Shifting products dynamics

Dec 15 2017


For many years, the main driver behind the Atlantic product tanker market was gasoline trade into the US.

When the gasoline arb opened, freight rates on the UK/Continent to US Atlantic Coast (TC2) route usually spiked. However, in recent years, the surge in refinery output in the US and higher stocks has seen import demand drop, Gibson said in a report. 

 

The volatility induced by TC2 has been limited, with arbitrage opportunities few and far between, and primarily created by freak events, such as pipeline outages or extreme weather. Thus shipowners have had to look elsewhere for signs of demand growth in the Atlantic.

 

Refined product imports into West Africa have evolved into one of the key drivers behind the product tanker market and at times, a significant generator of freight volatility.

 

A spike in freight costs back in March and April this year was primarily driven by a surge in import demand into West Africa, whilst similarly, the spike seen a couple of weeks ago was primarily driven by high demand for gasoline in Nigeria ahead of Christmas.

 

A similar story was seen in December, 2016 with surging gasoline demand being observed in the country ahead of the holiday period. Demand into the region may have now eased off, following heavy fixture activity in recent weeks, but could soon re-emerge, particularly considering recent consumer panic buying and expected high consumption over the festive period.

 

Moving further forward, refined product imports into West Africa is set to grow. Outright oil demand in the region is growing, whilst refining capacity additions remain distant.

 

The biggest threat to product import demand growth remains the building of the 650,000 barrels per day Dangote refinery near Lagos. Construction work is underway with an official completion date set for 2019.

 

However, the impact on the tanker sector is expected later. Some reports suggest that the swampy ground is still being prepared in many areas of the site, despite some construction (storage tanks) already being evident.

 

At this point in time, 2019 might seem overly optimistic, with any major impact on the markets likely to be a few years later. Key challenges will have to be overcome, with state controlled refining in Nigeria not having the best track record. That being said, Dangote, Africa’s richest man has a proven record in other industrial projects, Gibson said.

 

In the medium term, shipowners can expect to see continued West African demand, whilst at times, seasonal trends and erratic demand is likely to support freight volatility, with the run up to the holiday period and end of the first quarter often being key periods.

 

In the longer term, the threat of expanding refining capacity may pressure regional product tanker demand but now it remains unclear as to when such capacity will come online, Gibson concluded.

 



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Apr 2018

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