Thursday, May 31, 2018

Diesel and gas prices continue to climb at pumps across the U.S.

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Diesel prices are up by an average of 72 cents per gallon compared to 2017; gasoline is up 56 cents year-over-year, according to Energy Information Administration.

Prices at the pump continue to creep higher across the nation for both retail diesel and gasoline prices, according to data tracked by the Energy Information Administration (EIA). California, far ahead of the rest of the nation, is now just 0.3 cents away from averaging $4 per gallon of diesel. It is the only state where diesel customers are paying a dollar more than they were a year ago.

For the third week in a row, the national average for diesel was higher than the previous week: up 1.1 cent per gallon to $3.288 on Memorial Day, Monday, May 28. Every region in the nation but the Gulf Coast saw week-over-week diesel prices rise, according to data released by the EIA on Tuesday night. And the Gulf Coast only saw a 0.1 cent per gallon reduction in diesel prices.

Monday's U.S. diesel prices were 71.7 cents more than the same week a year ago thanks to a wide range of increases across the nation: From a 63.1-cent increase in the Gulf Coast to a $1.066 year-over-year increase in California. The West Coast region is up 94.1 cents compared to this week last year (77.9 cents if you don't count California). The Midwest is the only other region to outpace the national average increase in diesel with a 71.8 cent per gallon year-over-year increase.

The West Coast is home to the most expensive average diesel per gallon at $3.784 (mostly thanks to California's $3.997 average per gallon); while the Gulf Coast has the lowest price per gallon ($3.054).
Here is a look at the week-over-week diesel prices in every region of the U.S., as EIA reported on Tuesday:
  • East Coast:$3.287 (up 1.1¢)
    • New England:$3.307 (up 2.5¢)
    • Central Atlantic:$3.443 (up 2.3¢)
    • Lower Atlantic:$3.174 ( up 1.1¢)
  • Midwest:$3.230 (up 1.2¢)
  • Gulf Coast:$3.054 (down 0.01¢)
  • Rocky Mountain:$3.353 (up 0.5¢)
  • West Coast:$3.784 (up 1.9¢)
    • West Coast less California:$3.514 (up 1.1¢)
    • California:$3.997 (up 2.4¢)
Retail gasoline averages at the pump are nearing a national average of $3 per gallon this week, according to EIA. The U.S. gasoline average was up 3.9 cents per gallon to $2.962. That is a 55.6 cent per gallon increase compared to this week in 2017.

The biggest gasoline increase by region came in the Lower Atlantic states, which saw a 6.7 cent increase to $2.818 per gallon. The Rocky Mountain states ($2.991 per gallon) saw the smallest increase (2.3 cents) this week.

Just like with diesel, the West Coast is home to the most expensive average gasoline per gallon at $3.463 (mostly thanks to California's $3.636 average per gallon); while the Gulf Coast has the lowest price per gallon of gasoline ($2.721).

Here's a look at gasoline prices per gallon by region and how they changed this week:
  • East Coast:$2.910 (up 5¢)
    • New England:$2.980 (up 3.5¢)
    • Central Atlantic:$3.027 (up 3¢)
    • Lower Atlantic:$2.818 (up 6.7¢)
  • Midwest:$2.881 (up 3¢)
  • Gulf Coast:$2.721 (up 4.5¢)
  • Rocky Mountain:$2.991 (up 2.3¢)
  • West Coast:$3.463 (up 2.8¢)
    • West Coast less California:$3.463 (up 2.8¢)
    • California:$3.636 (up 1.8¢)

Wednesday, May 30, 2018

Crude oil futures fall on concerns over possible OPEC-led output rise

Crude oil futures were lower during mid-morning trade in Asia Wednesday, amid continuous concerns over the OPEC-led coalition increasing production going forward.

At 10:30 am Singapore time (0230 GMT), ICE July Brent crude futures fell 39 cents/b (0.52%) from Tuesday's settle to $75/b, while the NYMEX July light sweet crude contract slid 26 cents/b (0.39%) to $66.47/b.

Late last week, Saudi Arabia and Russia mulled over the possibility of easing their supply cut deal as prices hit close to $80/b, causing a selloff in crude prices, resulting in the ICE July Brent futures contract to fall by more than 5% in a week's time.

"Oil offered little to support after being hit down last week on expectations over a ramping up of output from OPEC and co.," IG market strategist Pan Jingyi said.

Adding to this, OPEC achieved its goal to trim OECD crude oil stocks to below the five-year average after agreeing to cut output more than a year ago, a senior OPEC source told S&P Global Platts on Monday.

Commercial oil inventories have fallen 20 million barrels below the five-year average, the source said.

"As OPEC's inventory target has been achieved, consumer concerns have grown regarding the negative impact that ensuing higher oil prices might have on economic activity," Harry Tchilinguirian, senior oil strategist at BNP Paribas, said.

The OPEC-led alliance has lowered stocks close to its goal much quicker than expected due to supply outages in Venezuela and strong compliance to the 1.8 million b/d output cut deal. The group's Joint Ministerial Monitoring Committee said Friday compliance was 152% for April.

"OPEC has over-delivered on supply cuts in the past six months aided by involuntary outages in Venezuela and Angola. There is, therefore, scope for an increase in OPEC output while still maintaining supply cuts for the remainder of the year," Tchilinguirian added.

With its inventory goals achieved, the group will meet June 22 in Vienna to discuss the deal, amid speculation it may have to increase output to make up for any Iranian barrels shut-in due to the US' decision to re-impose sanctions.

Meanwhile, market participants would also be waiting for the latest US inventory data levels which is delayed by a week because of the Memorial Day holiday in the US.

Analysts surveyed Tuesday by Platts expected crude stocks to have fallen by 600,000 barrels for the week ended May 25, while gasoline and distillate inventories were expected to draw by 1.5 million and 1.05 million barrels respectively for the same period.

As of 0230 GMT, the US Dollar Index was up 0.09% at 94.885.

