Friday, November 17, 2017

VLCC Markets - Waiting for the Winter

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November’s VLCC Meg programme was concluded last week with some 132 cargoes fixed, volumes not seen since January. 
 
We are currently between months and as usual activity is a bit subdued, Fearnleys said in its weekly report.

A couple of December deals were done, but basically BOT cargoes and rates  were concluded at last done levels.

Saudi stem-confirmations could possibly be out by the end of this week.

WAfrica/East activity was also a bit slower, but owners were resilient and rates remained stable, as optimism was still in place for the winter.

Suezmaxes experienced steadily eroding rates over the past week, with WAfrica slipping from the low WS80’s down to WS72.5 for TD20. End November cargoes were thin on the ground and other areas remained quiet allowing tonnage to build up.

Owners earnings were further eaten into by increasingly expensive bunkers adding to the pain. The earnings are now below the $10,000 per day threshold.

Thus far, the Turkish Straits delays have been unseasonably minimal, although this is expected to change in the weeks ahead of the winter months.

There is a glimmer of hope in the Med and Black Sea, where there was a sudden flurry of action with Aframaxes and lists tightened. This was the trigger a year ago for Suezmaxes and owners will be watching with keen interest for any opportunity to capitalise.

The week ahead has a softer feel but this could turn around on increased volume or weather delays. Norwegian meteorologists are guessing that there will be a warm start to this winter season, and North Sea and Baltic Aframax markets should be moving sideways heading towards December.

The fact that there is a five- day maintenance period coming up at Primorsk undermines the ’bold’ statement above.

The Med and Black Sea softened last week and has remained rather flat ever since. However, it is looking to firm up next week again, as tonnage is quickly being picked up for early 1st decade, leaving the cross-Med cargoes with fewer options going forward, Fearnleys concluded.

Crude tanker freight rates are expected to decline further next year, following a sharp decline in 2017, according to the latest edition of the Tanker Forecaster, published by shipping consultancy Drewry.

Although crude tonnage supply growth is expected to be low next year after surging in 2017, this will not be enough to push tonnage utilisation rates higher, as demand growth is expected to be sluggish. A slowdown in global oil demand growth and a likely decline in China’s stocking activity will keep growth in the crude oil trade moderate next year.

After a sharp decline in 2016, freight rates in the crude tanker market have declined further this year, despite strong tonnage demand growth in the two years, thanks to a surge in tonnage supply.

Fleet growth is expected to come down to 3.2% in 2018, after increasing by close to 6% per year in 2016 and 2017. However, this is unlikely to provide any respite to owners, as rates will continue to decline in 2018 on account of a slowdown in crude oil trade growth. Global oil demand growth is expected to fall to 1.4 mill per day in 2018 from 1.6 mill per day in 2017, Drewry said.

In addition, a likely slowdown in China’s stocking activity poses a big risk to crude tonnage demand. This activity, which remained one of the leading factors behind the strong growth in the crude oil trade over the last two years, may fall significantly in 2018.

According to the IEA’s data on China’s implied stock changes, the country should have accumulated close to 520 mill barrels since 2015, well above the total special petroleum reserve (SPR) capacity that was supposed to come online fully by 2020.

A sharp decline in stocking activity in the third quarter of this year to 0.5 mill barrels per day from 1.2 mill barrels per day in the second quarter suggests that we might see a significant decrease in the inventory build-up by China in 2018, Drewry concluded.

In the products trades, Asia’s front-month regrade (a measure of jet fuel’s relative strength to gasoil) recently eased from last Thursday’s 19-month high of $1.58 per barrel but remained relatively strong at $1.32 per barrel, Ocean Freight Exchange (OFE) reported.

While the surge in the Asian regrade can be partly attributed to seasonality during the winter heating oil demand season, the bulk of support is coming from the ongoing slump in the gasoil market.

Regional refineries have been running hard on the back of robust refinery margins, as well as the end of turnaround season, flooding the market with excess supplies. Unusually high diesel exports from India, despite the end of monsoon season, have added length to an already-pressured market, OFE said.

