Industry Note No. 23 - The Spot Market: A Year in Review
This most recent industry note provides a recap of tanker spot market activity for the year.
Industry Note No. 22 - 2014 Worldscale Flat Rate Forecast
At the end of each year, the Worldscale Association issues a new set of flat rates, which are a fundamental component in spot rate negotiations between owners and charterers. Our most recent industry note provides our forecast for these rates on eight major dirty and clean tanker trades.
Industry Note No. 21 - Ballast Water Treatment
McQuilling Services welcomes the participation of our clients in our Industry Notes initiative. Through this medium, we strive to highlight and generate constructive dialogue around important issues in the current discourse on maritime related matters. This Industry Note is provided by P66, based on research from the P66 Strategy Team with technical guidance from Minerva Marine Inc.
Industry Note No. 20 - Can History Repeat Itself?
From the perspective of tanker owners, particularly of larger tonnage, it is clear that 2013 will not be remembered fondly. Rates have languished at levels most thought had been consigned to history as tonnage remained abundant in the primary load regions throughout the year. This has been further exacerbated by the altered trading landscape stemming from the US crude oil revolution that unlocked shale reserves at an alarming rate. A global economic malaise has also kept demand improvements limited in both mature and growing economies.
Industry Note No. 19 - The 10% Solution
Large tanker owners have been troubled for some time by a lingering black cloud hanging over the spot market. It’s no surprise how we got here; however, as oversupplied position lists tell the tale quite well and matters are only getting worse. Newbuilding tonnage continues to hit the water at a rapid pace, while the demolition profile has vastly underperformed expectations. While current market conditions make it hard to see the light at the end of the tunnel, taking a deeper look at possible solutions may uncover a silver lining.
Industry Note No. 18 - Heating Up
While the sizzling summer months are coming to a close and cooler weather is beginning to set in in the North East United States, political tension in the Middle East and North Africa are causing the mercury to rise and “hot spots” are being ignited. As with many aspects of the energy sector, the impact of these types of events could be fast and far reaching.
Industry Note No. 17 - For Good Measure
We, like many others in our industry, are involved in forecasting the future. Forecasts are estimations of future activities based on models designed to mimic reality. As such they are abstractions that are highly dependent on data, analytical methodologies, and specific assumptions. Whether complex mathematical formulations or simple projections that are based on experience and observation are used, forecasting the future is generally an imprecise and inaccurate activity. The spot market for tanker freight rates is no exception. The uncertainty surrounding the global economy further complicates this exercise while a significant amount of uncertainty remains regarding tanker demand, vessel supply and how their interaction influences rate levels.
Industry Note No. 16 - Retail Therapy
Regardless of the state of the global economy, the world renowned Fifth Avenue in New York City is always bustling with optimistic shoppers looking for some relief through retail therapy. It appears that tanker owners, despite the market’s ongoing doldrums, have taken the same approach as they have certainly flexed their checkbooks at shipyards this year.
Industry Note No. 15 - Mid-Year Tanker Update
In August, McQuilling Services publishes a review of our Tanker Market Outlook. At the start of 2013, we anticipated that on the back of a lower delivery profile, an elevated tanker exit program in 2012 and a slightly improving global economy, that dirty tanker rates would find support. Our expectation was the opposite for the transportation of clean petroleum products. Fueled by a seemingly insatiable appetite for new tonnage and a backlog of deliveries, our analysis was contrarian to the market by expecting spot rates in clean trades to weaken over the course of the year.
Industry Note No. 14 - Mid-Year Spot Market Recap
It’s no secret that the oil tanker market, particularly large crude vessels, felt continued pressure in the first half of 2013. VLCCs, the work horse of the crude tanker segment, took the largest hit mainly due to lingering oversupply. This was further exacerbated by growth in non-OPEC production, namely in the US, as imports fell to the lowest levels since 1996 in the first half of the year. Additionally, OPEC production has declined in some Middle Eastern and West African countries. This has cut into VLCC demand, bringing fixture counts down from 2012 levels (Figure 1). Additional turmoil stemmed from a heavy refinery maintenance program in the first half of 2013, further slashing demand for VLCCs.
Industry Note No. 13 - Dog Days of Summer
The current heat wave on both US coasts makes the idea of going anywhere, with the exception of the beach, an unappealing task. Nevertheless, roads and highways are crowded, which can be somewhat attributed to a slow but gradually improving US economy. As a result, there has been a recognizable boost in gasoline demand. Data from the US Energy Information Administration (EIA) shows that US gasoline consumption has remained above the 8.5 million b/d mark since the middle of May with the upward trend highlighted in Figure 1. This uptick has catapulted US gasoline demand back to the seasonal heights of years prior. While part of this uptick can be explained by seasonality, the improving macroeconomic situation is also supporting this trend.
Industry Note No. 12 - Head for the Exits
Situational awareness requires that people know their surroundings and the risks inherent therein. In a crowded theater, one should always make sure to know the way out. The phrase: “In case of emergency, proceed to the exits in an orderly fashion” comes to mind. Many sectors of the shipping industry are presently facing an oversupply of tonnage. How we got here can be debated. The current imbalance of supply and demand cannot. This imbalance is creating a freight rate prospect many would term an emergency. Proceeding to the exits in an orderly fashion may be the best alternative.
Industry Note No. 11 - Trickle Down Production
The domestic tanker industry in the United States is finding support from the boost in the nation’s crude oil production. After falling to 5 million b/d in 2008, the lowest level since 1946, US crude oil production has climbed sharply to over 7 million b/d and has held steady above this level since the end of 2012. One of the most significant contributors to the rise in US crude oil production has been the employment of fracking technology in North Dakota’s Bakken shale formation.