--Avantika Ramesh,

--Edited by Irene Tang,

Tuesday, May 29, 2018

India Won’t Pay For Venezuelan Oil With ‘Petro’ Cryptocurrency

Venezuela's President Nicolas Maduro (C) delivers a speach next to Vice-President Tarek El Aissami (L) next to Venezuela's Minister of Science, Technology and University Education Hugbel Roa (R) during a press conference to launch to the market a new oil-backed cryptocurrency called "Petro", at the Miraflores Presidential Palace in Caracas, on February 20.
Venezuela's President Nicolas Maduro (C) delivers a speach next to Vice-President Tarek El Aissami (L) next to Venezuela's Minister of Science, Technology and University Education Hugbel Roa (R) during a press conference to launch to the market a new oil-backed cryptocurrency called "Petro", at the Miraflores Presidential Palace in Caracas, on February 20.
Federico Parra—AFP/Getty Images

India doesn’t plan to use Venezuela’s ‘petro’ cryptocurrency to pay for crude oil imports from the Latin American nation of which it is a large regular customer, India’s Foreign Minister Sushma Swaraj said on Monday.

India’s central bank has issued an order saying that it doesn’t allow trade in cryptocurrency, Swaraj said at a news conference, citing that order.

India’s average oil imports from Venezuela have recently slumped to their lowest level since 2012.

Venezuela faces increasingly stricter U.S. financial sanctions and is trying to circumvent them by offering the customers of its declining oil production to pay in the El Petro cryptocurrency, touted by Nicolas Maduro as the first-ever sovereign digital currency backed by oil reserves.

India, on the other hand, faces an increasingly fatter crude oil import bill, as oil prices have rallied in the past few months and worsened Indian current accounts, with officials already worried that the high oil prices and the fuel prices at five-year-highs have started to affect economic growth.

India’s Petroleum Minister Dharmendra Pradhan complained earlier this month to Saudi Arabia’s Energy Minister Khalid al-Falih that rallying oil prices were hurting the Indian economy, and reiterated the need for “stable and moderate” prices.

Last month, Indian media reported that Venezuela had offered India a 30-percent discount on crude oil purchases, but only if India agrees to pay in El Petro. India has refused.

Venezuela, for its part, has also recently suggested that it was willing to accept rupees for the oil it sells to India—another way of bypassing the U.S. sanctions on dollar-based trade. The South American nation could then use its rupees to buy Indian food products and medicines, Indian media cited Venezuela’s envoy Augusto Montiel as saying last week.
By Tsvetana Paraskova for

Friday, May 25, 2018

Vessel Sulfur cap chaos coming - ICS

IMO sets 0.5% sulfur cap

The International Chamber of Shipping (ICS) has warned of ‘chaos and confusion’ unless the IMO urgently resolves some serious issues concerning the implementation of the forthcoming 0.5% sulfur in marine fuel cap.
This was the principal conclusion of ICS’s member national shipowner associations’ AGM held in Hong Kong last week.
Speaking from Hong Kong, ICS chairman, Esben Poulsson, said: “The shipping industry fully supports the IMO global sulfur cap and the positive environmental benefits it will bring, and is ready to accept the significant increase in fuel costs that will result. 
“But unless a number of serious issues are satisfactorily addressed by governments within the next few months, the smooth flow of maritime trade could be dangerously impeded. It is still far from certain that sufficient quantities of compliant fuels will be available in every port worldwide by 1st January, 2020. And in the absence of global standards for many of the new blended fuels that oil refiners have promised, there are some potentially serious safety issues due to the use of incompatible bunkers.
”Governments, oil refiners and charterers of ships responsible for meeting the cost of bunkers all need to understand that ships will need to start purchasing compliant fuels several months in advance of 1st January, 2020. But at the moment no one knows what types of fuel will be available or at what price, specification or in what quantity. 
“Unless everyone gets to grips with this quickly, we could be faced with an unholy mess with ships and cargo being stuck in port,” he stressed.
ICS emphasised that governments will need to make significant progress on these issues at a critical IMO meeting in July regarding the impending global sulfur cap, to which ICS – in co-operation with other international industry associations – will be making a number of detailed technical submissions to assist successful implementation of what ICS describes as a regulatory game changer.
The AGM endorsed its support for the historic IMO agreement adopted in April, 2018 on a comprehensive strategy to phase out international shipping’s CO2 emissions completely. This includes targets to improve the sector’s CO2 efficiency by at least 40% by 2030 and 70% by 2050, and a very ambitious goal to cut the sector’s total GHG emissions by at least 50% by 2050, regardless of growth in demand for maritime transport.
Member associations agreed to contribute constructively to the immediate development of additional IMO regulations that will start to have a direct impact on further reducing international shipping’s CO2 emissions before 2023, in line with the new IMO strategy. 
They agreed that ICS should come forward with detailed proposals before the next round of IMO discussions in October on reducing GHG emissions from shipping.
However, ICS members expressed serious disappointment at the apparent intention of the European Union to press on with the implementation of a regional CO2 reporting system at variance to the global system already agreed by IMO, despite having given an undertaking to align the MRV regulation with the global regime.
”We are still waiting to see the final recommendations from the European Commission following a recent consultation,” said Poulsson. “But the industry has made clear its total opposition to the publication of data about individual ships using abstract operational efficiency metrics that bear no relation to CO2 emissions in real life and which will be used to penalise shipowners unfairly.
”Anything less than a full alignment with the IMO CO2 data collection system will be seen as a sign of bad faith by many non-EU nations who recently agreed to the IMO GHG reduction strategy, precisely to discourage such unilateral measures which risk seriously distorting maritime trade and global shipping markets,” he concluded.
In addition, the ICS AGM, which was hosted by the Hong Kong Shipowners’ Association, re-elected Poulsson (Singapore) as chairman for another two years.

Thursday, May 24, 2018

China's independent refiners embrace old friend fuel oil as taxes, rising crude, bite margins

China’s independent oil refiners are once again using fuel oil to feed their plants as stricter tax enforcement and rising crude oil prices have squeezed their margins. 

These independent refiners, nicknamed teapots, buy nearly one-fifth of China’s crude imports and any reduction in their crude purchases would cap demand in what is now the world’s biggest oil importer. 

Two independent refiners based in the eastern province of Shandong, home to most of China’s teapots, have each bought an 80,000 ton cargo of straight-run fuel oil (SRFO) cargo, together totaling about 1.02 million barrels, for April and May delivery, according to three traders with knowledge of the deals. 

