Canadian exports to the US have had a considerable impact on the global supply chain and we project that this phenomenon will escalate through 2019. Canada is a net exporter of crude oil and as productivity from their oil sands increases, Canadian exports to the US will expand as well. Due to inter-modal transportation constraints, Canadian crudes are currently not reaching coastal ports to load tankers for more distant export markets in any significant volumes. The US is the main beneficiary of Canada’s growing export trade, absorbing approximately 97% of its international crude sales.
Investors looking for returns in the tanker markets can invest their capital in a variety of ways. Should an owner invest in a VLCC or an Aframax? How about an LR2 or an MR2? What is the historical rate of return for these tankers? Which tanker class is the riskiest? These questions face owners and investors in each investment decision. In order to compare the different tanker classes on a total-return basis, we developed a return-on-shipping index that calculates a monthly return by assessing the earnings for a given month (TCE less OPEX) and the gain/loss on the asset value of the specific tanker for that month.
Both Brent and WTI have continued to weaken since September as a result of the global oversupply of crude oil. On November 27, 2014, the Organization of Petroleum Exporting Countries (OPEC) members met to debate whether to cut production to steady prices or to maintain production output to marginalize US shale production. OPEC decided to maintain its production ceiling for 2015 forcing Brent and WTI to the lowest price levels since July 2009. Both Brent and WTI are now in contango and, if history repeats itself, traders will be looking for storage opportunities. By applying the lessons learned from the September contango, we evaluate the current contangos to determine if floating storage plays make sense under current market conditions.