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Tanker Market on “Wait-and-See” Mode as Oil Market

The tanker market is currently reflecting the “wait-and-see” mode of the oil market, looking for future direction, said shipbroker Charles R. Weber, in its latest weekly report. Based on initial data from the IEA, OPEC has reportedly achieved about 90% of their pledged compliance cuts. If this proves to be correct, it would be the best compliance rate in its history at the outset of a production cut agreement.

According to CR Weber, “the International Energy Agency (IEA) ‐ one of OPEC’s six sources – commenting on the initial figures said “Some producers, notably Saudi Arabia, are appearing to cut by more than required.” According to one source; OPEC’s own data, derived from six external sources including the IEA, showed a compliance rate of 92 percent. The organization will publish the statistics in its monthly report on Monday February 13, and it should be noted that the figures could be revised before they are published”.

CR Weber noted that “OPEC has pledged to cut its crude output by about 1.2 million bpd from January 1, 2017 to prop up oil prices and reduce a supply glut. Russia and 10 other non‐OPEC countries agreed to cut half as much. However, the 11 non‐OPEC producers that joined the deal have not cut as much, delivering 40 percent of their promised curbs in January, two OPEC sources said, citing OPEC calculations based on data from the IEA. Non‐OPEC’s lower compliance figure to date is partly due to the phased implementation of the deal by Russia, the largest non‐OPEC producer cooperating with the organisation”.

“The group uses two sets of figures to monitor its output ‐‐ figures provided by each country and by secondary sources that include industry media. This is a legacy of old disputes over how much countries were really pumping. The secondary sources used by OPEC are: the IEA, Platts, Argus, the EIA, CERA and Petroleum Intelligence Weekly. In tandem with the scheduled cuts, the industry does expect significant increases in production from non‐member countries such as Brazil, Canada and the US whose combined output is expected to grow by 750 kb/d in 2017. The net change for non‐ OPEC production in 2017, taking into account cuts by eleven countries, is close to a 400 kb/d increase. In the United States, recent increases in drilling activity suggest that production will recover and the IEA’s forecast is growth of 175 kb/d for the year as a whole with production in December expected to be 520 kb/d up on a year earlier”, CR Weber said.

The shipbroker went on to note that “on the demand side, the IEA have revised global demand upwards for the third month in a row and for 2016 it is now seen at 1.6 mb/d. Stronger than expected growth in Europe, partly influenced by colder weather in 4Q16, is a key factor alongside the long‐term growth in China, India and non‐OECD countries. In 2017, assuming normal weather conditions the IEA expect demand to grow by 1.4 mb/d, an increase of 0.1 mb/d from their last estimate. The continued existence of high stocks, plus caution from the markets in assessing the level of output cuts and how other producers might grow production, explains why Brent crude oil prices have remained at the mid‐$50s/bbl since mid‐December after receiving a post‐output deal boost of close to $10/bbl. The oil market is very much in a wait‐and‐see mode and as such this has reverberated through the tanker market”, concluded CR Weber.

Meanwhile, in the crude tanker market this week, “following the completion of the Chinese New Year holiday’s it was not surprising that inquiry picked up this week. While the increased activity was expected, the volume of the February program proved surprisingly high with the middle decade of the month yielding one of the highest tallies over the past six months and the cargoes per day for February (4.5 pd) out‐pacing both January (4.42 pd) and December (4.23 pd) with several cargoes still outstanding for the month. The aggressive pace of activity through the middle and final decades of February increased Owners resolve, putting upward pressure on rates. Add to this a busy West Africa sector where March program in Nigeria expects to see exports climb and we get the almost twenty percent increase witnessed in eastbound rates this week”, said CR Weber.

According to the shipbroker “charterers did look to slow the momentum with the prospect of a lull ahead of the March program, but as February cargoes flowed, no such break appeared with one charterer reaching to secure March tonnage. While most March stems confirmations are still over a week away, the Basrah stems could appear as early as tomorrow and how quickly we progress into March will determine the sustainability of the current upward swing”, it concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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