The jump in Indian gasoil exports can be attributed to Indian Oil’s 300,000 barrels per day Paradip refinery running at full capacity, as well as the ramp-up of BPCL’s 310,000 Kochi refinery and HMEL’s 230,000 barrels per day Bathinda refinery after recent expansions.

Sentiment in the Asian high sulfur gasoil market weakened further after the release of a new batch of Chinese export quotas, as well as China’s domestic ban on diesel with sulfur content greater than 10 ppm, which are likely to result in higher exports of high sulfur diesel.

The increase in cargo demand is reflected in the firm North Asian MR segment. Rates for a South Korea/Singapore trip basis 40,000 are currently assessed at $460,000, some 13% higher than at the start of the month.

An increasingly narrow gasoil EFS and relatively high freight rates have closed the arbitrage window to Europe, leaving Singapore as one of the few viable outlets for excess barrels.

As such, onshore middle distillate inventories in Singapore stood at 11.55 mill barrels for the week ending November 9, up by 9.7% month-on-month, OFE concluded.

Elsewhere, TEN has taken delivery of the Ice Class Aframax ‘Bergen TS’, the last in the 15-vessel pre-employed newbuilding programme.

The ship was built by Daewoo-Mangalia and started a long-term charter immediately after its delivery.

The fleet expansion resulted in a 30% increase of TEN’s fleet over the last 18 months.

The first ship from the tranche, the 300,000 dwt VLCC ‘Ulysses’ was delivered in May, 2016. She was followed by nine Aframaxes, two LR1s, a DP2 Shuttle tanker, another VLCC and an LNGC.

With 65 vessels fully operational, TEN’s minimum revenue backlog comes to 1.3 bill with average contract duration of 2.5 years, the company claimed.

“With the largest growth in the company’s history, successfully and timely completed, TEN is well positioned to take advantage of market opportunities as they will appear,” Nikolas Tsakos, TEN President & CEO, said. “The fully employed renewal programme is expected to significantly contribute to TEN’s bottom line and solidify the fleet’s income visibility and cash generation from now and into the future.”

In the charter market, the 2012-built VLCC ‘Trikwong Venture’ was believed fixed to Koch for $27,500 per day, while the 2012-built Suezmax ‘Decathlon’ was taken by Total for 12 months at $19,000 per day.

In the Aframax sector, the 2006/07-built ‘NS Captain’ and ‘NS Columbus’ were thought fixed to Clearlake for 12, option 12 months at $15,500 per day each. Vitol was said to have taken their near sister, the 2003-built ‘Petrozavodsk’ for six months at a similar rate. PBF Energy was said to have taken the 1998-built ‘Eagle Austin’ for 12 months at $15,000 per day and the 2004-built sisters, ‘Adafura’ and ‘Ashahda’ were reportedly fixed to undisclosed interests for $14,500 per day each.

The recently delivered LR1 ‘Cielo Blanco’ was reported as fixed to Trafigura for six, option six months at $13,750 per day, while Navig8 was believed to have taken the 2004-built ‘Theodosia’ for 12, option 12 months at $11,750 per day. 

In the MR sector, Golden Stena Weco was thought to have fixed the 2017-built ‘Altair’ for two years at $15,000 per day, while Chevron was said to have taken the 2009-built sisters ‘Nave Orbit’ and ‘Nave Equator’ for 12, option 12 months at $13,500 per day.

ST Shipping was very active.This charterer was believed to have fixed the 2005-built MR ‘Kriti Emerald’ for 12 months at $16,000 per day, the 2004-built ‘Jasmine Express’ for 12 months at $12,750 per day, plus the 2008-built Handysize ‘Hector N’ for 12 months for $12,000 per day.  

In the S&P market, brokers said that the 2003-built Aframax ‘Singapore Voyager’ had been committed to Greek interests for $9 mill, while Indian buyers were said to have committed $9.8 mill for the 1998-built Suezmax ‘Cap Georges’.    

Thursday, November 16, 2017

Saudi Retreat From U.S. Oil Market Cuts Exports to 30-Year Low

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For a generation, the huge, whitewashed storage tanks at America’s largest oil refinery in Port Arthur, Texas, have stored almost nothing but Saudi crude.

