LATAM Tanker Demand Update
Sept. 23, 2022
The short-term outlook for the Caribbean region begins to reveal the impact of increasing crude production from Guyana. Latest data shows supply reaching 2.821 million b/d in the region for 2022, a 249,000 b/d jump y-o-y. With crude oil demand remaining flat (no additional refining capacity) crude balance is expected to lengthen by 233,000 b/d in 2022, reaching 1.8 million b/d. The export availability has boosted flows to (among other destinations) the US Gulf where refineries are replacing Russian fuel oil feedstock with heavy crudes from the region, but also to the Continent which has also been phasing out Russian oil purchases.
We expect this strong activity to continue throughout our forecast period considering that the Caribbean is forecasted to add another 593,000 b/d of production through 2026. Similarly, in South America, Brazil has been steadily increasing crude supply, which is projected to reach 3.6 million b/d for 2022 and 3.8 million b/d in 2023, 388,000 b/d higher than 2021 figures. With crude demand stable, we anticipate this region to support crude tanker ton-mile demand for both VLCCs and Suezmaxes, with Europe increasing its share of supply amid reduced Russian imports.
Switching to the clean side, the recent surge in CPP exports from the US Gulf to the Caribbean and South America regions reinforces our view of a longer-term trend forming in these regions, outside of the current circumstances with some of the flows from Europe to the region suspended due to the effects of the war in Ukraine. In the South America East Coast region, gasoil demand is forecast to grow by at least 53,000 b/d through 2026 while supply only by about 12,000 b/d for the same period.
With flows from the Middle East now focused on Europe, we are likely to see the US Gulf continuing to play a prominent role in supplying the region, predominantly on MR tonnage. However, we note that in our models, we project Russia to increase product exports to South America as well, something that could begin to materialize soon, given the full Russian oil embargo in Europe begins in December.
For West Coast South America, a similar story is forming throughout our forecast period, likely supporting ton-mile demand from the Far East (which is adding refining capacity) on LR but also MR tonnage – a trend we started seeing taking hold recently and is projected to grow rapidly. One risk to the downside could be the removal of the “zero-COVID" policy in China, something that could significantly reduce product (especially jet fuel) balance in the region.
Figure 1 – Caribbean + E.C. S. America Crude Fundamentals & LATAM Product Fundamentals
Source: McQuilling Services, JBC Energy
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