In Hellenic Shipping News 01/07/2017
The tanker market’s lackluster performance is set to continue for the next few weeks and until the end of summer at least, given the fact that the seasonal effect of the US driving season never really arrived this year. In its latest weekly report, shipbroker Allied Shipbroking noted that “it seems as though there was nothing but disappointment these past week for OPEC members, as despite all effort to boost the price of crude oil by curbing production levels, the price of oil reaching its lowest level since November, with WTI and Brent dropping this past Wednesday to a low of US$ 44.35 and US$ 44.80 per barrel respectively. What’s more is that in the year to date we have never seen prices go beyond the US$ 54.0 and 57.1 per barrel mark, leading most to hold fairly bearish views as to the prospects moving forward as the number of U.S. oil rigs in operation rises to its highest level in over three years”.
According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, “the price of futures contracts have been moving in a similar direction for the most part of this year while it seems as though little can be done to cut this overall trend. In part, the fairly sluggish demand growth of crude has been to blame, with the Far East not showing a quick enough increase in appetite as most in the Middle East would like. At the same time, U.S. shale oil producers have been drastically decreasing their operating expenses, making their breakeven levels in line with the current market price trends, as such allowing for a renewed growth sprout in oil rigs to re-emerge and continue to feed the supply glut that has prevailed in the market since late 2014”.
Lazaridis says that “as things hold right now, OPEC could take up the decision to further deepen its production cuts in order to bring about a quick balance to the market. This however looks like an unlikely scenario right now, with the most likely choice on the horizon for OPEC being the choice to further extend its production cuts at their current standing and go beyond the March 2018 target. It appears as though it’s a lose-lose situation for OPEC members, with the Shale oil industry having managed to improve its efficiency much quicker than anyone would have thought and quickly adapted in order to stay in the game and continue to compete. As such it is now the turn of OPEC members to either push for leaner operations, if they are to be able to gain in market share, or abandon market share and to keep production cuts so as to be able to attain the highest possible price per barrel that they produce and export”.
Allied’s analyst added that “all this leaves for fairly turbulent motions within the tanker freight market, with a notable amount of volatility having been seen over the past three months, especially for crude oil carriers. At the same time the typical seasonal spike that is usually noted around this time of the year by the U.S. driving season seems to have passed without notice or never arrived at all. The excess oil production levels globally more than capable of meeting any small spikes in demand that come about. Without this usually spike in freight rates during the month of June and early July, we may well find ourselves facing a bigger drop this August than what we witnessed last year and looking at the more medium and long-term prospects of the market, we are more and more reliant on the Far East markets for improvement in demand growth and any hopeful increases in tone-miles that may arise”, concluded the shipbroker.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
