Friday, July 20, 2018

Do changes in trade flows impact the tanker market?

http://www.divergingmarkets.com/wp-content/uploads/2013/04/2013.04.16.Global-Shipping-Routes.png

Poten & Partner’s weekly opinion piece recently looked at nearly five years of crude oil trade data (2014 –2018) to see if any interesting trends or developments could be seen. 
 
Are certain segments growing faster than others? How about shifts in export or import regions. Was anything noticed that was not expected?
 
First, the overall crude oil and dirty product trade for 2014-2018 was examined. To make the earlier years comparable with 2018, Poten looked at only the first six months of the year.
 
The data showed that the dirty tanker trade steadily grew during 2014-2017, increasing almost 5% in the first six months of 2015 and still growing 2.2% and 3.3% in 2016 and 2017, respectively.
 
However, in 2018 to date, the total dirty tanker trade (measured in tonnes) was down  1.3% compared to the same period one year ago (tonne/miles:-1.6%).
 
In Asia, modest increases in China and India could not compensate for declines in Japan and Asean countries, so overall tonne/mile demand from Asia was down 1%.
 
The biggest decline in import demand, however, came from the US (-15%). On the other hand, US exports were one of the few bright spots this year to date, with tonne/mile demand more than double that of the same period last year. The long-haul trade to China was responsible for almost 60% of that increase.
 
A review of the largest trade routes confirmed the changes in crude flows. The largest VLCC route was from the Arabian Gulf to the China Sea (China, Taiwan, South Korea) and this has not changed since 2014. This route, which is more than twice the size of the next route (AG –Japan), represents some 30% of the total VLCC trade.
 
However, the AG –US Gulf trade, which ranked No 4 in 2014 declined both in absolute and relative terms. Its volume fell by 33% and it now only ranked sixth.
 
In contrast, the US Gulf –China Sea VLCC trade currently ranks nineth. This trade did not exist prior to 2017. This increase in USG VLCC exports coincided with a decline in Venezuelan exports.
 
Another VLCC trade that has been in decline recently (and quite volatile overall) is that from AG to Europe. After a 55% increase from 2016 to 2017, this trade has fallen by 42% so far this year.
 
Moving onto the Suezmax segment, this trade has developed differently from VLCCs.
 
Suezmax employment has increased steadily since 2014, with a healthy 5% increase thus far this year.
 
A lot of Suezmaxes are employed in shuttle trades offshore Brazil (No 1 in the ranking) and in moving Alaskan crude to the US West Coast (No 3), but these trades are not growing and generate relatively little tonne/mile demand, due to the short distances involved.
 
The same applies to the second largest trade - AG to India.
 
A growing Suezmax trade is the AG –Southern Europe, but this is to a large extent driven by rising exports from Iran, which could be in jeopardy in the second half of this year, due to US sanctions.
 
West Africa exports have been relatively stable in recent years after significant volatility in 2014 –2016.
 
Thus far this year, Suezmax trades from the AG, West Africa, the Black Sea, the US Gulf and from the UK/Cont were growing, while trades originating in the Far East, the Eastern Med and Venezuela were struggling.
 
In the Aframax segment, the intra-Asean Far East (including Indonesia, Thailand, Malaysia, Singapore, etc) has overtaken the Caribbean market as the largest Aframax trading area.
 
Another Asian Aframax trade that is growing in importance is the exports out of Kozmino to China, South Korea and Taiwan.
 
Thus far in 2018, this is the third largest Aframax route (in tonnes), recently overtaking certain trades in the North Sea and the Mediterranean.
 
Overall, Aframax employment is down thus far this year versus 2017 in terms of number of voyages, and barrels moved, but tonne/miles are slightly up, as average distances increased.
 
In total, crude oil tanker demand has been relatively flat and rates are down as a result of increases in fleet size. However, there are a lot of developments hidden under the surface that belie the relative stability of aggregate tanker demand, Poten concluded. 

Thursday, July 19, 2018

US Revokes Citgo CEO’s Visa

 
 CEO of Citgo Petroleum Corp. Asdrubal Chavez

https://www.petroleumafrica.com/us-revokes-citgo-ceos-visa/

The president and CEO of Citgo Petroleum Corp. Asdrubal Chavez, had his US visa revoked. Citgo is the US subsidiary of Venezuela’s state-run PDVSA.

Chavez is the cousin of Venezuela’s late president Hugo Chavez.

US State Department spokesman Noel Clay said the US has broad authority to revoke visas, but does not discuss individual cases because they are confidential under the law.

In a statement on the issue, a Citgo spokeswoman only said that the “day-to-day operations of CITGO remain uninterrupted and senior leadership remains unchanged.”

