It''s all about tonne/miles

Aug 09 2013


Crude and residual trade requirements fell at the start of this year as tonne/mile demand was pressured by elevated refinery maintenance across the globe that reduced feedstock demand, McQuilling Services said in a review of the first half of 2013.

This, combined with tanker exits slowing to a crawl since the beginning of this year, magnified the excess availability of tonnage, holding rates down. Clean product trades were supported at the start of the year by these market imbalances, resulting in higher tonne/mile demand.

As a result of these activities, tonne/mile demand for dirty tankers contracted by 4% in 1H13 compared to 1H12 - tonne/mile demand in the VLCC sector narrowed by 7%. This was further exacerbated by growth in non-OPEC production, in particular in the US, as imports fell during 1H13 to the lowest levels since 1996.

In the other sectors, Suezmax tonne/mile demand fell by 2%, Aframax by 2% and Panamax demand was flat.

However, these product imbalances supported CPP tonne/mile demand, which was up by 4% during 1H13. The strongest increases were in the larger tankers, as LR2 and LR1 demand increased by about 10%, while MR2 demand grew by 2% and MR1 activity remained level.

In the MR sector, vessels on the Continent/USAC route traded at an average high of WS 171 in February. Since the start of summer driving season, however, rates fell away and in June traded at an average of WS 118, down 53 WS points from their peak.

The economic environment is showing some signs of rebalancing with China, which has been the engine of the global economy in recent years, starting to face the reality that its model must evolve. The US will be at the centre of global economic focus, as market participants will monitor the actions of the Federal Reserve (Fed) and react to its decisions, McQuilling said.

The Fed recently announced that they would not change their current course monetary policy, if market conditions are not conducive.

Since the start of 2013, the story that has dominated the oil market is North American crude oil production.

The sustained high level of crude oil prices provided support to the upstream investment climate resulting in US crude oil production rebounding sharply from the low in 2008 of 5 mill barrels per day to just over 7.5 mill barrels per day in May of this year, according to data from the US Energy Information Administration (EIA).

This production growth has been driven by the unlocking of shale oil deposits in the Bakken field play in North Dakota and the Eagle Ford play in Texas. Total year-to-date production in these states is up by 55,000 barrels per day to roughly 790,000 barrels per day and by 135,000 barrels per day to almost 2.5 mill barrels per day, respectively.

Regarding oil consumption, the International Energy Agency (IEA) expects that global demand will rise by 930,000 barrels per day to 90.7 mill barrels per day in 2013. This is an upward revision from previous estimates due to increased heating demand in OECD nations during 2Q13.

The IEA expects 2014 oil demand growth to be 1.2 mill barrels per day. Non- OECD nations will continue providing the most contribution to consumption increases, but an improving outlook for the US economy will also provide support.

Asset values remain low on the back of the weak spot market and restricted availability of financing. Newbuilding prices for all sectors had been on a steady decline since the start of 2011, but started to move sideways in 2012 and, in some cases, through 2013, McQuilling said.

Despite the weak spot market and owners’ anorexic appetite for new vessel orders, the floor was laid on the back of shipyard overheads and demand for other vessel types.

Orders for clean tankers have yet to show a meaningful slowdown and rates have posted a clear downward trend.

However, the exception to this trend is MR2 ordering activity, which is being fueled by optimism that the location of new downstream infrastructure projects will support tonne/mile demand.

As a result of these activities, McQuilling has slightly reduced its 2013 outlook for crude and residual product tankers, due to a delayed recovery and give a small boost to Atlantic Basin spot rates for clean petroleum tankers.

“We maintain our opinion that the clean petroleum products (CPP) segment is likely to face an over-abundance of supply in the medium term, while upward potential exists in dirty petroleum products (DPP) trades,” the consultancy said in its report.

Throughout the forecast period, TD3 is projected to average $20,900 per day as fundamentals gradually improve. In the clean trades, TC2 should average just shy of $10,000 per day, then going gently downward, as deliveries pressure fundamentals, in particular after 2015, McQuilling concluded.

 

 

 



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