Tanker Owners Shouldn’t Panic Over Iran Affair Claims Shipbroker
The impact of the US’ President Donald Trump to repeal sanctions relief for Iran, effectively terminating the agreement in place over the Middle Eastern country’s nuclear program was the main event in the tanker market last week, bringing a flurry of speculation. In its latest weekly report, shipbroker Gibson attempted to offer some valuable insight, weighing in on past experience and tangible data. According to Gibson, “market participants have been given a 180-day grace period, but we could see many adjust much sooner. In terms of oil production, estimates vary widely, with analysts calling the impact somewhere in the region of 200,000 b/d to 1 million b/d. Much will depend on demand for Iranian oil. Perhaps the biggest fall in buying activity will come from Europe. Even though the EU opposes Trump’s decision, European players may be forced into line regardless. A lot depends on the stance taken by the finance and insurance sectors, whose cooperation is required to facilitate trade with Iran. If these institutions take a more cautious approach, then Westbound flows are likely to see substantial declines, perhaps with the exception of Turkey and Syria”.
However, “predicting the move of Eastern buyers, who proved to be loyal customers during the last round of sanctions is trickier. China is largely expected to continue buying Iranian grades and may be tempted to consume even more as price differentials become more attractive. However, Japan and South Korea, who were consistent buyers during the last sanctions era have so far reduced their purchases already this year. Japanese buying averaged 85,000 b/d, down from a peak of 215,000 b/d in 2016, whilst Korea has reduced its intake by 65,000 b/d YOY. India has however, increased its purchases of Iranian crude, importing 492,000 b/d so far in 2018, supported by the need to replace lower Venezuelan volumes. Sanctions may of course make buying for Indian refiners more challenging, but overall most Indian refiners are expected to remain significant customers”, Gibson said.
So how will these developments impact the tanker markets? According to the London-based shipbroker, “on the one hand, the more Iranian exports decline, the bigger the reduction in crude tanker demand. However, other producers are likely to compensate for any lost Iranian barrels. Furthermore, one must consider that a significant proportion of Iranian exports are carried on Iranian tankers, particularly VLCCs (of which NITC owns 38). If exports increase from elsewhere, for example Saudi Arabia or Iraq to compensate for lower Iranian volumes, then these volumes will not be carried on Iranian VLCCs – so international tanker owners will benefit, whilst Iranian ships spend more storing or idling. Whilst sanctions may be marginally beneficial for VLCCs, the benefit for the Suezmax sector is less clear. If Saudi Arabia makes up the lion’s share of lower Iranian exports to the West, then the Suezmax market might surrender some market share to the VLCCs. Additionally, as NITC only operates 8 Suezmaxes, there is unlikely to be much impact on fleet supply”.
Gibson concluded its analysis by noting that “overall there remains some uncertainty as what the impact might be. Losing Iranian oil from the market is only a negative if it is not substituted from elsewhere or impacts upon tonne mile demand through more short haul crudes being sourced. Simultaneously, losing Iranian ships from the open market is positive for the supply/demand balance. In our view, tanker owners need not panic. Besides, it can’t get much worse, can it?”
Meanwhile, in the crude tanker market this week, in the Middle East, it was “another extremely frustrating week for VLCC owners to endure. Bunker prices have ramped higher to further squeeze earnings and initially it looked as if some mild compensatory gain could be achieved to offset, but the sheer weight of availability quickly extinguished any occasional redress, and rates again compressed down to ws 40 East for modern units and into the very low ws 30’s for older vessels with runs to the West at no better than ws 18 Cape/Cape. Next week will see the introduction of the June programme, and it could then get a little busier, but that is unlikely to materially help. Suezmaxes gently ebbed and flowed but on very modest volume, and rates ended more or less where they began, at 130,000mt by ws 65 to the East and down to ws 26 to the West. No near-term change likely either. Aframaxes saw just about enough to hold at an average 80,000mt by ws 87.5 to Singapore and are not anticipating conditions to improve sufficiently next week to change the picture”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide