Tanker Market In Shifting Tides

The tanker market is expected to face a significant trade rerouting, after the latest sanctions in Russian crudes and the emergence of Iranian and Venezuelan grades as potential candidates to replacing part of the lost supply. In its latest weekly report, shipbroker Gibson said that “surging global oil prices and Russian sanctions are forcing Western governments to approach those countries they previously sanctioned in response to alleged human rights and nuclear proliferation. As the market continues to assess the impact of the Russian invasion of Ukraine and the prospect of sanctioned Russian energy exports, the impacts are starting to be felt. Oil prices have risen to a 14-year high peaking at $139/bbl earlier in the week. The need to find viable alternatives is growing and the prospect of returning Venezuelan crude is on the table; with US diplomats meeting officials in Caracas to discuss such a deal. This comes off the back of a touted Iran nuclear deal that would facilitate the imminent return of Iranian crude to the market. In the case of Venezuela, PDVSA was sanctioned in 2019 by the Trump administration and diesel for crude swap agreements on humanitarian grounds were blocked in 2020. Since then, Caracas has struggled to maintain output and exports. Now with the world desperate for alternative supplies, previously strained relations could give way to a new partnership, if there is political will on both sides”.

According to Gibson, “February IEA data shows 2021 daily production averaged 610kbd versus 530kbd in 2020, a rise of 15%. Volumes since October 2021 have risen the most in part thanks to the Iran-Venezuela condensate swap deal in which Iran exports condensate to Venezuela as an oil diluent in return for Venezuelan crude. Iran’s intervention to supply blending products has allowed Venezuela to significantly ramp up oil exports via the global shadow fleet to Asia. January output was recorded at 680kbd down from December’s 800kbd due to production difficulties and maintenance at the Boscan oil field all weighting on output levels. Exports were hampered by tanker availability in January”.

Gibson added that “the main issue is whether Venezuela could successfully ramp up production should sanctions relief come; the answer to this is probably not. Years of underinvestment means it would take time for Venezuela to build up exports to a level that could make a meaningful impact on oil prices. Surpassing 1mbd of exports from 0.4mbd in 2021 would likely take at least a year, if not longer and require foreign assistance. Nonetheless, it would be an important start in rebuilding the nation’s oil industry. There is likely to be high demand for Venezuelan grades. US Gulf Coast advanced refineries could take at least half of the approximately 600kbd current output, supporting cross Caribbean Aframax tankers. Appetite in India and China is also likely to be high boosting longer haul VLCC and Suezmax tonne-mile demand. Previous European buyers are also likely to be keen to resume purchases. Appetite is likely to grow as production increases further over time”.

The shipbroker concluded that “therefore, it is clear Venezuela on its own cannot solve the energy security concerns of importing nations alone. Russia exports nearly 7mbd of crude and products both West and East, and even with sanctions relief on both, Venezuela and Iran cannot at present match such volumes. However, even if sanctions are increased against Russia, at least some Russian exports to OECD countries are likely to find alternative markets in Asia. There is also the challenge of how Venezuela and Iranian crude could fit into the market alongside any sanctions on Russian exports. Many likely Eastern buyers of Iranian and Venezuelan grades are also likely to be buyers of discounted Urals, which may complicate their feedstock purchasing decisions. Overall, global oil trades will face pressure to reroute in response to the changing sanctions landscape and the business challenges this brings. It looks like Venezuelan oil might soon come out of the shadows if diplomatic efforts succeed”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide