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Tankers: Middle East and US at the Forefront of Rates Moving Forward

With geopolitical factors coming into play in the tanker market once more, ship owners are anxiously looking for ways to trade their assets. Rates could be headed higher on the Middle East market, but much of this rise isn’t finding its way back to ship owners’ “pockets”, since it’s mostly down to increased insurance costs. In a recent note, shipbroker Banchero Costa said that “nearly one month after the attack to four tanker vessels in the Strait of Hormuz, two tankers were hit in the Gulf of Oman while transiting waters near to Fujairah on Thursday 13 morning. With regard to the critical relevance of the Middle East Gulf (MEG) for the shipping sector, below we trace last year MEG crude oil numbers in terms of oil reserves, productions and exports, retrieved from the latest OPEC Annual Statistical Bulletin. According to OPEC, the Middle Eastern countries accounted for 54 percent of global proven oil reserves and over 34 percent of global crude production in 2018 – making the MEG the largest crude producing region globally”.

The shipbroker added that “looking at crude oil reserves in the MEG, Saudi Arabia holds 33 percent, followed by Iran and Iraq with an additional 19 percent and 18 percent respectively. In terms of output, the countries produced in total approximately 26.61 million barrels per day (bpd) in 2016; over the next two years and mainly as a result of OPEC decisions to cut production at the end of 2016 and then set new levels by mid-2018, yearly output dropped to around 25.69 million bpd in 2017 and reached around 25.74 million bpd in 2018. Thanks to a crude oil production of around 10.32 million bpd in 2018, Saudi Arabia is by far the largest producer in the region – accounting for 40 percent of the total, before Iraq (4.41 mln bpd – 17 percent), Iran (3.55 mln bpd – 14 percent), UAE (3.01 mln bpd – 12 percent) and Kuwait (2.74 mln bpd – 11 percent). As already mentioned in our previous weekly report comment, Middle Eastern countries dominated the list of 10 top global crude oil exporter in 2018 that shows Saudi Arabia leading with around 7.37 mln bpd, Iraq in third place with 3.86 mln bpd), and then UAE (2.30 mln bpd), Kuwait (2.05 mln bpd) and Iran (1.85 mln bpd) in the 5th, 6th and 9th place respectively. In terms of regions, the Middle East accounted for around 42 percent of global exports, while the next largest exporting region was Eastern Europe and Eurasia (mainly Russia) accounting for 16 percent, as well as Africa (14 percent)”, Banchero Costa concluded.

Meanwhile, in a separate note of interest to tanker owners, Banchero Costa commented on US crude oil exports and their potential as a “driver” of freight rates. The shipbroker noted that “for over 40 years, due to the Energy Policy and Conservation Act, the US had effectively a ban on crude oil exports, save for very low amounts towards Canada, and has heavily depended on imports. But as President Barak Obama lifted the ban in late 2015, U.S. crude oil sector have changed since. U.S. crude oil exports have soared in the past few years, boosted by the surge in domestic crude oil production and by a number of factors including changes in U.S. midstream assets – which led to a flip in crude oil flows as old and new pipelines have been reversed to ship crude to the U.S. Gulf – and by investments in export facilities like the Louisiana Offshore Oil Port (LOOP), modified in early 2018 and become the sole U.S. facilitate to accept fully-laden VLCCs”.

The shipbroker added that “in 2018, according to OPEC’s 2019 Annual Statistical Bulletin, the U.S. became the seventh largest crude oil exporter country, with an annual average of 2 mln bpd, almost double the 2017 volumes. The ranking shows Saudi Arabia in first place with around 7.4 mln bpd, followed by Russia (5.1 mln bpd), Iraq (3.9 mln bpd), Canada (3.2 mln bpd), UAE (2.3 mln bpd), and Kuwait (2.1 mln bpd) before the States. According to U.S. Energy Information Administration (EIA), more than 90 percent of crude oil exported from the U.S. in 2018 was shipped from the U.S. Gulf Coast. China used to be the second largest buyer of U.S. crude oil, after Canada. But last year, following the Sino-American trade war, U.S. crude oil exports to China dropped to zero from August to October, while in the first quarter of 2019, overall U.S. exports to China represented around 5 percent of total volumes – down from the 23 percent share recorded in the same period of 2018. In the first 3 months of 2019, Canada was the leading U.S. crude oil exports destination, amounting of 17 percent of total exports, before Korea (13 percent), Netherlands (11 percent) and India (10 percent). Otherwise, in 2018 and for the second consecutive year, the U.S. ranked still as the second-larger global importer averaging around 7.7 mln bpd, after China, leading with 9.3 mln bpd, as OPEC’s 2019 Statistical Bulletin data shows”, Banchero Costa concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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