Wednesday, July 18, 2018

EIA: Seven Major US Shale Regions To Hit New Production Records

File:United States Shale gas plays, May 2011.pdf


Oil production in the seven most prolific US shale regions will hit new highs next month, according to the Energy Information Administration’s monthly Drilling Productivity Report released on Monday afternoon.

Production in the seven regions is expected to increase by 143,000 bpd in August over July’s 7.327 million bpd, according to the EIA.

The news came not even 24 hours after Wood Mackenzie called peak oil demand in 2036 as electric vehicle sales grow , sending oil prices sharply downward on the news.

At 4:15pm EDT, the WTI benchmark was trading down a staggering 4.10% (-$2.91) at $68.10. Brent crude was trading down even more, at 4.50% (-$3.39) at $71.94.

Of the seven more prolific US regions for oil, the Permian is expected to see the biggest increase, at 73,000 bpd, to reach 3.406 million bpd. If this level of production is realized in August, it would represent about a 400,000 bpd climb since January in the Permian alone.
Increases in unconventional oil in the Eagle Ford is thought to come in a distant second, according to the industry body, at an 35,000-bpd increase to reach 1.436 million bpd.

The EIA’s Drilling Productivity Report also tracks drilled but uncompleted wells, which are seen increasing in number for August by 193 across the seven major regions—164 of which are in the Permian. This figure represents one of the largest monthly increases in recent months. The DUC count is of particular concern in the Permian, which is facing takeaway constraints. Some analysts are concerned, according to S&P Global Platts, that if oil and gas cannot be moved out of the Permian due to these constraints in the Permian, the number of wells in the Permian will need to be “banked” until such capacity is brought online.

By Julianne Geiger for Oilprice.com

Tuesday, July 17, 2018

World's Oil Supply Cushion Could Be Stretched to the Limit: IEA

Google Earth

THE world's oil supply cushion could be stretched to the limit due to prolonged outages, supporting prices and threatening demand growth, the International Energy Agency said on Thursday.

The expected drop in Iranian crude exports this year due to renewed US sanctions, a decline in Venezuela's production and outages in Libya, Canada and the North Sea have driven oil prices to their highest since 2014 in recent weeks.

Opec and other key producers including Russia responded to the tightness by easing a supply-cut agreement, with Saudi Arabia vowing to support the market as US President Donald Trump accused the group of pushing prices higher.

The Paris-based IEA said in its monthly Oil Markets Report that there were already "very welcome" signs that output from leading producers had been boosted and may reach a record.

The global energy watchdog, however, said the disruptions underscored the pressure on global supplies as the world's spare production capacity cushion "might be stretched to the limit".

Spare capacity refers to a producer's ability to ramp up production in a relatively short time. Much of it is located in the Middle East.

The IEA said Opec crude production in June reached a four-month high of 31.87 million barrels per day. Spare capacity in the Middle East in July was 1.6 million bpd, roughly 2 per cent of global output.

As US sanctions on Iran are expected to "hit hard" in the fourth quarter of the year, Saudi Arabia could further ramp up output, which would cut the kingdom's spare capacity to an unprecedented level below one million bpd, the IEA said.

Non-Opec production including from surging US shale also continued to rise, but the IEA said that might not be enough to assuage concerns.

"This vulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness," it said.

The IEA maintained its 2018 oil demand growth forecast at 1.4 million bpd, but warned that higher prices could dampen consumption.

"Higher prices are prolonging the fears of consumers everywhere that their economies will be damaged. In turn, this could have a marked impact on oil demand growth."

The IEA said Iran's crude exports could be reduced by significantly more than the 1.2 million bpd seen in the previous round of international sanctions. Iran exports roughly 2.5 million bpd, most of which goes to Asia. China and India, the world's second and third largest oil consumers, could face "major challenges" in finding alternative crude oil following the drop in Iranian and Venezuelan exports, the IEA said.

Iranian crude exports to Europe dropped by nearly 50 per cent in June, the IEA said, as refiners gradually wind down purchases before US sanctions take effect in November.

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Friday, July 13, 2018

Future Iranian exports - the big question

Iran Natural Gas Map


What if US sanctions reduce Iranian exports close to zero? 
 
Most analysts expected the reduction in Iranian exports to be gradual and limited, including Poten & Partners, author of this report. 
 
It was thought the reduction could eventually reach 500-600,000 barrels per day from an average of 2.6 mill barrels per day in 2018 year-to-date. 
 
However, an alternative scenario has been gaining traction, one in which Iranian exports will be reduced even more than during the previous sanctions period.
 
Reports from the US State Department indicate that the Trump administration is not only looking for reductions in exports, similar to those imposed during the Obama administration but also aims to bring Iranian exports down to zero.
 
