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 meantime, we have not captured major increases in refinery capacity for the region. With gas oil supply only trending higher by 40,000 b/d, the product balance in East Coast South America market is projected to tighten by 80,000 b/d, resulting elevated gasoil/diesel import for the next five years. We expect most of this increased volume to come from the US Gulf, as the traditional US’s gas oil export to Europe (TC14 trade) are likely to face pressure going forward. According to our latest forecasts, the MR2 USG/EC South America ton-mile demand is expected to advance by 6.3% per annum for the next five years.
Although some of the US Gulf cargoes could find its way to the West Coast South America market, we do not expect this trade to continue expanding when the Talara Refinery comes back online, supporting regional supply and lengthening product balances. Instead, we expect the increased refinery capacity in the Far East will support the Far East/WC South America trade in the next two years. The MR2 ton-mile demand for this trade is projected to surge by 6.1% in 2021 and 0.8% in 2022. Inversely when the new refinery capacity being added in the WC South America, we could potentially see product exports from the region to the Far East, creating a MR2 triangulation opportunity that has near-100% utilization.
You can find more in-depth analysis about this and other emerging CPP trades in our upcoming Mid-Year Tanker Market Update in August.
Figure 1 – South America Gasoil/Diesel Balance
Source: JBC Energy, McQuilling Services