June 16, 2016
Crude oil production has come under pressure in several countries, specifically West Africa as a surge in militant attacks has reduced Nigeria’s output by about one million barrels per day. The lost production in Nigeria has helped to support crude prices which have climbed to above $50 per barrel for the first time since November 2015. Prices have also found further support from outages in Canada stemming from wildfires in the oil sands region as well as Venezuela and Libya.
The United States has also seen a reduction in domestic crude oil production as it fell to an average of 8.7 million barrels per day in May, a decline of almost one million barrels from April 2015, according to the EIA. This development has led to a tightening of the WTI/Brent differential, which has supported foreign crude imports. Exports from Colombia and Venezuela to the US hit 1.25 million barrels per day in March, the second highest recorded total since July 2014. In the first four months of the year, Caribbean crude exports have increased 29,000 barrels per day more than the 2015 average.
Increasing US imports of Caribbean crude oil is a positive ton-mile demand development for Aframax tankers trading in the region and Aframax demand may find additional support from a continuation of US crude exports. Between June 2010 and December 2014, we calculated an average of nine DPP monthly fixtures from the US Gulf to foreign destinations, excluding Canada, a number which has grown to over 24 in each of the last two months.
VLCC spot market activity out of the AG to China climbed over 70% from April. Chinese independent refiners, better known as “teapot refineries” have helped to keep demand for crude elevated, averaging roughly 7.41 million barrels per day in the first four months of the year (Watch our latest episode of McQ TV: The Teapot Refinery Effect for more information on this topic). Despite the uptick, worldscale spot rates for AG/East fell month-on-month to an average of WS 62 or about US $43,500/day on a TCE basis. West Africa/China rates fell to an average of WS 61, down 5 Worldscale points from April.
Suezmax rates from West Africa to the USAC plummeted by 20% month-on-month to an average of WS 66 in May, roughly $20,500/day. At the same time last year, this route saw daily earnings of over US $46,000/day. The West Africa/UKC route also experienced a sharp decline in May averaging Worldscale 67 – just shy of US $19,000/day. Black Sea/Med rates averaged WS 82 in May – about US $27,000/day.
In the clean tanker segment, weakness persisted for the LR2s in the East as AG/Japan fell to an average of WS 87, down from WS 91 in April. From the start of 2016, this route has lost 49 worldscale points. LR1s on the other hand, found some support as AG/Japan activity increased for this tanker class. The monthly Worldscale average gained a point from April, trading at WS 102 or about US $13,000/day.
Spot market activity on the UKC/US Atlantic Coast route increased nearly 29% from April and rates climbed as a result, averaging WS 118 or $11,000 per day in May. On the opposite end, the US Gulf/UKC trade saw a decline in volume by roughly 41% and a buildup of tonnage throughout the month forced rates down to an average of WS 85 or about US $5,400/day.