While this may not be a realistic expectation, the US is expected to use its considerable leverage to force rolling reductions in purchases from all buyers of Iranian crude and waivers are conditional on immediate cuts.
 
The implications of further Iranian export cuts for the tanker market are uncertain; it depends to a large extent on which countries have the spare production capacity to make up the shortfall.
 
The ultimate impact on tanker tonne/mile demand hinges on the resulting changes in trade flows.
 
Iran has ample experience in dealing with various kinds of sanctions and even if the US applies maximum pressure on its trading partners, Iran will have various options to keep at least some of its exports flowing.
 
For example, as sanctions start to bite, it will try to lure buyers with discounts and extended payment terms. To circumvent US banking restrictions, it could accept payment in other currencies or do barter deals and has already agreed to an oil swap with Iraq.
 
Iran will also be using its own tanker fleet (one of the largest in the world) to move and store crude.
 
However, despite Iran’s attempts to minimise the damage, early indications are not encouraging for the country. Most international oil companies, especially those with meaningful US operations, have already decided to steer clear from buying Iranian crude.
 
US allies like Japan and South Korea are under pressure to reduce their purchases. Indeed, South Korea has already dropped imports to zero. Turkey is also a significant buyer of Iranian oil and while they may resist pressure from the US to cut back, they don’t have a lot of room to increase their purchases.
 
The two countries that could take more Iranian crude are the two largest current buyers - India and China. Combined they imported about 1.4 mill barrels per day over the past three months. India is more likely than China to reduce its imports from Iran under US pressure.
 
China, which is already embroiled in a trade conflict with the US has less incentive to comply and may import more (discounted) Iranian crude.
 
So, what happens if US sanctions are so successful that Iranian exports are reduced from 2.6 mill to 1 mill barrels per day by the end of this year?
 
Unfortunately, the Iranian sanctions are not happening in a vacuum. Venezuela’s production is also falling. The IEA estimates that Venezuela’s production capacity will fall a further 550,000 to around 800,000 barrels per day by the end of 2019.
 
Angola is also facing challenges maintaining production. In the short-term Libya and Canada are facing production and export hiccups. In our own backyard, the shale oil producers in Texas have problems bringing their growing crude oil flows to market due to pipeline restrictions and port constraints.
 
Where will the replacement crude oil come from?
 
The only OPEC countries with significant spare capacity are Saudi Arabia, the UAE and Kuwait.
 
Industry experts believe that these countries can sustainably increase production by 1.5 –2 mill barrels per day within 12 months; outside OPEC, Russian producers can reverse their voluntary cutbacks, which will add back 300,000 barrels per day.
 
The bottom-line is: it will be ‘all hands on deck’ for the producers with spare capacity, and in such a scenario, there is a risk of significant price increases.
 
Higher prices will throttle demand growth, in particular in developing countries, which are already facing headwinds with higher oil prices in combination with a strong dollar.
 
A slowdown in global oil demand will also have a negative impact on tanker demand, Poten concluded.

Strait of Hormuz threatened with closure

Iranian President Hassan Rouhani

Iranian President Rouhani has hinted that Iran could disrupt the flow of crude exports out of the Arabian Gulf, while an Iranian Revolutionary Guard commander explicitly stated; "If they want to stop Iranian oil exports, we will not allow any oil shipment to pass through the Strait of Hormuz." 
 
A disruption of this magnitude would result in a monumental shift for both the global oil and oil transportation markets as 979 mill tonnes of dirty and clean cargo passed through this choke point last year, McQuilling Services said in a blog.
 
Roughly one third of global crude exports would be removed from the market, sending crude prices well over $100 per barrel into uncharted territory. Worldwide refiners will look to alternative regions for feedstock requirements after severe drawdowns of existing inventories. 
 
However, it’s unlikely that would offset the negative impacts of a lack of Arabian Gulf flows. This would result in a significant fall in tanker demand as Arabian Gulf tanker exports account for well over 5 trill tonne/miles annually, McQuilling concluded.
 
Meanwhile, US President Trump has criticised OPEC for the recent rise in fuel prices, claiming that the US pays for defence for many of the groups’ members.
 
As a result, OPEC should make an effort to increase crude supply to pressure global pricing, he said. 
 
The closing of the Straits has been threatened many times before, especially during the two Israel/Arab conflicts in the 1960s and 1970s, which resulted in the shutting of the Suez Canal and the Shatt el Arab, plus the Iran/Iraq war in the 1980s when VLCCs/ULCCs ran the gauntlet of missile attacks when shuttling crude from Kharg Island to Hormuz Island - Ed.