In Hellenic Shipping News 03/04/2017
Another major shift is underway in the tanker market, as a new trade route is fast emerging, as US to Asia exports are rising, commanding larger ships for the inevitable economies of scale. In its latest weekly report, shipbroker Gibson said that “for crude tankers, voyages from the Caribbean to Asia via the Cape of Good Hope are generally considered the longest haul; however, the lifting of the US crude export ban made possible an even longer route from the US Gulf to Asia Pacific. The volumes traded were fairly modest in 2016: almost nothing was transported to Asia during the first half of year, while shipments rose slightly to around 60,000 b/d during the 2nd half. This was largely expected considering the decline in US crude production for most of 2016, which fell by over 0.5 million b/d year-on-year. This not only limited the scope for the increases in total US crude exports (which were up modestly by just 55,000 b/d, including those barrels to the East) but also translated into higher crude imports, which registered much stronger gains. In addition, shipping US crude to Asia is relatively high cost and there are also infrastructure limitations.
According to Gibson, “US crude is largely exported on Aframaxes and Suezmaxes, while a VLCC loading (most practical for long haul) involves an expensive reverse lightening exercise. AIS tracking data shows that just four VLCCs shipped US crude to Asia in 2016, all in the 2nd half of the year. The dynamics of the market have changed this year. US crude production has started to bounce back and is forecast to continue to grow. At the same time, massive Middle East OPEC cutbacks have limited regional crude availability, translating into higher values for the Middle Eastern barrels relative to the Atlantic Basin benchmarks. The price differential between DME Oman and WTI crude futures moved from an average discount of around $1.4/bbl in 2016 for DME Oman to a premium of around $1.5/bbl so far this year”, said the shipbroker.
These developments have stimulated total US crude exports to a number of destinations, including higher demand from Asian refiners. “Preliminary weekly US data suggests that total crude exports averaged around 0.77 million b/d so far in 2017, up massively by 350,000 b/d versus the same period last year. AIS tracking data also shows a notable increase in shipments to Asia, with 3 VLCC loadings in January, 5 loadings in February and another 5 in March. Whilst Middle East OPEC production cuts remain in place, such “restraint” is likely to support robust demand from Asian refiners for US crude”, said Gibson.
However, “as this trade is primarily arbitrage driven, greater availability of the Middle Eastern barrels is likely to make US crude less appealing, particularly if prices for the Middle East grades decline relative to the Atlantic Basin crudes. In the medium term, the picture may change again. Prospects are strong for continued gains in US crude production. Some may argue this is likely to reduce seaborne crude imports. However, increases in US crude exports will alleviate the downward pressure on imports. The case for further growth in exports is also supported by the fact that US refiners are more geared up to run on heavier imported crude versus light sweet domestic grades. Crude export pipeline infrastructure to the US Gulf increased towards the end of 2016 and further projects are expected to be completed over the next few years, paving the way for further growth in export volumes. However, reverse lightening is expensive and can add up to 15-25% to the overall cost of freight for a VLCC load. To make US crude more attractive to Asian buyers, economies of scale are needed – that is efficient VLCC shipments. Last year plans were evaluated to transform LOOP into a crude export facility but the infrastructure is not there yet. Nevertheless, if there is strong demand, sooner or later progress is likely to be made, opening the door for strong gains in the longest haul trade from US to Asia for crude tankers”, Gibson concluded.
Meanwhile, in the crude tanker market it was “another challenging week for VLCC Owners as supply continued to easily overhang only moderate daily demand. Rates barely moved from an average ws 45 to the East and ws 25 to the West, but there was a degree of resistance building at the week’s end and perhaps some gentle pull back may develop for the traditionally busier end month fixing phase. Suezmaxes moved no better than sideways to the East – 130,000 by ws 80/82.5 – but took a further hit to the West at down to ws 32.5 due to heavy competition for that preferred direction and ballasting to the Atlantic is becoming more popular. Aframaxes tailed off a bit from recent highs to end at 80,000 by ws 115 to Singapore and a weaker phase looks set to take hold over the near term”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