The plant is owned by Saudi Arabia’s state-run oil company, Aramco, and since it first bought a stake in 1988, the Motiva refinery guaranteed the kingdom a strategic foothold in the world’s largest energy market. The tankers carrying millions of barrels a month of Arab Light crude from Saudi export terminals to Port Arthur were testament to the strength of the energy and political ties binding Riyadh and Washington.

All of a sudden, there are very few Saudi ships arriving in Texas. Since July, Aramco has constricted supply, attempting to drain the crude storage tanks at Motiva -- and many others across America -- part of a plan to lift oil prices, even at the cost of sacrificing its once prized U.S. market.

While Motiva is most affected, the rest of the U.S. oil refining system, from El Segundo in California to Lake Lake Charles in Louisiana, has also taken a hit. The result: Saudi crude exports into America fell to a 30-year low last month.

"The drop is huge," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. "It’s not just that Saudi exports are low, but they have been low for several months.”
At a stroke, the freedom from Saudi oil that’s been a rhetorical aspiration for generations of American politicians, from Jimmy Carter to George W. Bush, is within reach -- even if it’s largely the choice of supplier rather than customer.

The U.S. imported just 525,000 barrels a day of Saudi crude in October, the lowest since May 1987 and down from 1.5 million barrels a day a decade ago, according to Bloomberg News calculations based on custom data.

The export drop was part of a wider undertaking by the Organization of Petroleum Exporting Countries to fight a global glut that has weighed on oil prices. OPEC and its non-OPEC allies including Russia are scheduled to meet later this month to discuss prolonging the cuts through 2018.

Saudi Arabia, which for decades fought hard to be the second-largest oil supplier to the U.S. after Canada, last month dropped to fourth position for the first time since at least 1990, falling behind Iraq and Mexico.

The drop in supplies has been so dramatic that Motiva bought in July almost exactly the same amount of crude from Saudi Arabia (4.01 million barrels) as it did from Iraq (3.96 million), according to custom data.  Saudi crude that month accounted for just 36 percent of Motiva’s imports, down from a typical 70-90 percent in the past.In August, the most recent monthly data available at company level, Saudi crude accounted for less than half of Motiva’s imports.

The combination of falling Saudi oil exports into the U.S. last year, cheap crude and higher exports of American weapons had already turned upside-down the trade relationship between the two countries. Last year, the U.S. enjoyed its first trade surplus with Saudi Arabia since 1998 -- only the third in 30 years, according to data from the U.S. Census Bureau. The sharper cuts in oil exports since the summer will likely amplify that trend.
As Saudi supplies fell, U.S. crude inventories dropped sharply over the summer and autumn to their lowest since January 2016. Oil prices have followed and Brent, the global benchmark, traded at a two-year high above $60 a barrel this month.

"The policy has been a tremendous success," said Anas Alhajji, a Dallas-based oil consultant who tracks Saudi oil policy. "The U.S. is the only country in the world that publishes oil inventories data on a weekly basis and investors closely follow it. Saudi Arabia needed to focus on the data that matters to investors, and it did by lowering exports to the U.S."

Saudi officials said that oil exports are set to drop even further in this month and next, with shipments into the U.S. expected to fall another 10 percent from November.

"The cuts show that when the Saudis say they will do ’whatever it takes’ they mean it," said Helima Croft, global head of commodity strategy at RBC Capital Markets LLC and a former analyst at the Central Intelligence Agency.

Yet, driving its exports into the U.S. to a three-decade low isn’t without risks for Riyadh. Once a country gives up its market share, it can be costly to recover it. The drop in Saudi shipments also reflects the changing U.S. energy market as rising shale production reduces the overall need for foreign oil. The EIA expects U.S. output to reach an all-time high of 10.1 million barrels a day by December 2018.

"Our import dependence has collapsed," said Bob NcNally, a former White House oil official and head of consultant Rapidan Energy Group LLC. "What should worry Riyadh is if they need to sustain the cuts not a few more months, but a lot longer.”

The International Energy Agency painted a rosy outlook for U.S. domestic production up to 2025 in its annual World Energy Outlook flagship report, saying the surge in oil and gas output in America is the biggest boom in history.

However, owning Motiva gives Saudi Arabia a route to regaining market share, traders and refining executives said.

"Motiva has taken the brunt of the Saudi cuts, so Riyadh would be able to increase exports to the U.S. relatively easily in the future as and when they decide to reverse the policy," said Sen at Energy Aspects.

For the Saudi Arabian Oil Co., as Aramco is formally known, the loss of market share comes at a delicate moment. The company is preparing for an initial public offering that Riyadh hopes will value the company at an eye-watering $2 trillion.

The American market has long been Aramco’s most prized, and the Port Arthur refinery is one of the company’s jewels -- nearly $10 billion was spent expanding its capacity in 2013. In preparation of its initial public offering, scheduled for the second half of 2018, Aramco earlier this year paid to $2.2 billion to take full control of Motiva, dissolving a 50-50 joint-venture it held with Royal Dutch Shell Plc.

Aramco declined to comment.

At any other time, the loss of U.S. market share would have worried the Saudi regime, fearing a loss in political influence. But with President Donald Trump, the Saudis believe the strength of their relationship with the White House is as good as it’s been in decades, said David Goldwyn, a Washington-based energy consultant and former U.S. State Department top oil diplomat.

"The Saudis are not worried about the need to have U.S. oil market share to secure themselves diplomatically," Goldwyn said.

The shift away from the U.S. show the increasing important of Asian markets for Saudi Arabia, most notably China, but also India, Indonesia, Japan and South Korea. While Saudi exports to the U.S. plunged, sales in Japan earlier this year jumped to a 28-year high.

"Saudi Arabia doesn’t care any more about its market share in the U.S -- it’s going after the Asian market," said Jan Stuart, an oil economist at consultant Cornerstone Macro LLC in New York.

Wednesday, November 15, 2017

Sinking Rich: Speedboat Racing Through a Failed State

Ghana in Talks with ExxonMobil

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The government of Ghana and US supermajor ExxonMobil are in talks aimed at allowing the US firm to launch an exploration program off the West African country’s coast.

In 2015 ExxonMobil and Ghana signed a MoU to assess its Deepwater Cape Three Point region, where the water depths range up to 13,000 ft.

The country’s deputy oil minister, Mohamed Amin Adam, was quoted in a Reuters report as saying that the government chose direct negotiation with the US firm over a competitive tendering process due to the peculiar nature of the oilfield.

The block was relinquished twice by Vanco Energy and Lukoil and that has since increased its risk profile, according to the Ministry. A release from the Ministry described the block as “one of the ultra-deep water blocks, which severely tests the limits of modern technology and would take research and development to optionally develop and exploit any discovered resources.”

Tuesday, November 14, 2017

Gunvor USA Secures USD 875 Million Borrowing Base Facility

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Gunvor USA LLC, a subsidiary of Gunvor Group, has successfully closed the syndication of its USD 875 million Borrowing Base Credit Facility.

The facility will support the company’s established operations in the United States, as well as planned expansion into Canada. Gunvor USA LLC has two main offices, located in Houston (TX) and Stamford (CT), which are focused on trading refined products, crude oil and natural gas.

Our expanded facility enables Gunvor USA to build on our trading activities across the commodities space in North America,” said Chris Morran, Treasurer of Gunvor USA. “The oversubscription of the transaction and 75% increase in the facility amount demonstrate the level of confidence our banking partners have with our North American strategy.

The new facility is jointly lead arranged by Rabobank, which will also serve as Administrative Agent and Active Bookrunner, and ABN Amro Capital USA LLC as Joint Bookrunner. ING Capital, LLC, Natixis, New York Branch, and Société Générale join as Joint Lead Arranger in the transaction.
The syndicate also includes Credit Agricole Corporate and Investment Bank, Deutsche Bank AG, New York Branch, Mizuho Ltd. and Sumitomo Mitsui Banking Corporation.

Gunvor USA has grown rapidly since its launch in 2016, and has significantly expanded its bank group as part of the refinancing,” said David Garza, President of Gunvor USA and Managing Director for its North American operations. “In the last year, Gunvor USA has hired more than 60 people for its North American operations, and opened trading offices in Houston and Stamford, and now a rep office in Calgary. We’ve been able to grow at an accelerated pace with the support of our banking partners.

Gunvor USA LLC is a wholly-owned indirect subsidiary of Gunvor Group Ltd., one of the largest independent energy commodity traders in the world.

Monday, November 13, 2017

What the Saudi Arrests Mean for the Kingdom's Oil Policy

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We may never fully know what lies behind Crown Prince Mohammed bin Salman's decision to arrest more than 200 Saudi citizens, including 11 princes and four government ministers, on corruption charges, just as tensions with Iran are escalating.

What we do know is that his move simultaneously boosted the oil price and undermined the attractiveness of Aramco to potential foreign investors. But it would be a mistake to conclude that this political decision also heralds a shift in Saudi oil policy, or permanently damages the prospects of the state oil company's IPO. 

Crude prices always rise in response to unrest in the Middle East, even when the countries involved produce little or no oil. That it has done so now, in the wake of the arrests in the region's biggest producer and the threats against Lebanon and Iran in response to a missile launched from Yemen, should come as no surprise.

The jump, which took oil prices to their highest level in more than two years immediately after the arrests, might be expected to boost support for a pause before OPEC and its friends decide whether to extend their current deal on production cuts until the end of 2018. There are some, including Russian President Vladimir Putin, who have said that it is too early to decide what should be done beyond the deal's current expiry in March. 

But dissenting voices are likely to fade into the background when the groups meet in Vienna on Nov. 30. The output cuts do not target a specific oil price -- as Saudi oil minister Khalid Al-Falih said in June, the aim is to reduce excess inventories. That problem has not yet been resolved.

MbS, as the crown prince is widely known, is already setting the kingdom's oil policy. He turned on its head Saudi Arabia's earlier stance of boosting oil supply in an attempt to drive out higher-cost producers, and he has placed his country at the forefront of output cuts aimed at draining excess inventories, cutting production by more than required under the agreement. He has already expressed support for extending the production deal. Only by returning global oil inventories to more normal levels can Saudi Arabia, and OPEC, hope to return to a world where their actions influence the market. 

The Saudi anti-corruption purge should change nothing for the kingdom's oil policy. MbS is surely mindful that an extension of the current output deal has already been priced into the market, and failure to deliver it at the end of the month would kill the recent rally in prices, despite the elevated tensions in the Middle East.

Assessing the impact of the detentions on the Saudi Aramco IPO is less straightforward. Ninety-five percent of the shares will remain the property of what is now clearly an unpredictable government. If the arrests turn out to be no more than a purge of opponents to the crown prince's accession to the throne, potential investors will run for cover.

But perhaps the anti-corruption purge is the first step towards creating a more open and dynamic business environment in Saudi Arabia. If it truly marks the beginning of the end of the of the rentier state that has crippled the country's development then it could even improve the prospects for inward investment, and boost the attractiveness of the shares.

Foreign investors' appetite for a piece of a partially-privatized Saudi Aramco will not depend on whether the price of oil at the time of listing is $50, $60, or $70 a barrel. A decision to invest in the company will depend much more on the dividend and taxation policies of the major shareholder -- the Saudi government -- and the investor's view of the long-term future for oil.
Indeed, it could be argued that over the longer term Aramco would benefit from a lower oil price, which simultaneously boosts demand for crude and makes alternative energy sources less attractive while undermining other, higher-cost oil supplies. That ought to give the best outlook for production as Aramco still extracts some of the lowest cost oil on the planet. If Saudi Arabia's "Vision 2030" plan to wean the kingdom off its dependence on oil revenues is even partly realized, Aramco will be relieved of much of its burden of supporting government expenditure. That should serve to burnish the appeal of the shares.

To realize his dream of privatizing Aramco -- and the planned 5 percent offering may be only the beginning -- the young crown prince will need to show hoped-for investors that his recent purge of the kingdom's elite really is a first step on the road to a brave new Saudi Arabia.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners. 

To contact the author of this story:
Julian Lee in London at jlee1627@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net