US crude oil exports to the Mediterranean and West European countries have dragged down Aframax rates in these areas, seriously hurting the earnings of shipowners in what was earlier one of their most remunerative regions of deployment, a senior research analyst at EA Gibson Shipbrokers said Tuesday.
Many research models on US crude exports are based on VLCCs, but interestingly, trading patterns are pushing Aframaxes from the Caribbean region to Europe, resulting in excess supply at the destination and dragging down freight rates and earnings, Richard Matthews, head of research at EA Gibson Shipbrokers said at the Enmore Oil Tanker Shipping Summit in Beijing.
“At this time of the year, Aframax owners in the Mediterranean can earn between $20,000-$30,000/day without even trying, and now, they are earning next to nothing,” Matthews said.
US crude exports have increased by nearly 1 million b/d since the first quarter of last year and not all of these volumes moved on VLCCs, he said.
“When Russia cut its crude exports by nearly 250,000 b/d under its pact with OPEC, Aframaxes were the biggest losers,” he noted.
ESPO pipeline crude flows into China have also increased by over 200,000 b/d, threatening demand for tankers, he added. Most ESPO crude loadings from Russia’s Kozmino port take place in Aframaxes.
Short-haul crude trade into the US is also declining, mainly due to falling shipments from Latin America, in particular Venezuela, he noted.
VLCC FLEET GROWS; EATS INTO PRODUCT TANKER DEMAND
In each of the last there years, around 50 or more VLCCs are being delivered into the global fleet and have distorted the balance of demand and supply, Matthews said.
The deliveries may be slightly less in 2018 due to slippage, but eventually these ships will be added into the fleet and the ordering of tankers this year is focused on VLCCs, with the sector’s orderbook at a 2-year high and at a risk of overinvestment, he said.
Last year, the global tanker fleet grew by more than 4.5% while the growth witnessed by the VLCC segment was almost 7%.
Fresh out of shipyards, these supertankers pick up gasoil from North Asia for delivery into Africa or Europe, thereby eating into the demand for clean product tankers.
“When a VLCC does so, it sniffs out the demand equivalent to seven or eight MRs in East Asia and also the potential requirement of the same number of MRs in the west. It is a double negative for product tankers,” Matthews noted.
He said that VLCCs delivering gasoil from South Korea to Europe are hindering the prospects of MRs doing it from the US to the same destinations.
In recent years, Latin America, Mexico and West Africa were driving demand for US clean products, but now greater refinery runs in Mexico and high floating storage of stocks off West Africa have hit trade flows.
NIGERIA REFINERY MAY HIT TRADE
The private Dangote Lekki refinery coming up near Lagos, if successful, can not only hit demand for moving clean products into West Africa but also drag down the country’s crude exports by over half a million b/d, Matthews said.
It will have 650,000 b/d capacity and is aiming to be operational next year. Nigeria’s state-run refineries have a poor track record, with some having a capacity utilization of less than a third but many analysts expect this integrated refinery and petrochemical complex in the Lekki Free Trade Zone near Lagos to be a game changer.
Clean tankers move large volumes of products from the Persian Gulf to West Africa and this can potentially come to a near halt.
Lower earnings, a decline in tanker usage for floating storage and a rise in scrap prices have supported scrapping activity.
Mandatory regulatory norms such as ballast water management, bunker specifications and an aging fleet will accelerate demolition, and scrapping is expected to peak around 2022, Matthews said.
“Fleet growth is constrained by higher scrapping and delayed deliveries,” he said.
To adhere to the new sulfur emission norms that will be implemented from 2020, many owners are now ordering ships with scrubbers installed, but it may not be economical to do it among the much older ships, which will eventually be scrapped.
The current premium that marine gasoil, or MGO, commands over high sulfur fuel oil may widen further, he said.
In 2020, a surge is likely in gasoil demand. The demand for VLSFO, or Very Low Sulfur Fuel Oil and MGO may rise by 1 million b/d each at the expense of HSFO, he added.
However, the International Energy Agency has estimated that the demand will thereafter swing from MGO to VLSFO as new desulfurization capacity comes on stream.
Source: PlattsPrevious Next