One cargo is arriving from Abu Dhabi and the other from Singapore, said one of the sources, an executive with a western trader involved in the supply talks. 

The independents had primarily used straight-run fuel oil, the residue left after crude oil has been initially distilled in a refinery, as a feedstock for their plants since it cost less than crude oil and was taxed less. However, in 2014, the Chinese government raised taxes on fuel oil imports. But, that was followed in 2015 by teapots winning licenses to import crude. 

Straight-run fuel oil consumption slumped as the refiners bought crude oil, which yielded a higher volume of higher-value products such as gasoline and diesel than the SRFO when processed and boosted profit margins for the teapots. China remained a large buyer of so-called cracked fuel oil as fuel for ships. [O/CHINA3] 

However, starting on March 1, Beijing enacted new tax rules that more rigidly enforced on the teapots the collection of a $38 per barrel gasoline consumption tax and $29 per barrel tax on diesel. 

Combined with a recent surge in crude oil prices to their highest since 2014, the higher tax collection has crushed the independent’s margins. That has prompted the renewed interest in lower-priced fuel oil. 

To view a graphic on China's crude oil imports, click:
Reuters Graphic
“Buying SRFO may not necessarily save tax cost as the buyer needs to pay up-front the (fuel oil) consumption tax, but obviously plants are exploring the old trade as the government’s tax stick is really a hard one this time,” said the oil trading executive. 

Processing the SRFO does have an added tax benefit, however. The independents can deduct the tax of about $31 per barrel paid on their fuel oil imports from the consumption tax they are required to collect on their gasoline and diesel sales, said an official with an independent plant seeking fuel oil.
“Processing fuel oil gives better margins than (refining) crude oil as plants can get tax deducted (when selling refined fuel) later,” the official said. 

The source, who declined to be named as he is not authorized to talk to press, added that his plant expected margins to be negative if they only processed crude oil. 

The lower margins have resulted in the teapots cutting their run rates. 

In early May, the independent refiners operated at only 63 percent of their processing capacity, the lowest since February during the Lunar New Year break, according to a weekly survey of 38 plants by Shandong-based consultancy Sublime China Information. Planned maintenance was also a factor, said Gao Lei, an analyst with Sublime. 

“We’ve seen less impact (from the tax measures) on import volumes as state-run plants increase runs, but more on teapot margins,” said Seng-Yick Tee, of consultancy SIA Energy, 

“They are definitely making less money now than before.” 

To view a graphic on China’s teapot refinery runs rate, click:
Reuters Graphic
Additional reporting by Roslan Khasawaneh and Florence Tan in Singapore; Editing by Christian Schmollinger

Wednesday, May 23, 2018

Americans face high gas prices, crowded roads this Memorial Day weekend

  • A record number of Americans are planning to travel this Memorial Day weekend, despite high gas prices.
  • Gas prices currently average $2.93 per gallon nationally and could climb this weekend.
  • There are certain days and times you may want to avoid the roads and airports in major U.S. cities. 
If you plan to hit the roads this Memorial Day weekend, get ready to pay more at the pump.
Gas prices are poised to be the highest for the holiday weekend since 2014, according to travel organization AAA. Those prices averaged $2.93 nationally per gallon as of Tuesday.

"Gas prices are nearly 60 cents more expensive than last year and will likely jump a few more pennies heading into Memorial Day weekend," said AAA spokeswoman Jeanette Casselano. "As nearly 37 million Americans travel by car this weekend, motorists will find gas for $3 or more at 25 percent of all gas stations across the country."

Those costs are not likely to deter many travelers, Casselano said, many of whom booked their trips months in advance.

A record number of Americans — more than 41.5 million — are expected to take to the roads, tarmacs and water on the weekend that kicks off summer, according to research released by AAA earlier this month.

That's the highest number of travelers in more than 12 years and about a 5 percent increase from last year.

The good news for travelers is that airfares have fallen 7 percent from last Memorial Day to an average of $168 for a round-trip flight for popular domestic routes, AAA said.
A daily car rental will cost an average of $59, about 11 percent cheaper than last year and the lowest rate in the past four years.

The busiest days for travel over the holiday weekend are expected to be this Thursday and Friday.
Here are the worst days and times to travel, according to global analytics company INRIX, which partnered with AAA for the study.

Worst times to travel

Metro area Worst day for travel Worst time for travel Delay multiplier of normal trip
Atlanta Thursday, May 24 3:30 - 5:30 p.m. 1.6x
Houston Thursday, May 24 4:30 - 6:00 p.m. 1.5x
Boston Thursday, May 24 4:30 - 6:30 p.m. 1.8x
Washington, D.C. Thursday, May 24 4:30 - 7:00 p.m. 2.3x
San Francisco Friday, May 25 3:00 - 5:30 p.m. 1.7x
Los Angeles Friday, May 25 3:30 - 5:30 p.m. 1.9x
New York Friday, May 25 3:30 - 6:30 p.m. 2.7x
Detroit Friday, May 25 4:00 - 5:30 p.m. 1.5x
Chicago Friday, May 25 4:00 - 6:00 p.m. 2.1x
Seattle Friday, May 25 4:00 - 6:00 p.m. 1.8x 

The report also looked at the top Memorial Day destinations based on advance travel bookings made through AAA.

Here are the cities that will get more crowded over the four-day weekend.

Top Memorial Day destinations

Rank City
1 Orlando, Florida
2 Seattle, Washington
3 Honolulu, Hawaii
4 Las Vegas, Nevada
5 Anchorage, Alaska
6 Phoenix, Arizona
7 Anaheim, California
8 Boston, Massachusetts
9 Denver, Colorado
10 New York, New York
The popularity of Seattle and Anchorage as destinations point to the popularity of Alaskan cruises, Johnson said.

Tuesday, May 22, 2018

Forget About Oil at $80. The Big Rally Is in Forward Prices

opec oil ministers discuss caps

Iraq Prime Minister Haider al-Abadi left, listens to Oil Minister Jabar Ali al-Luaibi, right, during the Iraq Energy Forum in Baghdad, Iraq, Wednesday, March 28, 2018. Iraq says OPEC will decide by the end of this year whether to extend production cuts and by how long.
AP/Karim Kadim

  • Brent five-year forward prices outpace gains in spot prices
  • Investors question the ‘lower for longer’ oil price mantra

Brent crude oil grabbed all the attention after spot prices hit $80 a barrel last week. And yet, almost unnoticed, a perhaps more important rally has occurred in the obscure world of forward prices, with some investors betting the "lower for longer" price mantra is all but over.

