The bigger the ship, the bigger the problem. Aframaxes and Suezmaxes typically have more opportunities to cut ballast legs by triangulation than VLCCs.
The relentless shift of crude oil movements from the Atlantic to the Pacific Basin has increased the imbalances over time.
One of the areas where this ‘problem’ manifests itself is the US Gulf. And the recent OPEC decision to cut production and reduce VLCC shipments to the US could make this situation worse, but also help the VLCC market at the same time.
The rapid growth of US crude oil production and exports has, especially since early 2017, coincided with an increased use of VLCCs to move the oil out of the Gulf of Mexico.
In 2016, (the first year after the US crude oil export ban was lifted), only nine VLCC cargoes were exported from the US Gulf - less than one per month. In 2017, this number increased more than six-fold to 59. So far this year, VLCC exports out of the US Gulf have doubled again, totalling 116 cargoes, or more than 10 cargoes per month.
The rapid growth in US exports has made the Atlantic Coast of the Americas (which also includes Venezuela, Brazil and Mexico) the second largest VLCC loading area in 2018, after the Middle East, but overtaking West Africa.
The vast majority of VLCCs in the US Gulf are loaded using reverse lightering. This is a time consuming loading process, so the real VLCC utilisation in the region is probably underestimated based on these numbers.
Based on the latest APEX trade statistics, about 85% of VLCC voyages end up in Asia (including the West Coast of the Americas). Only 8% of VLCCs discharge in
the Atlantic Basin, equivalent to about 27 vessels per month. This compares to 78 vessels that load in the same area in an average month.
This shows a significant imbalance in the VLCC market, ie many ballasters have to be repositioned from the Pacific to the Atlantic. This is nothing new, VLCCs have ballasted from the Far East back to the Middle East or West Africa for many years.
However, with the growth in Atlantic Basin crude oil production, in particular from the US Gulf, the distances that the vessels need to ballast to get back to a loading area have increased substantially.
It is less than 6,000 miles to get back to the Middle East from China. Ballasting back to West Africa is slightly more than 10,000 miles but repositioning a light VLCC from China to the US Gulf is a substantial 15,000 miles.
These distances are important against the backdrop of the impending OPEC cuts. During the previous round of production cuts, Saudi Arabia disproportionately reduced its exports to the US, to reduce the highly visible and widely followed US inventories and boost oil prices.
US imports from Saudi Arabia fell from an average of 1.1 mill barrels per day in 2016 to around 600,000 in October, 2017. This reduction of 500,000 barrels per day is equivalent to 7.5 VLCCs less per month coming to the US. Since then, Saudi exports to the US have recovered to their previous levels.
If the Saudis take the same approach this time, they will again reduce the VLCC availability in an area that is already structurally short. Add to this the expectation that US production (and exports) will grow by some 1 mill barrels per in 2019 and we can see the shortage of VLCCs in the Atlantic Basin increase further.
This imbalance can only be resolved by ballasting vessels 15,000 miles from the Pacific, because this is the only area with a surplus of tonnage.
While this development may not drive the tanker market by itself, it is a factor that needs to be considered and will provide some support for VLCC rates in the wake of the OPEC cuts, Poten concluded.