Sunday, June 30, 2019
Friday, June 28, 2019
Possible conflict with Iran - impacts on trade
VesselsValue has analysed the effect on a conflict with Iran would have on the VLCC market.
A wider war with Iran would be negative for most types of ships and for
the oil markets in general. Fewer ships will transit the Straits of
Hormuz, the analyst said.
In the Iran/Iraq tanker war of 1987-1988, US vessels escorted ships
through the Strait of Hormuz by temporarily re-flagging Kuwaiti tankers
under the US flag.
Rates for ships fell overall as tensions pushed up the oil price at the
start of the war, eroding TCE returns and reducing demand for Arabian
barrels.
Today’s events have already led to a higher war risk cost. This will be
borne by most likely the charterer, according to the current war risk
clause wording. However commercial terms will be negotiated on a case by
case basis. Armed guards are also a possibility, which introduces an
additional cost and escalates overall risk.
VesselsValue said that a significant increase in exports from other key
oil producing countries who can provide seaborne trades, would be
expected. For example, Red Sea loadings would increase almost
immediately, as Saudi Arabia would maximise export volumes, which could
be sent through the country’s Red Sea terminals.
US crude exports, which continue to de-bottleneck, would surge upwards
as pricing differentials would encourage more exports, and more West
African barrels would be brought onstream.
Another likely outcome would be an immediate relaxation of Venezuelan
sanctions, which have a more discretionary basis for their
implementation. This could result in the Aframax trade in the Caribbean
seeing a surprise resurgence.
Putting aside other sources of crude oil, Far East countries dominate
the destinations for VLCC cargoes out of the Arabian Gulf.
Oil flows to Asian refiners and India would be disrupted, which would
reduce refinery crack spreads in these countries, discouraging runs.
There would be some demand fall as a result of price increases, but the
markets these refineries support would seek refined products from other
regions, which would benefit US and European refiners who have easier
access to Atlantic Basin trades.
Rising tensions could spur renewed interest in some offshore projects
outside the Arabian Gulf, and producers may seek to optimise production
from offshore locations depending on the severity of the conflict.
Regardless, the increased probability of supply disruptions will push
some towards making positive investment decisions.
The main result of any Arabian Gulf conflict would be higher oil
prices, resulting in lower demand for oil products in the short and
medium term.
Producers outside the Arabian Gulf would see the greatest benefit, particularly in the US, West Africa, and Brazil.
These markets are mainly served by Suezmaxes and Aframaxes, due to port
limitations. VesselsValue concluded its analysis by saying that it
would expect many VLCC ballasters to head to West Africa, Brazil, and
the US Gulf.
Thursday, June 27, 2019
Billionaire Carl Icahn steps up his fight with Occidental over Anadarko deal, wants 4 board seats
Adam Jeffery | CNBC
https://www.cnbc.com/2019/06/27/billionaire-carl-icahn-steps-up-his-fight-with-occidental-over-anadarko-deal-wants-4-board-seats.html
- Carl Icahn ratcheted up his fight with Occidental Petroleum over its pending purchase of rival Anadarko Petroleum by calling for a special shareholder meeting where he hopes to win board seats.
- Icahn said he planned to oust and replace four Occidental directors and change the company’s charter through a stockholder consent solicitation to prevent it from ever engineering a similar takeover again.
- Occidental said it will review the latest materials filed by Icahn, and looks forward to addressing them in ongoing conversations with shareholders.
Billionaire investor Carl Icahn on Wednesday ratcheted up his fight with Occidental Petroleum over its pending purchase of rival Anadarko Petroleum by calling for a special shareholder meeting where he hopes to win board seats.
In
a regulatory filing, Icahn said he planned to oust and replace four
Occidental directors and change the company’s charter through a
stockholder consent solicitation to prevent it from ever engineering a
similar takeover again.
Responding to the filing, Occidental said it will review the latest
materials filed by Icahn, and looks forward to addressing them in
ongoing conversations with shareholders.
Icahn, one of industry’s
most powerful activist investors, cast himself as one of the deal’s most
fervent critics by charging that Occidental’s $38 billion bid for
Anadarko was too expensive and could endanger Occidental’s future if oil
prices sink.
The deal has been approved by the U.S. Federal Trade Commission and is expected to close in the second half of the year.
Icahn’s
move on Wednesday put fresh pressure on Occidental’s management and
Chief Executive Vicki Hollub at a critical time and has sparked
speculation that Occidental may try to settle with him.
“It is
important to add new directors to Occidental’s Board of Directors to
oversee future extraordinary transactions like the Anadarko transaction
and to ensure that they are not consummated without stockholder approval
when appropriate,” Icahn said in a statement to shareholders on Wednesday.