The five-year Brent forward price, which has been largely anchored in a tight $55-to-$60 a barrel range for the past year and a half, has jumped over the last month, outpacing the gains in spot prices. It closed at $63.50 on Friday.

"For the first time since December 2015, the back end of the curve has been leading the complex higher," said Yasser Elguindi, a market strategist at Energy Aspects Ltd. in New York. "It seems that the investor community is finally calling into question the ‘lower for longer’ thesis."

Bob Dudley, the chief executive of oil giant BP Plc, coined the "lower for longer" mantra in early 2015, warning of a protracted period of cheap crude. He later clarified that he meant "lower for longer, but not forever."

More to Run

While spot prices fluctuate wildly, often driven by geopolitics such as U.S. sanctions on Iran, the five-year forward usually trades in a narrower range, anchored by longer views about future supply and demand.

Over the past three years, long-dated prices had been weighed down by the belief the growth in U.S. shale production, combined with the adoption of electric vehicles, would keep prices under control.

Investors are now questioning that hypothesis, pushing up forward prices. Over the past month, Brent five-year forward futures gained 11 percent, compared with a 6.8 percent increase in futures for immediate delivery.

"We think there is more to go for the longer date contracts,” SEB chief commodities analyst Bjarne Schieldrop said. “This will send very positive price signals into the whole oil space with higher confidence, optimism and evaluations as a likely consequence."

Demand Surprise

There are several reasons for the sudden surge in forward prices. Oil consumption is expanding much faster than anticipated, adding growth in two years that would normally take three. At the same, oil investment has dropped significantly over the past three years, particularly in projects that take longer to develop such as ultra-deep water offshore, raising doubts about future supply growth despite the gains in Texas, North Dakota and other U.S. shale regions.

Moreover, a change in marine fuel oil specifications by 2020, which should increase significantly the demand for diesel-like refined products, is further reinforcing the belief among some investors that the oil market will be tighter than expected in the future.

The buying has sparked a rally in later-dated contracts in the past week-and-a-half that traders say is even more impressive than Brent’s march past $80. The grade for delivery in December 2022 has surged 10 percent since to beginning of the month to nearly $64 a barrel. The December 2023 has risen above $63 a barrel.

The higher forward prices are also catching the attention of some equity investors as they usually use longer-dated prices to value energy companies.

Despite the rally in forward prices, oil exploration and production companies, which typically hedge their production further out in the curve, have remained reticent to buy in, according to John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. Oil producer selling typically puts pressure on the back of the curve.

Investors aren’t just buying outright long-dated futures, but also betting through the options market on much higher prices in the early part of next decade by buying call options. The contracts, which give investors the right to buy at a predetermined price, are popular among commodities hedge funds.
Call options that would profit from Brent rising to $130 a barrel by the end of 2020 traded 2,000 times on Friday. That follows a similar amount of $100 contracts for the same period trading over the past two weeks.

“The war premium at the front of the market masked the fact that future significant demand increases and questions over supply levels equate to higher prices down the line,” said Richard Fullarton, founder of commodity focused hedge fund, Matilda Capital Management Ltd.

— With assistance by Jessica Summers, and Sheela Tobben

Monday, May 21, 2018

Conoco Aims To Seize Oil Cargoes Near Citgo's Aruba Terminal

Image may contain: cloud, sky and outdoor

U.S. oil company ConocoPhillips has brought new court actions to seize two cargoes of crude and fuel near a terminal operated by PDVSA subsidiary Citgo Petroleum in Aruba, the Aruban government confirmed on Tuesday.

Conoco is moving aggressively to enforce a $2 billion arbitration award over the 2007 expropriation of two oil projects in Venezuela, creating unease in the Caribbean, where many islands depend on fuel produced by state-run PDVSA.

The Aruba refinery has said that an embargo on two Citgo oil cargoes was introduced last night. Citgo is claiming the crude as its own, and is fighting at court to demonstrate the product is not PDVSA’s,” said Prime Minister Evelyn Wever-Croes in a statement. “Independent of any outcome, this is not going to affect Aruba,” she said.

The cargoes seized included 500,000 barrels of crude oil on the Grimstad and about 300,000 barrels of jet fuel, gasoline and diesel on the Atlantic Lily, according to a source at the Aruba terminal and Thomson Reuters vessel tracking data.

Citgo, the U.S. refining unit of PDVSA, has leased the 209,000 barrel-per-day (bpd) Aruba refinery and its 13 million-barrel terminal from the government since 2016 to store Venezuelan and other crudes for supplying its U.S. refineries.

As the refinery remains idled since 2012 while a major refurbish project is underway, Citgo regularly supplies the island with imported fuel.

Wever-Croes told journalists government officials and the management of the refinery were organizing a contingency plan to avoid a situation similar to Curacao and Bonaire, where inventories were blocked by Conoco’s legal actions.

No fuel shortages have been reported in the Caribbean but officials are trying to import from other sources.

Conoco in recent days seized the 10-million-barrel BOPEC oil terminal owned by PDVSA in Bonaire and fuel inventories at the 335,000-bpd Isla refinery operated by the Venezuelan firm in Curacao. Both islands are in talks with Conoco to free fuel for domestic consumption.

What belongs to Citgo belongs to PDVSA, but a judge has to rule on it,” Wever-Croes said.

Daren Beaudo, a Conoco spokesman, said on Tuesday that the company sent representatives to the Caribbean this week to meet with local officials and address their concerns over Conoco’s efforts to enforce the arbitration award by the International Chamber of Commerce (ICC).

PDVSA did not immediately respond to a request for comment.

Last week, Curacao officials said the Isla refinery would have to halt refining operations once its available inventories were exhausted.

It is PDVSA that has failed to honor our award by ignoring the judgement of the ICC tribunal and other local court orders,” Beaudo said in a statement.

