in Hellenic Shipping News 10/02/2017
While oversupply is always a concern, tanker owners could be in for a pleasant surprise during 2017, as a number of factors are coming into play at the market, leading to higher ton-mile usage. In a recent weekly report, shipbroker Gibson noted that “when OPEC began planning for the now implemented supply cuts, one of the messages resonating was the need to protect Asia (the biggest buyer of OPEC crude) from production cuts and protect market share in the region. However, this raises the prospect that protecting this level of market share could impact negatively on any price recovery output cuts could have stimulated. Initially the areas expected to be most impacted by production cuts were US and European refineries. January’s allocation from Saudi Arabia, Kuwait and the UAE to western refineries was tabled as an initial area where production cuts would be felt”.
According to Gibson, “in late December several refineries in Japan, China and South Korea expressed confidence in maintaining supply levels, announcing that they had not received any reduction notices from Middle East suppliers. One of the main purposes of OPEC’s cuts is to help stabilise prices on the back of the lows reached during 2016. Although it is still very early to ascertain the full impact of production cuts, in terms of pricing some success has been achieved. The Dubai crude benchmark has risen from close to $42/barrel in early November to $54/barrel at the time of writing. This has understandably not gone unnoticed by buyers in Asia”.
The shipbroker noted that “the tentative signs of increases in oil prices have come at a time when Asia is bracing itself for declining oil production. Largest crude producers East of Singapore are China, Indonesia and Malaysia; however, a lot of fields are mature and require increasingly expensive techniques to extract oil. Coupled with upstream Capex cuts during previous years of low prices and with most of new exploration being in gas fields, the region appears braced to rely on further imports in the coming years just to offset the decline in domestic output. Furthermore, oil demand East of Singapore is expected to continue to increase, with the IEA suggesting that the consumption could grow by as much as 600,000 b/d in 2017 alone”.
“Apart from growing consumption, refining capacity is anticipated to increase in at least 3 countries this year. China, Taiwan and Vietnam will add more refining capacity helping to balance out closures in Japan. Wood Mackenzie expects net refinery capacity additions of 430,000 b/day in 2017; however, it is worth noting that a large amount of this is taken up by the new inland refinery in China’s Yunnan province supplied by pipeline through Myanmar”, said Gibson.
According to the London-based shipbroker, ‘”as prices have climbed in recent months, eastbound shipments from sources like Azerbaijan, Alaska and the North Sea have increased. Supply cuts have increased the relative value of Middle East oil, allowing other suppliers to compete into the Asian market. Early trade data shows that January’s North Sea exports are on track to be noticeably higher than previous years, indicating a 3 million bbls increase on January 2016 levels. In a further sign of diversifying supply, BP shipped their first cargo of US crude to Asia in October. The reduction in Middle East crude availability could also prompt Asian refiners to source more Caribbean & Central American barrels. The resulting increase in these long-haul developments could provide a boost to tanker owners this year; however, it is also important to note that this supply diversion will be heavily price dependent”.
He concluded by noting that “as the major importers in Asia have long standing relationships with OPEC’s Middle East suppliers, a fundamental change in buying patterns may prove hard to push through, despite some refiners’ eagerness to diversify supply. Prior to the November meeting the tanker market witnessed OPEC’s efforts to protect market share, the question now is whether members will be prepared to potentially lose market share in 2017 in attempt to raise prices further?”
Nikos Roussanoglou, Hellenic Shipping News Worldwide