Industry Note No. 10 - Product Tanker Demand Upside Potenial; Theory and Reality
McQuilling Services continues to hold a contrarian view of the positive sentiment that surrounds the clean tanker market and robust MR2 ordering. In an effort to validate our opinion, we compiled the clean product trade data that was used for McQuilling Services Tanker Market Outlook this year. We arranged the 225 trades (15 x 15 regions) in descending order from the longest to shortest distances, classifying the top 113 trades as long haul trades and the bottom 112 as short haul trades. We calculated the required number of vessels for all 225 trades for one way and round trip voyages based on a sailing speed of 13 knots and 8 port days, average deadweight tonnage and historical capacity utilization.
Industry Note No. 9 - Offshore Floating Storage Scorecard
At present, there are about 300 floating storage units deployed in the offshore oil and gas industry. The majority (about two-thirds) of these are Floating Production, Storage and Offtake units (FPSO). Existing storage units for gas (Floating Storage Regasification Unit - FSRU, and Floating Liquefied Natural Gas - FLNG) are currently few (8 in total), but this technology is becoming more popular. Offshore storage units tend to be large, shipshape structures, most having been converted from older tankers and a smaller fraction purpose built. About 60% of the units are 120,000 deadweight or larger. About 30 units are under construction.
Industry Note No. 8 - Hurricane Season Outlook
This year’s hurricane season is fast approaching while the destruction from Superstorm Sandy is still apparent along the Atlantic Coast. This is likely to result in low pressure formations grabbing an even larger chunk of news headlines than in previous years. For those still struggling to rebuild from Superstrom Sandy, the forecast by the US National Oceanic and Atmospheric Administration (NOAA), further frays their already worn nerves.
Industry Note No. 7 - A Heretic in the House of Hydrocarbons
News headlines pertaining to the tanker market have been dominated by reports surrounding the positive sentiments of the clean tanker markets. On the back of this, orderbook activity has remained robust with the primary focus remaining on eco-design tankers. The dirty tanker segment meanwhile remains shrouded in a dark cloud that refuses to dissipate. This has been based on ample tonnage availability, shifting trade patterns and a tepid recovery in the global economy.
Industry Note No. 6 - Lightering Your Load
Lightering is the process of transferring a cargo to a facility onshore from a smaller vessel. This is typically an Aframax vessel removing parcels from a VLCC or Suezmax. This process is required if water depths at regional ports are too shallow to accommodate a vessel’s draft or if technical restrictions prohibit calling to a certain port. Reverse lightering can also occur if a cargo is taken from a terminal and delivered to a vessel offshore. This practice is common for West-to-East fuel oil cargos. Lightering companies also solely provide hoses, fenders and mooring masters if a vessel is not required by the chartering company.
Industry Note No. 5 - If You Build It, Will They Come?
In recent years, McQuilling Services has noted the growth of clean petroleum products that are being delivered to East and South Africa (Figure 1). These imports have been supported by a lack of downstream infrastructure and there are few expansions on the horizon that are likely to alter these trade flows. According to the International Energy’s 2012 Medium Term Report, Africa’s refining capacity will only expand by 440,000 b/d through 2017. In comparison, China and the Middle East are expanding downstream activities by 2.9 and 1.9 million b/d respectively in the same time frame. Nevertheless, the economies of East and South Africa should continue to expand on the back of global demand for the region’s natural resources. These resources range from crude oil, natural gas, coal and timber to food-stuffs with volumes primarily moving to the East.
Industry Note No. 4 - Sailing Your Options
The current tanker market, that can be characterized by an over-supply of tonnage and lackluster crude oil demand, may provide owners and charterers the opportunity to work together to achieve mutual profitability. In order to assess how this type of relationship could materialize, we use an example of a VLCC delivering a cargo from Ras Tanura to LOOP and then ballasting to Bonaire. We used this voyage due to the owners’ requirement to boost earnings through securing a backhaul cargo after discharging in the US Gulf. The vessel’s sailing speed was calculated at 13 knots for all legs of the voyage while port and canal fees were factored accordingly. To complete this voyage two sailing options are possible; transiting the Cape of Good Hope or the Suez Canal. Each of these options present opportunities for the charterer and the owner to maximize voyage economics.
Industry Note No. 3 - Waiting for a Swell
Since the start of 2013, VLCC spot rates have been under pressure as a result of the usual suspects of excess tonnage availability and relatively weak demand. The latter has been further exacerbated by seasonal refinery maintenance, particularly in the US. According to data from JBC Energy, roughly 2 million b/d of North American refining capacity was scheduled to be offline during each month of the first quarter. In the Asia-Pacific, refinery turnarounds are set to reach 1.9 million b/d in March, an almost three-fold increase versus February and are expected to climb to 2.3 million b/d in April before falling in May. These reduced throughput rates, combined with vessel availability and concerns over the global economy, are pressuring VLCC rates. Year-to-date the voyage from Ras Tanura to Chiba has averaged WS 35 while the same period averaged WS 51 (Basis 2013 WS100).
Industry Note No. 2 - Looking for Love
Since the start of 2013, VLCC spot rates have been under pressure as a result of the usual suspects of excess tonnage availability and relatively weak demand. The latter has been further exacerbated by seasonal refinery maintenance, particularly in the US. According to data from JBC Energy, roughly 2 million b/d of North American refining capacity was scheduled to be offline during each month of the first quarter. In the Asia-Pacific, refinery turnarounds are set to reach 1.9 million b/d in March, an almost three-fold increase versus February and are expected to climb to 2.3 million b/d in April before falling in May. These reduced throughput rates, combined with vessel availability and concerns over the global economy, are pressuring VLCC rates. Year-to-date the voyage from Ras Tanura to Chiba has averaged WS 35 while the same period averaged WS 51 (Basis 2013 WS100).