Conoco Chief Executive Ryan Lance on Tuesday said the firm is far from recovering all of the $2 billion ICC award. He said legal actions have been brought in Hong Kong and London to have the ruling recognized following a similar move last month in a New York court.

Friday, May 18, 2018

Tanker Markets - VLCC recycling continues

Image result for vlcc ship breaking pakistan

Following the official reopening of the Pakistani market for tankers, the offloading of the plethora of unsold tanker/VLCC tonnage continued at pace last week, as interested Pakistani Buyers eagerly filled their plots. 
There were further VLCC sales concluded, gradually bringing the total number of units sold through 2018 towards the 30 mark, a figure which looks likely to be reached before the end of May - not even halfway through the year - GMS said in its weekly report.

There is a noteworthy dissimilarity in pricing a VLCC versus MR/Aframax/Suezmax types, as very few end buyers in the Indian sub-continent are capable of opening such large US dollar value Letters of Credit (LC).

Under the current market conditions, this can easily amount to an around $18 mill LC on roughly 40,000 ldt unit, GMS said.

Given the limited number of capable end buyers who are able to do this (translating into a lower demand), VLCCs are discounted far more than the average tanker for which, a greater number of buyers are open/available to negotiate.

Moreover, VLCCs usually take between six to eight months to fully recycle, resulting in a significant exposure for the respective buyer who will likely endure multiple market peaks & troughs over this period. Only a recycler with a strong financial standing is generally willing/able to withstand these fluctuations.

Pakistan and Bangladesh - both of which have reached saturation point - tend to be the main buyers for large ldt tonnage, while Indian recyclers prefer smaller vessels that can be quickly dismantled, thus minimising there market exposure, due to the generally volatile nature of steel plate prices and currency fluctuations.

Finally, those owners who opt to sell their large ldt ships into India for Hong Kong Convention green recycling, such as Ridgebury Tankers last week, there is normally a large discount to contend with, compared to conventional recycling, GMS said.

The sale of the 1999-built VLCC ‘Ridgebury Pioneer’ for a reported $408 per ldt on the basis of ‘as is’ Khor Fakkan, gas free and with 300 tonnes of bunkers ROB was said to have been concluded at a $500,000 discount.

Other deals reported by brokers included the 2000-built VLCC ‘Greek Warrior’ sold to undisclosed interests for $430 per ldt, ‘as is’ Singapore, gas free for man entry and with 480 tonnes of bunkers ROB and the 2001-built VLCC ‘Silver Glory’ for $436.5 per ldt with delivery Indian sub/cont.

The 1997-built Aframax ‘Oil Runner’ was said to be sold to undisclosed interests for $470 per ldt, ‘as is’ Khor Fakkan with 70 tonnes of bunkers ROB and with various equipment, including two propellers.

In addition, the 1999-built LR1 ‘Amazon Guardian’ was reported committed for $455 per ldt to Pakistan recyclers, ‘as is’ Khor Fakkan, gas free for hot works and with 400 tonnes of bunkers ROB.
Finally, the 1991-built MR ‘Divine Mercy’ was reported sold to Pakistan interests for an undisclosed price.

GMS has supported the publication of a booklet entitled - ‘The Recycling of Ships’  - written by consultant Nikos Mikelis.

It contains a list of the world’s recycling facilities and chapters on the economic drivers behind the decision to recycle, sale & purchase with end-of-life ships, the Hong Kong Convention, EU Ship Recycling Regulation and standard improvements within the ship recycling industry.

The booklet is available to download as a pdf at

Thursday, May 17, 2018

More Pain May Come for Nigeria's Loss-Making Oil Behemoth

  • Abuja-based NNPC made operating losses of $246 million in 2017
  • Financial woes contrast with state firms from Norway to Saudi
It’s meant to be a cash cow, but the state oil company of Africa’s biggest producer is bleeding money.

Nigerian National Petroleum Corp., the Abuja-based behemoth that dominates the OPEC member’s energy industry, has made losses for at least the last three years, statements on its website show. It will probably register another in 2018, according to Ecobank Transnational Inc., as its refineries and fuel-retailing arm fail to generate profit.

The pain for NNPC, which produces oil and natural gas in partnership with Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp., comes even as national energy firms from Norway to Saudi Arabia thrive with crude prices recovering from their crash in 2014. And it lays bare President Muhammadu Buhari’s difficulty in fulfilling his pledge to modernize a company that’s been a byword for inefficiency and opacity since its creation in the 1970s.

With oil accounting for more than half of government revenue and 90 percent of export income, the company is a primary target of those seeking access to state funds and is vulnerable to political interference.

Tensions erupted last year between Emmanuel Kachikwu, the chairman of NNPC, and Maikanti Baru, the managing director, over how more than $20 billion of contracts were agreed.

“The very public power tussle shows the difficulties in reforming the organization,” Malte Liewerscheidt, an analyst at Teneo Intelligence, said in an email from Abuja. Until a pending but long-delayed law designed to overhaul the petroleum sector and split up parts of NNPC comes into effect, “political considerations will continue to interfere with vital business needs,” he said.

The state oil company doesn’t publish full financial results, though it releases limited numbers on its operating performance. These include earnings for core units, but exclude items such as taxes and dividends from a 49 percent shareholding in Nigeria LNG Ltd., one of the world’s biggest exporters of liquefied natural gas.

Those numbers show that NNPC made an 82 billion naira ($246 million) operating loss in 2017. That was an improvement from 2015 and 2016, but still far from the operating income it budgeted for of 600 billion naira. In each of the past three years, NNPC forecast a profit and finished in the red.

Higher oil prices have boosted exploration and production, the most profitable part of NNPC and which earned almost $600 million in 2017. But its ill-maintained refineries, which operate at a fraction of their combined capacity of 445,000 barrels a day, lost about $100 million. Even bigger shortfalls came in the fuel-retailing business, which has to contend with the government’s cap on gasoline prices, and the corporate headquarters unit, which lost almost $400 million, more than any other part of the company.

While NNPC’s extraction business will probably improve this year, the refineries and retailing subsidiaries will continue to be a drag, especially if the government maintains the ceiling of $0.40 a liter for gasoline, according to Ecobank. The bank predicts that NNPC will make an operating loss of as much as 80 billion naira in 2018.