Icahn owned a $1.6 billion stake in Occidental as of May 30.
While
the move was notable, it hardly came as a surprise as Icahn had been
hinting for weeks that he might push for a special meeting where other
shareholders would be able to express their frustration with management.
In
May he sued Occidental in Delaware court, and earlier this week he went
out of his way to criticize the Occidental-Anadarko deal while
discussing the merger of major casino operators Caesars Entertainment and Eldorado Resorts.
“The recent Occidental Petroleum fiasco is a great example of how CEOs
and boards will go to great lengths, including ‘betting the company’ to
serve their own agendas,” Icahn said in a statement about the
Caesars-Eldorado merger. “If their bet is successful, they and possibly
their shareholders win, but if it is unsuccessful, only the shareholders
lose.”
While Icahn has said publicly that the Occidental-Anadarko
deal likely would not be derailed, his filing illustrates how he wants
to make sure that nothing similar happens again.
He said
Occidental lacks effective corporate governance and that its directors
made mistakes in how and at what cost they pursued the acquisition of
Anadarko, according to the filing.
Icahn is calling on the board to set a record date to determine which shareholders could petition to hold a special meeting.
The oil and gas producer’s bid for Anadarko topped one by Chevron and includes a $10 billion financing deal with Warren Buffett’s Berkshire Hathaway.
The
merger of the two U.S. shale producers would increase Occidental’s debt
to around $40 billion. Icahn, in his lawsuit filed in Delaware Court of
Chancery in May, sought access to the oil producer’s financial records
and details of negotiations.
Wednesday, June 26, 2019
Tuesday, June 25, 2019
Top Copper Miner Strike Seen Wiping 10,000 Tons From Market
-
Chuquicamata stoppage enters 12th day as talks remain stalled
-
Workers rejected Codelco’s latest offer in a vote on Saturday
A strike at a major copper mine in the world’s largest producer of
the metal risks wiping out 10,000 metric tons from a market that’s
already expected to end the year in deficit, according to an industry
consultant.
The stoppage at the Chuquicamata mine in northern Chile could cost No. 1 global supplier Codelco
$50 million as it loses production if it lasts two weeks, said Juan
Carlos Guajardo, executive director at Santiago-based consultancy
Plusmining. The strike at the mine, which produced 321,000 tons of copper last year, entered its 12th day on Tuesday with no signs of agreement between the company and unions.
“Codelco
has been quite clear that they are offering the best possible terms for
workers,” Guajardo said in a telephone interview Monday. “And workers
say the only way to end this conflict is not higher bonuses, but equal
conditions between existing and new workers.”
Copper futures rose in New York Tuesday as supply risks mount
at Chile’s state-owned Codelco. The disruption at Chuquicamata, the
company’s third-largest mine, has helped lift the outlook for prices at a
time when supply is already tight, with the International Copper Study
Group forecasting a deficit of 189,000 tons by the end of this year.
BMO
Capital Markets was expecting 3% of global production in the copper
market would be disrupted in 2019, when it calculated its supply and
demand outlook for the year, according to analyst Colin Hamilton. The
Chuquicamata strike adds to production losses earlier in the year,
including rains in northern Chile and stoppages at several smelters in Zambia, shaving about 5% of output so far this year.
“While we have expectations of a prolonged period of trade
friction, copper will struggle to get in the good books of macro asset
allocators,” Hamilton said. “But the deficit the copper market has been
waiting on for years is now here.”
Copper
miners celebrate the rejection of the state-run Codelco Chuquicamata
mine's final offer for a contract at union headquarters in Calama, Chile
on May 29, 2019.
Photographer: Cristobal Olivares/Bloomberg
Talks stalled
No
talks are scheduled between Codelco and Chuquicamata’s Unions 1, 2 and
3, which represent around 3,200 workers at the mine, Liliana Ugarte,
president at Union No. 2, said Tuesday by telephone. Chuquicamata
workers blocked the road that leads to the company’s northern division,
and to Freeport-McMoRan Inc.’s
El Abra mine for a few hours on Tuesday for the second consecutive day
in a protest that delayed workers from reporting to the facility.
A Codelco official declined to comment on the state of
negotiations or the effects of the protests on Monday. While El Abra
operations are running normally, Freeport is monitoring the situation, a
company official said by email Monday.
On Saturday, 55% of workers
voted to reject the company’s latest offer and continue the strike.
Under Chilean labor rules, Codelco can make a new offer on June 28, or
workers can abandon the strike individually from June 29, automatically
accepting a previous offer from the company.
