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Tanker market will be shaped by demand moving forward

The oil glut is becoming more than evident by the day, leading to very important questions moving forward, for the absorption of excess supply and thus, ship owners are having to guess where demand will come from. In its latest report, shipbroker Allied Shipbroking said that the lifting of Iran’s international sanctions, “the crude oil market was spooked by the prospects of further supply glut hitting the scene, while many see this 12 year low in crude oil prices being only a small chapter in the upcoming developments to be noted over the course of the year.

According to Allied’s Head of Market Research & Asset Valuations, Mr. George Lazaridis, “during the course of the past 12 months, crude oil supply brought about mainly by the decision by OPEC members has created one of the biggest and longest price drops in the history of crude oil trading. This strategy, which has been in part to help OPEC members regain market share, has come at a great cost and despite all efforts many of the targeted high priced oil producers continue to operate. It is by no coincidence that the U.S. announced that it would lift its ban on oil exports, allowing its excess production from shale oil to spill over to other markets”.

Lazaridis said that “in the midst of all this OPEC now forecasts that oil supply from non-member countries will post a decline of 660,000 barrels per day within 2016 (almost double its previous forecast) as the new price reality of below US$ 30 a barrel (the price fell to US$28 a barrel which is the lowest recorded since 2003) squeezes ever more producers out of competition. Yet many in the market see this as only a start to further price drops, with many quoting a new price norm of around US$ 20 per barrel. This in part will surely be supported by the supply impact of 500,000 bpd coming into play within 2016. At the same time estimates for demand within 2016 is set to be close to the 1.26 million bpd, a notable slowdown from the 1.54 million bpd estimated for 2015”.

Allied’s analyst went on to note, “all this turns up the heat on most of these OPEC member countries many of which have seen a large chunk of their cash reserves sapped and most of their generous welfare systems (most notably in recent news reports the situation faced by Venezuela). Saudi Arabia as well as the rest of the five Gulf Cooperation Council members have announced that they are preparing to announce considerable spending cuts in their annual government budgets, while many expect an even tougher year in terms of their earnings. All this points to extended tensions that will arise during the next biannual meeting of the OPEC members, while it will be hard to ascertain the true success of their original decision back in 2014. What is becoming ever certain now is that it will be hard to head back to the hay days of US$ 80-140 per barrel, while the recent advancements in oil production brought about by the technologies behind shale oil has meant that production is more flexible to price changes than ever before.

According to Lazaridis, “the big challenge moving forward will be a demand one, with strategic reserves by most countries having peaked to some of their highest levels ever, it is difficult to see where all this new excess supply will be absorbed. What’s more is that despite the fact that energy commodity prices have dipped by so much, there is still plentiful efforts being put on new technologies which provide ever higher efficiencies in consumption, leaving all to believe that we will likely see a stagnation in demand over the coming years. This stagnation is by no means limited to the OECD economies but is likely to effect the fast paced emerging economies as well, as they leapfrog straight from their low oil consumption per capita onto oil consumption dictated by energy efficient technologies which are equally available. After all, all new cars purchased in China or India are, if not on par, of almost equal energy efficiency ratings as the ones being bought in the U.S. and Europe”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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