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Global Oil Supply Outages and Their Impact on the Tanker Markets

May 19, 2016

In the past several months there have been a series of unexpected crude supply disruptions in multiple locations across the globe including Canada, Nigeria and Venezuela.  Widespread concerns about when production will resume in these places has pushed benchmark oil prices to their highest levels since October 2015.  Each of these outages has the potential to impact various segments of the tanker market. 


Massive wildfires in the oil sands hub of Fort McMurray, Alberta and slightly north of the region have forced several oil producers to halt operations at their facilities, cutting production by up to 1.2 million b/d.  The bulk of the crude being produced in the Canadian oil sands is exported to the US, so where will the world’s second largest importer of crude look to replace these lost barrels?  Due to the heavy grade of crude being produced in the oil sands, the US will need to find something comparable when considering other sources.  Potential options could be the Middle East (Saudi Arabia) or Latin America (Colombia/Mexico/Venezuela).  Additional volume from the Arabian Gulf to the US would bode well for the VLCC tanker class in the coming months, especially as China heads into refinery maintenance season and reduces its intake of crude imports.  On average, we’ve recorded about 15 AG/USG fixtures on a monthly basis in 2016. A potential increase in Caribbean exports to the US Gulf would provide support to the Aframax tanker class as supply outages linger.   


Nigeria’s oil output has declined by almost 40% to 1.4 million b/d due to a resurgence of militant attacks on pipelines and other oil facilities. ExxonMobil declared force majeure on Nigerian Qua Iboe crude following damage to a pipeline by a drilling rig; however, production has resumed and Forcados is expected to be back by June.  Suezmax volume from West Africa to the US East Coast will likely be hampered by these developments in the near term as the US is forced to source light, sweet crude grades domestically, amid declining shale production which is down 300,000 b/d year-on-year.  The Continent will also be faced with finding replacement barrels, which would likely come from the US or Arabian Gulf, providing additional employment for Aframax, Suezmax and possibly VLCC vessels. Suezmax tanker spot rates from West Africa to the USAC (TD5) have fallen nearly 25% from the start of May, while rates for West Africa to the UKC have declined by almost 30%.  We will likely see continued pressure on West Africa Suezmax rates in the near term. 


The collapse in oil prices over the past two years has propelled Venezuela into its worst recession in decades, prompting President Nicolas Maduro to declare a state of emergency this past month.   Persistent power shortages, which may be further exacerbated by the potential shutdown of the Guri dam due to dangerously low water levels, will likely force the country to increase domestic consumption, further curtailing oil exports.  The cash-strapped country has also reportedly faced payment issues with trading partners, creating a backlog of tonnage at its main José Terminal at various points throughout the year.  These delays have provided support for Aframax tankers and even the VLCCs and Suezmaxes due to tightening position lists.