Ndu Ughamadu, a spokesman for NNPC, said that while the refineries are struggling to make money, the company’s overall performance will probably be better this year. He declined to say if NNPC was forecasting a return to profit. It made a loss of 1.6 billion naira in January, the latest month for which results have been released.

The problems at NNPC offset the benefits to Nigeria’s struggling economy of Brent crude’s more than 50 percent rise in the past year to almost $80 a barrel. Still, there have been improvements within the company and the country’s overall oil sector, according to Moody’s Investors Service.
NNPC’s reduction of debts owed to joint-venture partners may help increase Nigerian oil production to around 2.5 million barrels a day by 2020 from 2 million today, said Aurelien Mali, an analyst at Moody’s.

“The clearing of arrears is a huge step forward that will unleash extra investment from international oil companies,” Mali said in an interview in Lagos, the commercial capital, on May 9. “NNPC is key for the government. It’s going in the right direction.”

It has some catching up to do. Its financial position contrasts with those of state oil firms in other major producers. Saudi Aramco is gushing cash, making net income of $34 billion in the first half of 2017 alone, according to numbers seen by Bloomberg. Brazil’s Petrobras, Mexico’s Pemex and Norway’s Statoil all improved their results in 2017 and made operating profits. So did Angola’s Sonangol in 2016, when it last published data.

Wednesday, May 16, 2018

Morgan Stanley Says a Shipping Revolution Has Oil Headed for $90

Morgan Stanley's lower global outlook rattles world markets

Forget Iran and OPEC -- there’s another issue that will keep oil prices supported for the next two years, according to Morgan Stanley.

Brent crude will reach $90 a barrel by 2020 as new international shipping regulations take effect, overhauling the types of fuels produced by refiners, the bank’s analysts said in a report.

The changes, which force vessels to consume lower sulfur fuels beginning in January of that year, will lead to a boom in demand for middle distillate products including diesel and marine gasoil, triggering the need for more crude, they said.

“We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it,” wrote Morgan Stanley analysts including Martijn Rats.

While crude has already received a boost due to supply cuts by the Organization of Petroleum Exporting Countries and geopolitical events including the U.S. decision to reimpose sanctions on Iran, the rule changes add to the impact. Global benchmark Brent, which neared $80 a barrel earlier this week, is trading at the highest levels since late 2014. Futures for the January 2020 contract are at about $66.60 a barrel.

The rules from the International Maritime Organization call for ships to reduce the maximum sulfur content of their fuels to 0.5 percent, from 3.5 percent in most regions currently, in an effort to curb air pollution that has been linked to respiratory diseases and acid rain. The changes are expected to create an oversupply of high-sulfur fuel oil while sparking demand for IMO-compliant products, putting pressure on the refining industry to produce more of the latter fuels.

Repsol SA, Reliance Industries Ltd., Valero Energy Corp. and Tupras Turkiye Petrol Rafinerileri AS are among those who stand to benefit most, according to Morgan Stanley.

“The refining systems of these companies are highly geared towards middle distillates” and minimal high-sulfur fuel oil output, which is “the most advantageous combination after 2019,” the bank said in a related report.

Middle distillate markets are already showing signs of tightness. Diesel and gasoil stockpiles in key storage hubs in Europe, the U.S. and Asia are below their five-year seasonal averages. At the same time, middle distillate demand has grown at an annual rate of about 600,000 barrels a day since 2011, accelerating to 800,000 barrels a day in recent quarters, Morgan Stanley estimates.

Increased Demand

With the IMO ship-fuel regulations expected to boost demand by an additional 1.5 million barrels a day by 2020, traders will seek to get the right product supplies, which should boost crude prices, according to the bank. While global crude production will rise, it probably won’t increase by the 5.7 million barrels a day needed by 2020 to meet the additional demand for fuels, the analysts said.

“The last period of severe middle distillate tightness occurred in late-2007/early-2008 and arguably was the critical factor that drove up Brent prices in that period,” Rats wrote, referring to the period when crude oil approached levels close to $150 a barrel.

U.S. oil output, now at a record, likely won’t come to the rescue, since the crude pumped in America’s shale regions is light and not ideal for producing middle distillates, Morgan Stanley noted.
“We expect the crude oil market to remain under-supplied and inventories to continue to draw,” the bank said. “This will likely underpin prices.”

Tuesday, May 15, 2018

Crude oil futures rise again on risk, OPEC demand forecasts; July ICE Brent at $79.14/b, June NYMEX $71.61/b

Crude oil futures pushed higher again in European morning trading Tuesday, with geopolitical risk remaining elevated and the market still digesting OPEC's higher forecasts for global demand this year.

At 1100 GMT, ICE July Brent crude futures were trading at $79.14/b, up 91 cents from Monday's settle, while NYMEX June WTI crude futures were 65 cents higher at $71.61/b.

OPEC in its latest monthly report on Monday increased its world demand forecasts for 2018, with growth in consumption revised up by 25,000 b/d to 1.65 million b/d from the previous report.

OPEC also said OECD commercial crude oil stockpiles had declined in March to 9 million barrels above the five-year average.

The revised demand growth predictions come at a time when the global crude market is also facing other significant supply-side question marks, such as the impact of the imposition of US sanctions on Iranian output and the ongoing struggles of the Venezuelan oil sector.

Venezuela's production dropped 40,000 b/d to 1.44 million b/d in April, according to secondary sources.

While there are doubts over Iranian and Venezuelan production, US crude production has continued to rise in recent months. According to analysts, once certain logistical issues are solved in the US, its crude production can help fill the gap left by production declines elsewhere.

"The rapidly growing US shale oil production is currently helping to plug the supply gap to only a limited extent because pipeline bottlenecks are preventing some of the oil from reaching the refineries and export terminals on the US Gulf Coast," said Commerzbank analysts in a note.

"Once the pipeline problems have been resolved and supply is available again, this will have a dampening effect on prices."

In the short term, there are expectations of a further decline in US stockpiles for the week ended May 11. An S&P Global Platts survey of analysts indicates US crude stocks are expected to fall by 2.3 million barrels.

Official data on US crude and product stocks will be released by the Energy Information Administration on Wednesday. The American Petroleum Institute meanwhile will release its weekly inventory numbers later Tuesday.

--John Morley,

--Edited by Alisdair Bowles,

Monday, May 14, 2018

PDVSA Suspends Oil Storage, Shipping From Caribbean

State-run PDVSA has suspended oil storage and shipping from its Caribbean facilities following legal actions last week by ConocoPhillips to temporarily seize the Venezuelan firm's assets in four islands, according to a PDVSA source and Reuters data.

The Venezuelan company has begun concentrating most of its shipping operations for export at its main crude port, Jose, as two additional terminals in Venezuela are limited in receiving more vessels, the source said.

Conoco Authorized to Seize $636 Million In Venezuela PDVSA Assets

Court house 
Curacao Court / Caribbean

A Curacao court has authorized ConocoPhillips to seize about $636 million in assets belonging to Venezuela’s state oil company PDVSA due to the 2007 nationalization of the U.S. oil major’s projects in Venezuela.

The legal action was the latest in the Caribbean to enforce a $2 billion arbitration award by the International Chamber of Commerce (ICC) over the nationalization.

The court decision, first reported by Caribbean media outlet Antilliaans Dagblad on Saturday, says Curacao can attach “oil or oil products on ships and on bank deposits.”

Conoco and PDVSA did not immediately respond to requests for comment on the decision, which was seen by Reuters and dated May 4.

Conoco earlier this month moved to temporarily seize PDVSA’s assets on Aruba, Bonaire, Curacao and St. Eustatius. That threw Venezuela’s oil export chain into a tailspin just as Venezuela’s crude production has crumbled to a more than 30-year low due to underinvestment, theft, a brain drain and mismanagement.

Reuters reported on Friday that PDVSA was preparing to shut down the 335,000 barrel-per-day Isla refinery it operates in Curacao amid threats by Conoco to seize cargoes sent to resupply the facility.
PDVSA is also seeking ways to sidestep legal orders to hand over assets. The Venezuelan firm has transferred custody over the fuel produced at the Isla refinery to the Curacao government, the owner of the facility, according to two sources with knowledge of the matter.

PDVSA transferred ownership of crude to be refined at Isla to its U.S. unit, Citgo Petroleum, one of the sources said.

For the time being, PDVSA has suspended all oil storage and shipping from its Caribbean facilities and concentrated most shipping in its main crude terminal of Jose, which is suffering from a backlog.

Friday, May 11, 2018

Oil Smuggling Activities / Risk of arrest off Libya

Oil smuggling activities in waters off the Western Libya coast continue to pose risks to vessels sailing in these waters, insurance and P&I service provider Gard has warned. 
In an industry note, Gard advised tanker operators to warn their vessels’ crews of the situation and to carry out an assessment of the risks involved before engaging in voyages to these waters.

Over the last few years, nearly 300 crew members have been arrested and are being held in a Tripoli prison, awaiting trial for alleged oil smuggling, according to the company’s Libyan correspondent.

As a result of the fall of the Gaddafi regime and the subsequent formation of a UN recognised Government in the country, there has been an increase in illegal trade of government oil assets on the black market. The Government is clamping down on this illegal trade and the vessels involved, knowingly or unknowingly, may have their crew arrested for later trials.

According to Gard’s correspondent, tankers suspected of calling at certain loading areas in Western Libya risk being boarded by the Libyan Navy and the vessel and her crew could be detained for further investigations.

The loading areas currently at risk are mostly located offshore between Zawiya and the Tunisian border.

Once a vessel has been detained, investigations can take several years. The correspondent also warned that some of the crew members arrested for alleged oil smuggling have been in prison for over two years - with no real prospect of release in the foreseeable future. And while the crew members remain in the custody of the police, the vessel is kept at anchor as a ‘dead’ ship with negligible support from the port.

Gard advised owners and operators to instruct their ships to continue to exercise caution when entering Libyan ports and waters and follow the official sea navigation routes to any of the working Libyan ports.

For tankers trading to this region, the company’s Libyan correspondent recommended the following:

•             When contracting a vessel for a voyage to Libya, obtain a certificate of origin from the charterers indicating that the shippers are a national oil company (NOC) or an approved legal entity of the NOC. The Libyan NOC has the sole rights and control of all oil exports from the country. Most detentions related to oil smuggling, have been to tankers operating offshore and not in a port.

•             Charterers should establish the legitimacy of cargo interests and whether they can legitimately ship oil cargoes from Libya. The shippers should be able to provide a letter or document to prove that they are authorised by the NOC to ship the cargo. Gard’s correspondents will be able to verify the legitimacy of the documents and provide general guidance, if required.

•             Tankers delivering fuel oil to Libya, should, on completion of cargo operations and upon receiving port clearance, sail directly out of Libyan waters without deviation or delay, as deviations or delays may be construed as suspicious by the authorities.

•             Upon leaving the Libyan coast, vessels should avoid navigating close to the coast. It is recommended maintaining a distance of 40 nautical miles from the coast for safety. Most cases of detention have occurred within 25 nautical miles of the Libyan coast.

Thursday, May 10, 2018

Marathon Petroleum to Buy Andeavor in Biggest Oil Refining Deal

Marathon Petroleum Corp. agreed to buy rival Andeavor for $23.3 billion in the biggest-ever deal for an oil refiner that would create the largest independent fuel maker in the U.S.

The offer, payable in either cash or shares, values Andeavor at about $152.27 a share, the companies said in a statement Monday. That represents a 24 percent premium over Friday’s closing price.

Marathon shares sank as much as 8.9 percent in early trading with analysts at RBC Capital Markets seeing the deal done at “peak refining bullishness.” Andeavor rose as much as 18 percent. Shares of Andeavor, Marathon and other independent refiners have soared to record highs this year.

Growing fuel demand, both in the U.S. and Latin America, and a shale boom that’s expanded access to relatively inexpensive domestic supply have given American refiners a leg up against foreign competitors.

“Why wouldn’t you do this deal?” Greg Goff, Andeavor’s chief executive officer, said on a conference call Monday. “The time is right now, because for this industry, the wind is behind our backs.”

Passing Valero

Marathon is focused in the Midwest and Gulf Coast, while Andeavor concentrates on the western U.S., including refineries and pipelines it acquired in last year’s merger with Western Refining Inc. The combination, which will use the name Marathon, would overtake Valero Energy Corp. as the biggest in U.S.-based oil refiner by capacity, generating about 16 percent of the nation’s total, according to Bloomberg calculations.

