Crude Tanker Market Waiting for News on the Oil Price Front
A few years back, when oil prices were tumbling down, there was a sense of optimism among ship owners active in the tanker market, as there was the expectation that lower prices would yield more demand. This time around, an opposite scenario, coupled with geopolitical tensions around the world, seems to be developing. In its latest weekly report, shipbroker Intermodal noted that “as observed last month the price of oil hit its highest level since November 2014 reaching $80 per barrel. Global oil demand growth for 2018 was slightly revised from 1.5mb/d to 1.4mb/d, bearing the effect of higher oil prices. The geopolitical turmoil has caused elevated concerns over potential disruption to supplies. The decision of the U.S. President Donald Trump to withdraw from the nuclear deal and re-impose sanctions on Iran caused markets to price in the impact of deteriorated Iranian crude exports. In particular, Iran produces about 2.4m barrels a day accounting for 4% of global oil supplies. However, the European Union is firm on keeping the agreement alive and not to pose sanctions on Tehran. Further, the IEA has stated that they would examine whether other producers would step in and offset a disruption to Iranian exports”.
According to Intermodal’s Katerina Restis, Tanker Chartering, “accordingly, last week Saudi Arabia and Russia announced that OPEC and other members intend to lift supply and revive oil production, to make up for impending losses from Venezuela and Iran diminished output. In reaction to such announcement last week oil prices declined with notable the longest run of losses since February, 2018. Respectively, with projections of oil supplies shrinking and trembling prices, the two nations consented to restore some of the oil output they had freeze”.
Restis added that “OPEC and Russia produce more than 40% of the world’s oil. As per analysts and various producers inside OPEC, reaching an agreement in the upcoming OPEC meeting in Vienna seems challenging. It is argued that Saudi Arabia and Russia have nothing to gain from reduced output, and plenty to lose if oil prices continue last week’s sharp decline. According to IEA, since the 2016 agreed productions cuts, Saudi Arabia has decreased their daily oil output by almost 590k barrels per day, Russia 250k barrels and U.A.E. 141k barrels per day respectively. Overall the oil output cuts by OPEC and partners have brought oil supply and demand close to balance with IEA’s recent statement “mission accomplished” pretty much confirming this”.
Similarly, according to Intermodal’s analyst, “the economic and political distress affecting the oil-rich Venezuela has led to collapsing crude production even from the country’s mature oilfields. Such downfall in oil output has affected oil markets quicker than expected. The situation is disappointing as Venezuela’s oil industry is falling apart, while conditions in the country degrade, with increased corruption, problems with payments and equipment breaking down. Furthermore, U.S. shale oil production is at record highs, with output doubling the last decade. Iran and Venezuela are not the only foundations of geopolitical volatility causing disturbed oil prices. The ongoing acceleration of tensions between Saudi Arabia and Iran, continuing conflicts in Iraq, Libya, Syria and Yemen have significantly shaken the region. As reported, a direct military confrontation between Iran and Saudi Arabia is seen unlikely, while any degree of conflict intensification in the region would undermine stability. The IEA has advised that the recent geopolitical events have increased ambiguity over future global oil supplies. Worldwide, the economy is strong, with the IMF predicting 3.9% growth this year. Vigorous economic activity is an important feature in rising oil prices and thus we shall wait and see the outcome of OPEC and further members’ upcoming meeting and if an agreement will be achieved in reference to production output levels” she concluded.
Meanwhile, in a separate note this week, Affinity Research added on the crude tanker markets, that “despite the festivities going on in Greece for the biennial Posidonia event there has been plenty going on in the VLCC market. Rates are sticking to the subWS20 mark still for MEG/USG as owners are happy to discount this voyage in order to benefit from the Caribbean and US Gulf cargoes the other end. On TD3C’s waters, this week the market took a slight turn for the worse in the beginning of the week, but due to owners low expectations for Posidonia week, turned their fortunes around with activity staying strong and boosting confidence. Fundamentals remain in the charterers’ favour of course, but the numbers the owners are returning are in line with OPEX and could be difficult to break now. As the activity in the North Sea and Baltic slowed down, the amount of available Aframax tonnage was clear for all to see, particularly for owners”, said the shipbroker.
Affinity added that “following the significant correction in the Med, the downward trend on rates inevitably continued. With particularly high bunker prices, many argue that we have now found ourselves at the bottom again, however there may be the odd panicked owner desperate to get covered before the weekend. Suezmax routes have experienced dips in Whilst West Africa’s misfortunate decline gives little cause for interest for those who have not already committed, a slew of Med/East cargoes are teasing eastern ballasters with the prospect of coming through the Suez canal. Frankly, fixing such runs remains a flawed logic, as it’s easy to find one’s self in the same situation thereafter and locked into extortionate bunker prices. But the Middle East Gulf market, despite the woes of a prompter PINEOS inquiry, would seem to have hit a ceiling at WS 35, as earnings at these levels wet quite the appetite for owners once more. The Continent & Baltic/East regions are similarly buoyed as a reflection of earnings, with current bunker prices in play, as opposed to accurately reflecting market conditions. Last time TD20 was this low we were seeing USD 1.85 Mn and below on subs, which would work for traders currently, but which is a quarter million bucks away from tempting owners in our current state”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide