The dramatic changes in US crude oil production through the development of the shale oil industry have already had a significant impact on the VLCC market in terms of demand.
The current forecast is that US shale oil production will level off at around 9.5 mill barrels per day by 2016, an increase of 4.5 mill barrels per day over the previous five years, Gibson Research said in its weekly report.
Coupled with a lack of appetite for barrel demand in Europe, it is hardly surprising that the crude tanker market has been particularly focused on growing demand from Far East customers and in particular from China.
Last week, Reuters’ data claimed that China’s crude oil imports grew by just 4% last year, a good rate of growth in any other market, but not when we are talking about Chinese demand, Gibson said.
This level of growth was their slowest rise since 2007 and well below the 17% rise achieved in 2010.
Recently, the South China Post stated that Chinese crude oil imports surged in January to 6.63 mill barrels per day, although largely attributed to stockpiling ahead of the Chinese New Year. This followed a healthy 6.33 mill barrels per day in December.
The article speculated that these strategic stockpiles are being replenished, which accounted for the surge. The recent spike could be maintained when a new 18.9 mill barrels per day storage cavern at Huangdao is scheduled to commence filling this quarter. Already we could be looking at a substantial increase in Chinese imports for 2014, Gibson said.
Another interesting development announced last week by the South Korean government was the approval for the construction of two nuclear plants. This follows concerns about the risk of blackouts and the nation’s ability to maintain power supplies.
Following the Fukushima disaster in March, 2011, the South Korean government initiated a series of nuclear reactor shutdowns over safety issues.
This latest initiative is a complete policy reversal coming little more than a month after the government a announced that it had planned to cut its reliance on nuclear power to 29% of its total power supply by 2035.
What impact this latest development has on South Korea’s high dependence for fossil fuels remains some way off. Japan has also had to wrestle with similar problems, particularly where nuclear power generation is concerned. Japanese crude oil imports have averaged around 3.6 mill barrels per day over the past four years and show no signs of increasing any time soon.
For the tanker market, the continued growth of China is paramount and any signs of a major slowdown in the economy will be of serious concern.
However, although there is a degree of slowdown, the country’s appetite for crude remains fairly healthy, with the IEA expecting 0.35 mill barrels per day growth in 2014.
In addition, we should not forget that there will be an additional demand to fill up strategic reserves. Cautious optimism is also the phrase for oil demand for the rest of developing Asia with another 0.33 mill barrels per day anticipated this year, Gibson concluded.