 Tanker Market Outlook.