Short-term tanker demand boost come 2020

Oct 05 2018


OPEC analysts were relatively optimistic about the prospects of long-term crude oil demand, despite its own crude coming under pressure during the next five years, due to surging US supplies.

In a 400-page report, ‘World Oil Outlook’, the organisation looked at global oil demand through 2040.

In an analysis of the report by Poten & Partners, a wide variety of topics were included, for example, regional shifts in GDP and population growth, the changing competitiveness of the various fossil fuels - natural gas, coal and oil- relative to each other and compared to renewables.

The report also talked about the impact of energy policies and new technologies, including developments in tight oil.

Poten focused on several shorter-term developments related to the implementation of the IMO 2020 regulations, which may impact oil demand, trade flows and tanker demand in the next two to three years.

The change to 0.5% low sulfur fuel is expected to be disruptive to both the shipping and refining sectors and OPEC said it will have a noticeable impact on crude runs.

In a reference case, OPEC assumed that about 70% of shipowners will comply with the new rules (ie, have scrubbers, switch to low sulfur bunkers, or other compliant fuels).

However, despite the IMO’s efforts to enforce the regulation, OPEC expects that there will be a significant level (up to 30%) of non-compliance, especially in the early  years.

The relatively low level of scrubber take-up, as well as the potential lack of compliant fuel were cited as the main reasons.

Overall, OPEC was bullish about scrubbers. The report said that scrubber installations should accelerate after a slow start.

This year started with less than 500 vessels opting to install scrubbers. By 2020,

OPEC expects this number to reach 2,000, growing to 4,500 –5,000 vessels in the medium term.

This scenario implies that, while the use of low sulfur fuel oil (LSFO) and gasoil will initially jump in 2020, the increased in on board scrubber installations will support the continued use of high sulfur fuel oil (HSFO) over time, Poten said.

The report correctly pointed out that there was a lot of uncertainty surrounding the bunker fuel mix. As a result, the global refining industry seemed reluctant to make significant investments to make more compliant fuels available. Refiners will wait and see how the situation develops, OPEC said.

Sophisticated refiners do have some flexibility to allow them change yields to maximise their output of middle distillates and LSFO. However, they will probably switch based on economic incentives and de-facto demand, rather than by anticipating uncertain future demand.

The potential implications leading up to 2020 could be positive for the tanker market.

Prices of medium and heavy sour crudes will come under pressure, while light sweet crudes will attract premiums.

According to OPEC, this means that we may see more imports of medium and heavy sour crudes from Latin America and the Middle East into North America, where highly complex refiners can take advantage of this cheaper feedstock.

At the same time, the light sweet crudes produced in the US will attract a premium in the export market.

A combination of more crude oil imports and exports involving North America will be good for the tanker market. And the shift from high sulfur crudes to low sulfur crudes and vice versa will not be limited to North America.

In addition to increasing trade flows, due to the differences in crude oil qualities, OPEC also forecast a (temporary) boost in crude oil demand of 0.4 mill barrels per day in 2020 as a direct result of the IMO sulfur regulations, as additional refinery runs will be needed to meet the demand for additional compliant fuels.

If OPEC’s scenario plays out, this is good news for tanker owners.

However, it is important to caution against too much optimism. This 400,000 barrels per day increase is based on a lot of assumptions and, even if they all fall into place, it can be neutralised if owners order just 10 additional VLCCs, Poten warned.

****China’s Sinopec Corp is cutting Iranian crude imports by around 50%, as the Chinese state refiner comes under intense pressure from Washington to comply with the US ban on Iranian oil from November, according to newswires.

Based on the prevailing supply contract between the Chinese refiner and the National Iranian Oil Company (NIOC), loadings could be reduced to about 130,000 barrels per day.

This would amount to 20% of China’s average daily imports from Iran last year.

 

 



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Sept 2018

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