“Wow!” Matthew Blair, director of refining research at Tudor Pickering Holt & Co., wrote in a report. Blair called Andeavor a “big winner” in a deal that is “extremely positive.” As for Marathon, meshing the two giant companies will be key, Blair said, adding that regulatory problems should be minimal, “given the disparate geographical markets of each company.”

The companies said they expect annual cost and operating synergies of about $1 billion within the first three years. Given projected cash-flow generation, Marathon’s board also approved share buybacks of $5 billion. Gary Heminger, Marathon’s CEO, will be chief executive. Goff will become executive vice chairman.

The boards of both companies unanimously approved the deal, which is expected to close in the second half of this year, subject to regulatory and shareholder approvals.

Passing Phillips

Marathon’s shares were down 6.8 percent to $75.88 as of 12:17 p.m. in New York, while Andeavor jumped 13 percent to $138.72.

Findlay, Ohio-based Marathon is the third-largest U.S. refiner by market capitalization, valued at about $38.6 billion, according to data compiled by Bloomberg. Last year the company sold 5.8 billion gallons of fuel through its Speedway convenience store chain. The combined company would pass Phillips 66, valued at $51.9 billion, as the largest U.S. independent refiner by market capitalization.

San Antonio, Texas-based Andeavor, formerly known as Tesoro Corp., is the fourth-largest, worth $18.7 billion. The company’s assets also include 5,300 miles of pipelines and 40 marine, rail and storage terminals.

Last week, Andeavor announced two joint ventures to move crude oil from West Texas to the Gulf Coast.

Permian Access

The first venture, a pipeline project majority owned by Phillips 66, would haul as many as 700,000 barrels per day of crude from the Permian Basin to the Corpus Christi, Sweeny and Freeport area. The second is a stake in a new marine terminal under development by Buckeye Partners LP that would connect with the pipeline.

Marathon’s Galveston Bay refinery, which currently buys about 200,000 barrels a day of light domestic oil, could benefit from the pipeline connectivity, Heminger said in a conference call Monday.

Marathon’s natural gas processing capacity will also increase by about 20 percent under the deal, to more than 10 billion cubic feet per day.

The combined entity expects to be well-positioned to capitalize from upcoming regulations to reduce pollution from ships. Andeavor’s port assets in California, coupled with Marathon’s in the U.S. Gulf Coast, will give the combined company the ability to sell lower-sulfur ship fuel.
“Ports are the lifeblood to refining out in those markets,” Heminger said Monday.

— With assistance by Naureen S Malik, and Dan Murtaugh

Wednesday, May 9, 2018

Crude oil futures inch higher in Asia after US leaves Iran deal

Crude oil futures inched higher during the Asian early-afternoon trade Wednesday, as the market continued to digest news of President Trump's decision to withdraw US from the Iran nuclear deal.

Related feature -- Iran Sanctions: Global Energy Implications

OPEC's comments on remaining committed to its supply cuts despite the US' withdrawal from the deal as well as the larger-than-expected draw in US' weekly crude oil stocks had also lent support to the crude futures.

At 12:00 pm Singapore time (0400 GMT), July ICE Brent crude futures were up $1.84/b (2.46%) from Tuesday's settle to $76.74/b, while the NYMEX June light sweet crude contract was up $1.59/b (2.30%) from Tuesday's settle to $70.65/b.

The last time ICE Brent hit above $76/b was in November 26, 2014. As for NYMEX WTI, the last time it was above $70/b was on 27 Nov 2014.

Crude futures had settled lower during Tuesday's trading session, but bounced back to touch fresh highs during mid-morning trade in Asia Wednesday.

"The upward rally this morning is a natural reaction to Trump's announcement," Vanda Insights founder Vandana Hari said.

"The rally may however not last long enough for prices to hit say $80/b[for ICE Brent] as markets may pause to reassess the situation," Hari added.

"Post the initial knee-jerk reaction, markets will actually wait to see the fallout in exports and what stance the importing countries take," Hari said.

President Donald Trump announced Tuesday on the withdrawal of US from the Iran nuclear deal and that "powerful" economic sanctions "will be put into full effect."

However, he did not give any timing for when or how the US plans to restart the sanctions regime.

Reimposing US sanctions on Iranian oil buyers will likely have an immediate impact of less than 200,000 b/d and block less than 500,000 b/d after six months, most analysts surveyed by S&P Global Platts said. But some analysts expect a substantial supply disruption of up to 1 million b/d.

As it did from 2012-2015 before the nuclear deal, the US will consider allowing countries to continue importing Iranian crude as long as they demonstrate they are significantly reducing those volumes every 180 days, a Treasury Department fact sheet showed.

"Countries seeking such exceptions are advised to reduce their volume of crude oil purchases from Iran during this wind-down period," the notice said.

Market participants were convinced that the Iran sanctions bode well for prices, analysts said. "If the supply squeeze materialize [from the Iran sanctions], oil producing countries can increase production within the permissible limits. Market sentiments are already geared towards this." Phillip Futures' investment analyst Benjamin Lu said.

"Fundamentally, we can already see global inventories falling, if the OPEC report inventories hitting below the 5 year average, prices will get a boost again," Lu added.

"A six-month loss of 250,000b/d of Iran supply could support oil prices by $3.50/b above our summer $82.50/b Brent forecast if other OPEC members do not respond to offset it," a Goldman Sachs' report showed.

UAE Energy Minister Suhail al-Mazrouei on Tuesday indicated OPEC would remain committed to its production cuts, saying that "Working collaboratively with our partners, our joint efforts to re-balance the oil market and bring investment back into our industry are progressing well."

Separately, data from the American Petroleum Institute reported a draw of 1.85 million barrels in crude stocks for the week ending May 4, indicating an uptick in global demand as refineries come out from the maintenance slumber.

Analysts surveyed Monday by S&P Global Platts expected crude stocks to have fallen by 400,000 barrels for the same period.

As of 0400 GMT, the US Dollar Index was 0.04% lower at 93.015.

--Jing Zhi Ng,
--Avantika Ramesh,
--Edited by Norazlina Juma'at,