The EU ban on Iranian oil imports and more tanker market news. Jan 26By james tweed • Jan 26th, 2012 • Category: Tankers
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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for January 26th 2012. This report will look at the VLCC, Suezmax, Aframax and clean products markets.
We start with the VLCC sector and the big news this week was the European Union’s approval of a ban on crude oil imports from Iran from July. The five month delay is designed to give southern European countries time to find alternative supplies. However, Tehran immediately countered this by tabling a law which would effectively ban Iran from exporting to the EU before any embargo could come into force. The Kayhan newspaper commented, “Why should we not stop oil exports to European states immediately and replace them with other numerous customers who are ready to buy [Iran’s oil]?” You can see their point: the Chinese are buying vast amounts of oil from much further afield due to a lack of availability in the AG. Iran could very quickly switch all western bound barrels, about 600,000/day, to the East. Whether this is just brinkmanship or reality, the uncertainty has once again pushed the WTI oil price a little further up.
This week is traditionally a quiet time in the VLCC market as the Chinese celebrate Gong Xi Fa Chi. The Year of the Dragon is a powerful symbol with many meanings but we hope that, after a tough few years economically, we can see some sustained recovery and good fortune globally. Meanwhile, today is a momentous day as VLCC charterers and owners have taken the pause in the market to use the new Worldscale book and switch onto 2012 rates.
Activity from West Africa has quietened down, echoing the lack of activity in the AG market. The 30 day availability of VLCCs arriving at Fujairah shows 57 double hulls of which six are over 15 years old, compared to last week’s total of 42 VLCCs. As if to highlight just how slow this week has been, only 10 more fixtures have been reported, taking the total to 58 for February.
The freight rate for 280 AG/US Gulf is 35 on the new scale, 2 points down from last week, and with bunkers up $3 to $730/tonne owners returns are minus $1,500/day and this compares with 270 AG/Korea at 60 which returns owners just over $30,000 a day.
Looking to the Suezmaxes and although it was quiet finish to the end of last week in West Africa, owners managed to keep their posture and hold rates at the current level. By mid week owner sentiment and confidence increased exponentially after rates jumped to 80.0 for the US Gulf. It may have slightly surprised the charterers as the rates had not been ramping up, but the reaction will not have surprised owners. Charterers started pulling away and withdrawing their cargoes as the standoff developed. On this basis, rates are presently a touch unpredictable, but it is very definitely a case of who blinks first.
There wasn’t a huge amount of Black Sea activity his week as owners waited for the middle decade stems to come out. The big news of the week is that the queues in
the Turkish straits have emptied out and ships are now only waiting two days in either direction. This has obviously helped charterers and lengthened the list considerably, although being weather dependent, this may not last long.
After last week’s flurry of Aframax activity and the firming of rates in the North Sea and Baltic, unfortunately rates crashed this week. At one point last week tonnage looked fairly tight, but there has been an influx of ships this week and with less activity than last week, the inevitable happened. Ice has failed to form in the Baltic, which has also had a negative impact on the market. The majority of first decade stems from Primorsk have now been covered and charterers have been able to hold back and put downward pressure on rates. On the back of the Baltic softening, the North Sea also fell . In the Mediterranean and Black Sea, rates have come off even further as owners have no grounds to resist the downward pressures in the market. Enquiry can be best described as minimal in comparison to available tonnage.
Now we look at the clean markets and it has been a slow week in the East for both LR1 and LR2s with the Lunar New Year holidays. TC1 is assessed at 87.5 and TC5 is currently around 102.5. Both are giving owners abysmal returns nowhere close to operating costs. It has been a dreadful few days for MR owners in the Middle East as Chinese New Year means that levels of activity have been almost zero. The tonnage list is scarily long. There are five ships for every day from now until the end of the month, and no cargoes. New lows are being felt for cross-AG voyages, and with $1.35m going on subs for WC India to the UK Cont as the week neared the end. The question is how low are owners prepared to go? They are making a loss on pretty much every voyage they are undertaking. Glimmers of hope may be realised with upstream news of the Coryton Refinery shut down in Essex, UK and also the Hess refinery shut down in the Virgin Islands. Owners will be hoping for an increase in tonne-miles as products may have to come from further afield to satisfy the demand of the regions dependant on them..
It has been interesting week on TC2 in the Continent, which has seen changes that could significantly affect the fundamentals of the market. The closure of the St. Croix refinery, together with the two in Philadelphia, has left the US with a technical shortfall in refining capacity of slightly over 700,000 bpd. In the immediate short term, this has had a seriously bearish effect on both Atlantic and Caribbean markets. TC2 is down from 150 at the start of the week, to an under pressure 140 at the time of recording, as surplus tonnage stateside ballasts over to the Continent en masse. However, with as much as 22 liftings per month from St. Croix (including contract and time chartered tonnage) versus 3 cargoes a month delivered, leaves a net of 19 to be sourced elsewhere and at the moment that is most likely from the Continent. In the medium term the increased tonne miles could well be positive for MR owners. Longer term, the talk is of sourcing the gasoline from WC India on LR tonnage which is good for the LR market, but could well leave Atlantic MRs floundering. Over the coming weeks we expect to see the principal St. Croix movers, Citgo & Hess start to source barrels from the Continent either as 3rd party receivers or as charterers themselves.
Lots to look out for then in the tanker markets next week – thanks for listening