April.19--The collapse of talks in Doha over the weekend to sanction a freeze in oil production is perhaps indicative of the division between OPEC members and most notably Saudi Arabia and Iran, which were the main “players” in this latest “tug of war” between the two countries. What’s more than certain though, is that the crude oil glut that triggered the collapse in oil prices, has benefited the tanker markets, since the end of 2014.
In its latest weekly report, shipbroker Gibson noted that “cheap oil increased seaborne trade to existing and new markets, supported land based commercial and strategic storage, while increased volatility in prices stimulated arbitrage driven shipments. At the same time, excess crude supply not only elevated floating storage (mainly for operational reasons) but also translated into delays and inefficiencies in the supply chain. Finally, owners managed to hold on to the benefit of lower bunkers. The prolonged period of low oil prices is hurting both OPEC and non-OPEC producers alike. US crude output is being hit the hardest. Production started to decline mid last year. The latest EIA projections are for total US crude output to drop by over 0.8 million b/d in 2016 and by around 0.55 million b/d in 2017 to just over 8 million b/d. Although so far only modest changes in production have been seen in other non-OPEC countries, major cutbacks to CAPEX of oil companies apply breaks on future potential. There is also considerable pressure on budgets of producing countries where revenues from oil sales are used to finance fiscal policies’, said the shipbrokin Hellenic Shipping Newser.
What’s alsmost evident is that although US crude output is falling, global production is at or close to record high levels. Argus Media commented that freezing output at highly elevated levels “is not a serious response to an oversupplied market”. Gibson added that “back in January, when nuclear sanctions were lifted, authorities in Tehran claimed that the country’s crude output will increase by 0.5 million b/d within weeks and by another 0.5 million b/d in the following six months. The reality now is somewhat different. The IEA puts an estimate of Iranian crude production at 3.3 million b/d in March, up by 0.3 million b/d from January. The volume of Iranian crude/condensate in floating storage also remains at highly elevated levels. In fact, the number of VLCCs used for storage of Iranian barrels increased modestly by the end of March, relative to January estimates. Despite these developments, Iranian crude production is still expected to continue to rise throughout 2016, although the pace of growth could be limited. In this scenario, even if a production freeze agreement is reached in Doha, the world will still see more barrels added to the market, on top of already bulging inventories. For the tanker markets this means more demand. The same also means that delays and inefficiencies the industry is facing now are unlikely to fade overnight”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “strong April VLCC volumes, but this time not quite enough to create the super-tight conditions that allowed for last month’s spike. Rates did, however move up some 10 ws points to the East to ws 70 with demands to the West into the low ws 40s. May programmes will be in hand early next week and Owners will hope that Charterers move quickly, and in sufficient numbers, to add further strength, but if they don’t then the market will be in danger of slipping a gear. Suezmaxes lost more of their previous steam and the minimum rates of last week became the maximum levels this week – ws 95 to the East, and ws 57.5 to the West. no big moves likely in the short term. Aframaxes saw less than of late and rates quickly responded by going negative to 80,000 by ws 110 to Singapore, though the feeling is that we are not at, or very near to, bottom markers”.
Finally, in the North Sea, “a slow-ish week for Aframaxes gradually eroded rates to 80,000 by ws 115 Cross-North Sea, and to 100,000 by ws 77.5 from the baltic but the end month programme is about to come into play and Owners will resist further falls until those demands become more clear. Little of note on the larger sizes where the fuel oil ‘arb’ to Singapore only occasionally worked at around $4.8 million but later closer to $4.3 million was required to secure interest and Owners were reluctant to then engage”, concluded Gibson.
(Source:Hellenic Shipping News Worldwide)