OPEC’s decision to keep oil output steady bodes well for tanker demand

Middle East crude oil production is set to keep up pace with the tanker market, boding well for future demand. OPEC’s latest round of discussions ended with the decision to maintain crude oil production, something expected by most pundits and analysts. The production target of 30 million b/d, as shipbroker Gibson noted in its latest report, “failed to garner much of a market reaction and was largely perceived as little more than a token gesture to Iran, one of the most vocal opponents of the de facto strategy of defending market share at the expense of prices. The group has not adhered to is production target for the past 12 months and few expect that to change any time soon. It therefore seems apparent that OPEC Middle East crude production – a key driver of crude tanker demand, will remain robust for the balance of 2015 at least” said the London-based shipbroker.

It added that “despite Iran’s stance on OPEC’s emergent strategy, its ministers have been clear that Iran intends to restore exports to pre sanction levels if restrictions are successfully lifted. Iranian ministers have confidently expressed that production could increase by 500,000 b/d soon after sanctions are unwound and by another 500,000 b/d within 6 months. Whilst some market participants believe Iran is overstating its capabilities, the approx. 38 million barrels of Iranian oil in floating storage, in addition to shore based stocks could quickly add supply to the market. Nevertheless talks between the West and Iran are due to conclude this month, increasing the prospect of more Iranian barrels, even if the absolute volumes are questionable. Even if these barrels do materialise, there is little indication that other OPEC members would be prepared to sacrifice their own share in order to accommodate Iran’s ambitions”.

According to Gibson, “Iraq too has aspirations to increase exports despite continued turmoil in the country. Having recently split Basrah Light into two grades in order to stabilise quality, Iraq now has more flexibility to boost production and exports of Basrah Heavy. However logistical problems remain. Loading delays continue to persist and Basrah now requires tankers loading heavy crude to carry cranes with a minimum safe working load (SWL) of 20 tonnes, ruling out around three quarters of the trading Suezmax fleet from loading the heavier grade, allowing suitable vessels to command premiums”.

“Ultimately there is more Middle East OPEC crude in the pipeline, although barriers, whether political, logistical or seasonal remain. Taking Iran out of the equation, higher OPEC production over the coming months may not translate into higher tanker demand as domestic air conditioning use peaks throughout the summer months whilst the Yanbu and Ruwais refineries also continue to consume regional supplies. However, global oil demand is rising faster than initially anticipated with the IEA’s latest report projecting 2015 demand growth of 1.4 million b/d, double the growth witnessed in 2014, providing a further incentive for OPEC members to continue to produce and subsequently supporting tanker earnings for the balance of 2015”, Gibson concluded in its report.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson noted that “VLCC Charterers wasted no time in driving through the remainder of the relatively swollen June programme – a volume that would, ordinarily, have allowed for a market push but with availability always ‘easy’ enough to prevent any pinch-points, Owners failed to budge rates from their previous low ws 60 East, mid ws 30s West, mark, and they’ll be hoping for a bright start to the July campaign to give them another opportunity. With Ramadan commencing late next week, however, that is far from a certainty. Suezmaxes failed to maintain the highs of last week upon a less frenetic pace ,and adequate availability. Rates tracked lower to mid ws
80s East and the mid ws 40s to the West accordingly, and will continue rather flatline for the near term, at least. Aframaxes kept their 80,000 by ws 140 plate spinning to Singapore, but levels of enquiry fell short of providing enough juice to fire rates to new highs, and that should remain the case into next week too”.

Similarly, in the North Sea, the shipbroker noted that “as in the Med – Aframaxes commenced proceedings in lively form, with appropriately spiky rates, but then Charterers held back and the inevitable correction got underway. 80,000 cross UKCont now eases to ws 130 with 100,000 by ws 110 available X-Baltic, and further deterioration is anticipated for next week. Suezmaxes enjoyed a rare burst of fuel oil activity transatlantic, but the going 135,000 by ws 67.5 for those runs was hardly anything to shout about. VLCCs in the area got the odd knock for crude oil bbls from Hound Point to South Korea at rates of up to $7.65 million, but the fuel oil ‘Arb’ remained tightly shut to Singapore – bids at $4.5 million against offers of no less than $6.00 million…no dice”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide