Markets - Crude rates crashing as OPEC extends cuts

Dec 01 2017

On Thursday, OPEC and Russia agreed to extend their production cuts to the end of next year.

According to a Reuters report, Asian refiners lost no time in reacting to this decision by ordering more oil from the Caribbean and Gulf of Mexico.


Despite the cuts, oil supplies remain ample.


Before the official announcement on Thursday to extend the cuts, refiners in Asia, the world’s biggest consumer region, had already put out enquiries for oil cargoes from the Gulf of Mexico and the Caribbean, particularly from the US, Mexico, Venezuela and Colombia, tanker operators told the newswire.


This move should increase tonne/miles, thus helping a beleaguered crude tanker market. 


As for the market, Fearnleys reported mid-week that after a slow week for VLCCs, there was a build up of tonnage in most loading areas, while a lack of cargoes continued to affect rates, which softened.


Older ships continued to have a dampening effect on MEG/East, which also played on rates for modern tonnage, which dipped to below WS60.


Wafr/East came off its peak but appeared to be stable at mid WS60’s. More tonnage in the Caribs and slower activity also pushed rates lower.


The past week for was a continuing battle for Suezmax owners. There was a high availability of tonnage in the west, however, the owners’ sentiment was bullish and they managed to achieve a few extra points during the week with TD20 reaching WS82.5.


Elsewhere, in the Black Sea, the Turkish Straits delays were fairly steady and not overtly affecting freight rates as levels settled at the WS85 mark.


Fixing activity increased, as this week progressed but it is going to take a combination of factors, including weather delays and replacement deals, for the market to see any decent improvement, Fearnleys said.


Last week, the North Sea and Baltic seemed able to provide a stable flow of cargoes going into December. Unfortunately, this has not been the case this week, as  tonnage came free. Consequently, the Baltic market dropped WS10 points off last done levels.


In the Med and Black Sea, the market was heading towards new lows this week.


Even though the activity seen during the last couple of weeks was good, the amount of tonnage in the area is growing.


Owners had decided that Black Sea/Med was the place to be for the winter months with delays in Turkish straits, etc, but with the amount of ships now seen, there is no chance for a market recovery, Fearnleys said.


Caribs is the only Aframax market seeing decent returns at the time of writing (Wednesday) but the volatility prevented owners from ballasting to the area, the broker concluded.


Meanwhile, South Korea’s overall petroleum product demand saw remarkable growth in October, rising by 0.5% month-on-month and 3.8% year-on-year to an eight-month high of 2.58 mill barrels per day, Ocean Freight Exchange (OFE) said.


Demand growth was largely led by naphtha, which surged by 16.1% year-on-year. Booming petrochemical demand drove naphtha demand to an all-time high of 1.32 mill barrels per day, as high prices rendered LPG an uneconomical feedstock.


Steam crackers had no alternative but to maximise naphtha consumption. In order to meet the increased demand, South Korea’s naphtha imports surged by 26% year-on-year to 452,700 barrels per day.


In contrast, LPG consumption continued to decline by 12.6% year-on-year to 283,000 barrels per day.


OFE said it expected the strength in naphtha demand to be sustained throughout 1Q18, as firm winter heating demand underpins LPG prices.


Fuel oil demand in South Korea plunged by 33.6% year-on-year to 74,000 barrels per day in October, as fuel oil continued to overtaken by increased nuclear and coal capacity for power generation. However, net fuel oil imports in South Korea grew by 39.9% year-on-year, as plummeting production outweighed demand.


Winter power generation demand and nuclear reactor outages are likely to lend some incremental demand to South Korea’s fuel oil consumption and imports in the coming months. Kowepo and Korea East-West Power recently tendered for a 45,000 tonne and 40,000 tonne high sulfur fuel oil cargo, respectively for December delivery, marking their first spot purchases since July, OFE concluded.


The newbuilding sector has seen an upturn recently, according to broking reports and company announcements.


For example, Teekay Offshore Partners confirmed that it had declared options with Samsung Heavy Industries to build another two, Suezmax-sized, DP2 shuttle tankers for a total fully all up cost of around $265 mill.


These newbuildings will be constructed based on the Partnership’s new ‘Shuttle Spirit’ design, which incorporates proven technologies to increase fuel efficiency and reduce emissions, including LNG propulsion technology.


Upon delivery in 2020, these vessels will join Teekay Offshore’s CoA fleet in the North Sea.


Brokers reported that Sovcomflot (SCF) has also added two more LNG-fuelled Aframaxes at Hyundai Samho, which were originally under option.


They are priced at around $60 mill each, will be dual-fuelled and Ice Class 1A. They are due to be delivered in 2019.


In March this year, SCF ordered four 114,000 dwt Ice Class IA Aframaxes at the South Korean yard in a $240 mill deal.


Once delivered, the ships will be chartered to Shell.


Hyundai was also believed to have booked two, option two, VLCCs from Greek interests for around $80-$82 mill each.


Deliveries are scheduled for 2019-2020 and the contract was believed subject to the signing of long term charters.


Hyundai was also believed to have won an order for another two VLCCs from local interests for around the same price level.


Thenamaris was reported to have added to its orderbook by contracting two Aframaxes at Sumitomo for about $45 mill each, while undisclosed Norwegian interests were believed to have ordered two Tier II Aframaxes at Daehan for around $44.5 mill.


Pantheon Tankers was said to have concluded two, option two, MRs at STX for $33 mill each. A letter of intent was said to have been signed in August, 17.


At the smaller end of the market, Ocean Tankers was reported to have ordered six, plus four optional 11,000 dwt chemical tankers at Fujian Mawei Shipbuilding.


Local South Korean news agencies have reported that STX Offshore and Shipbuilding’s main creditor, Korea Development Bank (KDB), has issued refund guarantees for eight newbuilding orders secured earlier this year.


The guarantees related to two MRs ordered by Greek owner Oceangold Tankers,  two 11,200 dwt tankers ordered by Woolim Shipping and the four 50,000 dwt product tankers ordered by Pantheon Tankers.


KDB reportedly said the guarantees will be provided in exchange for the completion of STX’s restructuring, which needs to include a 30% cut in fixed costs, the Korean Pulse reported.


Elsewhere, TOP Ships announced that it has acquired all of the outstanding shares of PCH77 Shipping Co, a Marshall Islands company that owns a newbuilding contract for ‘Eco California’, a high specification MR under construction at Hyundai Mipo Dockyard.


The shares were purchased from an affiliate belonging to chairman and CEO, Evangelos Pistiolis. The company paid $3.6 mill for the outstanding shares and the vessel is scheduled for delivery in January, 2019.


Upon its delivery, she will be timechartered to an oil major for two years with a charterer’s option to extend for another year. The charter rate consists of a fixed amount per day plus a 50% profit share for earned rates over the fixed amount.


Top Ships said it expected a total gross revenue backlog associated with this timecharter of $15.1 mill, including the optional period but excluding any gain from the profit share arrangement.


In the S&P sector, DHT Holdings said that it has agreed to sell its three oldest VLCCs; ‘DHT Utah’ and ‘DHT Utik’, both built 2001 and ‘DHT Eagle’ built 2002 to one buyer, believed to be Ridgebury, for a total price of $66.5 mill.


About $33.5 mill of bank debt will be repaid in connection with the sale of the three vessels.


DHT said that it expected to deliver the ‘DHT Utah’ and ‘DHT Eagle’ to their new owner before end of 2017 and the ‘DHT Utik’ in January, 2018. The Company will record a book loss of about $3.5 mill in the fourth quarter of 2017 in connection with the sale. 


Another VLCC sale confirmed was that of Euronav’s oldest vessel, the 2001-built ‘Artois’.


The vessel was also believed bought by Ridgebury for $22 mill and she will be delivered early this month. Euronav said that it will make a capital gain of around $7.7 mill on the sale.


In addition, Euronav confirmed this week that it had sold the 1998-built Suezmax ‘Cap Georges’ for $9.3 mill (see news 17th November).


The vessel has now been delivered to her new owners. Euronav said that it will record a capital gain of around $8.5 mill from the sale in the current quarter.


In the MR segment, d’Amico Tankers has signed a memorandum of agreement to sell  the 2005-built ‘High Presence’ for $14.14 mill.


This transaction will generate a positive cash effect, net of the reimbursement of the vessel’s existing bank loan, of around $7.2 mill for d’Amico Tankers. In addition, the company will retain the commercial control of the vessel, having also concluded with the buyer a six-year timecharter at a competitive rate.


Other deals reported by brokers included Eurotankers purchase of the 2004-built Suezmax ‘Teide Spirit’ for $18.8 mill. This deal was said to still on subjects.


A couple of US-controlled 2004-built MRs were believed to have changed hands. The ‘Seaways Andromar’ was thought purchased by Genoa Maritime for $11.2 mill, while the ‘Overseas Ariadmar’ was believed purchased by Greek interests for $8.3 mill.


Indian interests identified as Palonji was said to have committed $22.2 mill for the 2011-built MR ‘Caletta’.


In the charter market, Navig8 was said to have fixed the 2017-built Aframax ‘Victory Venture’ for 12 months at $17,000 per day, while Statoil was said to have taken the 2016-built LR2 ‘Lyric Magnolia’ for six months at $17,750 per day. 


The latest crop of MR fixtures reported were in the range of $13,500-$14,750 per day for 12 month periods. 


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October 2018

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