One central issue in
the negotiations is the retirement plans of about 1,700 workers whose
jobs will be cut once the mine transitions from open pit to underground
operations in the next 12 months. Younger workers -- who joined the
company after the last commodities downturn with lower salaries and
fewer benefits -- also want the same package of benefits as experienced
workers.
“When the older workers leave as part of the retirement
plan, it will be the young guys with precarious jobs who will replace
them,” Rolando Milla, president at Union No. 3, said by phone. “The
strike ends with equal conditions for all workers, that’s it.”
— With assistance by Danielle Bochove
Monday, June 24, 2019
Gulf war risk insurance soars
War risk
insurance has soared to around $185,000 for tankers passing through the
Strait of Hormuz area, according to a report from Bloomberg.
This was,due to increased tensions in the Gulf region, following the 13th June attacks on two tankers in the Gulf of Oman.
Following the earlier incidents in May at Fujairah, the war risk insurance had risen to $50,0000 per vessel.
A day after the two recent attacks, Royal Boskalis Westminster was appointed salvor for both vessels.
Shortly after the incidents, the insurers of both vessels appointed
Boskalis subsidiary SMIT Salvage to salvage the vessels and their cargo.
The salvage operations were undertaken in close consultation with the
relevant local authorities, including the Marine Emergency Mutual Aid
Centre (MEMAC).
Frontline said that the ‘Front Altair’s’ crew members had either
returned home or have re-embarked on the vessel to assist with recovery
operations and ship-to-ship transfer of cargo into another Frontline
operated vessel.
The company claimed it was able to deploy emergency responders in a
timely manner, who extinguished the fire on the vessel within hours of
the incident and ensured no pollution resulted.
‘Front Altair’ was in stable condition and anchored off Fujairah.
Following transfer of cargo, the LR2s damage will be further inspected
and the vessel will ultimately be moved to a shipyard for repair.
As previously reported, the possibility that the damage was caused by mechanical or human error has been ruled out completely.
Until further information is received regarding the cause of the
explosion and the security of this important shipping lane is secured,
Frontline will exercise extreme caution when considering new contracts
in the region and will consider all possible measures to insure the
safety of our crews and vessels operating in the area, the company
emphasised.
The other vessel involved in the alleged attacked, the ‘Kokuka
Courageous’ was also towed to Fujairah Anchorage. Her crew were reported
to be safe.
Meanwhile, VLCC spot freight rates between the Arabian Gulf and China
rose 101% in the days between 13th and 20th June 2019, in the aftermath
of the attacks, BIMCO’s Peter Sand said.
Spot freight rates for a VLCC reached $25,994 per day on 20th June, the
highest level since March and significantly above the May average of
$9,979 per day.
Despite this increase, rates on this route only narrowly exceeded the
daily breakeven costs of a VLCC, which on average amounts to $25,000 per
day.
Measured against global oil demand, around a fifth of global oil
consumption sails through the Strait of Hormuz, making the strait a
critical choke point for global energy markets, Sand said.
Taking into consideration seaborne transportation of crude oil, the
19.7 mill barrels per day transiting Hormuz represents 49% of the 40.5
mill barrels shipped in total - source: Clarksons Research.
Although spot freight rates for crude oil tankers ex Arabian Gulf have
risen sharply, rates for LR2s carrying clean oil products, such as
naphtha, remained much more stable. For example, spot freight rates for
an LR2 carrying 500,000 barrels of naphtha condensate from the Middle
East Gulf to Japan, rose by only 4% between the dates since the attack.
“The unchanged rates for oil product tankers compared with the jump in
freight rates for crude oil tankers, illustrate the differences between
the two market as well as the effects of sentiment on crude oil freight
rates,” Sand said. “The vast majority of tanker owners are more or less
going about with business as usual, although they have ratcheted up
their safety and security precautions when trading their ships in the
Arabian Gulf.”
These additional measures include speeding up while sailing through the
Strait of Hormuz, as well as avoiding sailing through it at night when
watchkeeping becomes more difficult.
The added costs of safety measures as well as higher insurance
premiums, which rose sharply following the news of the attacks, meant
that shipowners will not only face higher risks but also higher costs
when trading in the region.
“To avoid major disruption, it is vital for global energy trade that
the Strait of Hormuz remains accessible and safe for ships to sail
through. As long as tensions aren’t escalated the attacks are unlikely
to have a more profound effect. However, the risks that the conflict
will escalate remains very present and a great worry to everyone
involved with oil trading in the region,” Sand added.
BIMCO has urged all nations to do what they can to de-escalate the
situation and allow ships to pass safely through the Strait of Hormuz.
Friday, June 21, 2019
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