A Glimmer of Hope for Tankers?
Gibson said in its report that “according to Bloomberg, US shale has estimated breakeven levels in the region of $35-45/bbl due to improved capital structures and continued efficiency gains in the sector. Likewise, production is relatively easier to bring back online in response to price swings than “traditional” producers. Current margins in the region of at least $15-25/bbl will pique the interest of suffering producers as the short-term disruption in Texas subsides. However, the sector had been plagued by excess investment and capacity resulting in bankruptcies and a diminished attractiveness for credit and investors. Increased shale output will not only depend on sustained higher oil prices but also the ability to raise fresh capital and the support of the new US administration which could yet hold back renewed volumes reaching the market despite strong oil prices providing the necessary support for increasing production”.
According to the shipbroker, “whilst OPEC+ members will be enjoying higher prices;they will of course be weary that this could encourage a bounce back in shale. Many members in the group will be keen to obtain increased production quotas at next week’s meeting, which subject to the volumes granted, will have implications for oil prices. Lower prices may not be desirable for all, but the group will be weary of the impact on prices and the need to protect fragile demand growth. However, when shale production does bounce back, OPEC+ could be forced once again to consider production cuts to offset rising US volumes. Yet, as has been seen in the past, this would be counterintuitive to the desire to defend market share”.
“Additionally, under a new President, there is now increased potential for Iranian crude to return to the market later this year or early next year. Venezuela could also make a limited comeback if the US administration allows crude for product swaps to resume on humanitarian grounds. Combined with Iran, potential increased supplies from Venezuela and the US could limit the ability of the wider OPEC+ group to return production to pre-pandemic levels. Indeed, this delicate balance of oil supply and demand fundamentals is further complicated by the varying recovery speed of oil demand from Covid-19 over the short and medium term”, Gibson noted.
The shipbroker concluded that “the prospect of higher US crude volumes would provide another glimmer of hope for crude tankers struggling in a protractedly sluggish market. Assuming renewed oil demand post Covid-19, higher US crude exports would provide further stimulus on dirty routes loading in the US Gulf. However, in the short term, OPEC+ will be keen to restore as much output as possible whilst keeping prices in an acceptable range and this is likely to act as buffer to any substantial rises in shale output this year. Indeed, the decisions made by OPEC+ next week will set the tone for oil output and tanker demand for the balance of 2021 and beyond”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide