Tanker Market Outlook April 2018

Transcription

1 Tanker ket Outlook il 218

2 Global Presence 16 staff in strategic locations LONDON HOUSTON BEIJING HONG KONG SINGAPORE Tanker ket Outlook il 218 2

3 218: Bottom of the crude tanker cycle? OPEC/non-OPEC production cuts, backwardation, high fleet growth throughout 217 weighing on earnings. 218 growth being tempered by scrapping in Q1. However, steady world oil demand growth, rising output from outside OPEC will support earnings from 219. OPEC production cuts to eventually be scaled back. New regulations support scrapping from 22 (sulphur limits and ballast water treatment). 22 will encourage new trade flows higher demand for sweet crude, supporting West East flows. Overinvestment in new tonnage remains a risk to the recovery in earnings. Expanding refining capacity in the Middle East and Africa poses a threat to exports from those regions. Outlook for Spot Crude Tanker Earnings Round voyage basis at market speed $/day VLCC Mid East-Japan Aframax NW Europe Suezmax W.Africa-UKC However, this is roughly offset by Asian additions, supporting trading demand. Tanker ket Outlook il

4 218: Bottom of the clean tanker cycle? Fleet growth continues to weigh on earnings, yet deliveries have slowed in the MR sector. In recent years, high levels of land based product stocks and few new export refinery projects have limited demand growth. Middle East refinery maintenance saw a weak start to Q1, but the market should improve as maintenance programs conclude by il. WAF and Latin American demand have emerged as main drivers in the Atlantic. Outlook for Spot Product Tanker Earnings Round voyage basis $/day LR2 Mid East-Japan MR Average East/West LR1 Mid East-Japan Chinese exports have emerged as a key demand driver in the East. Newbuild crude tankers continue to compete with the clean tanker market. 1 5 *MR Earnings incorporate assumptions on triangulation Tanker ket Outlook il 218 4

5 Time charter rates have adjusted in line with the spot market Short term rates have fallen below that of longer term rates as the spot market weakens. 1 Year TC Rates $/day VLCC - 1 year Suezmax - 1 year Aframax - 1 year LR2-1 year LR1-1 year MR2-1 year 3 Year TC Rates $/day 45 VLCC - 3 years Aframax - 3 years LR1-3 years Suezmax - 3 years LR2-3 years MR2-3 years Tanker ket Outlook il 218 5

6 jan.14 mar.14 mai.14 jul.14 sep.14 nov.14 jan.15 mar.15 mai.15 jul.15 sep.15 nov.15 jan.16 mar.16 mai.16 jul.16 sep.16 nov.16 jan.17 mar.17 mai.17 jul.17 sep.17 nov.17 jan.18 mar.18 jan.14 mar.14 mai.14 jul.14 sep.14 nov.14 jan.15 mar.15 mai.15 jul.15 sep.15 nov.15 jan.16 mar.16 mai.16 jul.16 sep.16 nov.16 jan.17 mar.17 mai.17 jul.17 sep.17 nov.17 jan.18 mar.18 Newbuild and scrap values have edged higher More interest in newbuilds with forward delivery has supported newbuild prices. Higher scrap prices have supported demolition. VLCC Newbuild and Secondhand Prices MR Newbuild and Secondhand Prices $m 12 Newbuild (Korea) 5 Year Old 1 Year Old $m 4 Newbuild MR 5 Year Old MR 1 Year Old Price Tanker ket Outlook il 218 6

7 Supply Developments Tanker ket Outlook il 218 7

8 High deliveries provide downside pressure into 218 Slippage is likely to push a number of deliveries into 219 Scheduled Tanker Deliveries New Tanker Orders No. No. 4 7 MR/Handy LR1/Panamax LR2/Aframax VLCC Suezmax 53 Suezmax VLCC 9 LR2/Aframax LR1/Panamax 35 MR/Handy Tanker ket Outlook il 218 8

9 However scrapping activity has increased A weak spot market, reduced floating storage and higher scrap prices have supported scrapping activity. Regulatory pressures (e.g. ballast water management, bunker spec) and an aging fleet are likely to lead to a further increase in demolition in 22 and beyond. Tanker Scrap Prices USD/LDT 55 5 Tanker Scrapping Forecast Tanker ket Outlook il No VLCC Suezmax LR2 / Aframax LR1 / Panamax Handy / MR

10 Tanker Fleet Age Profile The tanker fleet is young, with over 8% less than 15 years of age; the LR1/Panamax size group has the youngest fleet. However, the global fleet is starting to age, with around 25% between 11 and 15 years of age. Tanker Fleet Age Profile VLCC 24% 37% 2% 17% 2% -5 yrs Suezmax 24% 33% 22% 17% 4% 6-1 yrs LR2/Aframax 19% 34% 3% 13% 4% yrs LR1/Panamax 14% 35% 43% 8% 1% 16-2 yrs MR 27% 32% 28% 8% 4% yrs Handy 12% 23% 38% 19% 4% 3% 26+ yrs % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 % 1 % Tanker ket Outlook il 218 1

11 Tanker Fleet Developments Basis annual average fleet size in each year No. 6 % 6% Fleet (Based on ASSUMED Cancellations) % change 5 4 6% 4% 3% 2% 1% 3% 4% 5% 2% 2% 2% 2% 2% 5% 4% 3 3% % 1 1% % Takes account of forecasted deliveries, scrapping and ordering activity Tanker ket Outlook il

12 Crude Tanker Demand Tanker ket Outlook il

13 jan.8 jul.8 jan.9 jul.9 jan.1 jul.1 jan.11 jul.11 jan.12 jul.12 jan.13 jul.13 jan.14 jul.14 jan.15 jul.15 jan.16 jul.16 jan.17 jul.17 jan.18 Steady oil demand growth, supply constrained by OPEC Oil demand growth is projected to remain reasonable; however, OPEC cuts have limited the volumes shipped. World Oil Demand Growth (mln b/d) OPEC Crude Production (mln b/d) +2, +1,8 +1,6 Source: IEA/Gibson Strong initial compliance but recovering Nigerian and Libyan output. +1, ,2 +1, +2,2 32 +,8 +,6 +,4 +,2 +, +1,6 +1,6 +1,5 +1,3 +1,1 +1,2 +1,2 +1,1 +1,1 +1,1 +1, +, Tanker ket Outlook il

14 Floating storage is no longer supporting the market Crude stocks are drawing, led by declines in the US and floating storage. Floating storage has fallen to a three year low owing to backwardation the forward curve. Global Crude Oil Stocks (OECD) mln bbls year Max 5 year Min year Average Number of Non-Trading VLCCs No. 7 Non Iranian VLCC/ULCC in Storage Iranian VLCCs in Storage 6 VLCC - Other Non Trading * Includes VLCCs employed in fuel oil play off Singapore, Source: Gibson Consultancy & Research Tanker ket Outlook il 218 shuttle service and laid up 14

15 Annual Changes in FSU Seaborne Crude Exports Mainly Russian, Kazakh and Azeri Crude mb/d,5 FSU Black Sea/Med Exports FSU Baltic/Arctic Exports FSU Far East Exports - Kozmino/Sakhalin/De Kastri,4,3,2,1, -,1 -,2 -,3 -,4 -,5 Source: Argus Tanker ket Outlook il

16 US crude exports are hitting record levels and finding new markets All crude tankers are benefitting but much depends on the economics of exporting to Asia or Europe. Rising production is likely to support further export growth in the medium term, whilst infrastructure improvements will improve the freight economics for moving US crude to the East. Main Destinations for US Crude Outlook for US Crude Oil Production ' b/d 1 8 Canada Europe Latin America Asia Pacific Provisional mbd 11,5 11,25 11, 1,75 US Crude Production Annual Average (US crude output) 1 2 1, ,25 1, 9,75 6 9,5 9,25 4 9, 2 8,75 Source: EIA STEO 8,5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Tanker ket Outlook il

17 Export infrastructure projects First VLCC loaded at LOOP, however loadings are expected to be limited to 1 per month at first. However, whilst LOOP is well connected to US pipeline infrastructure for US Gulf crudes, there is strong demand from domestic refiners along the line, reducing potential export volumes. Furthermore the pipeline is not so well connected to North Dakota or West Texas. Nevertheless, LOOP has a big advantage in terms of water depth. The port of Corpus Christi has announced a project to dredge the channel to 54ft (16.46 m) to allow for VLCC part loads due for completion end 218. At the Occidental Ingleside terminal, this will allow VLCCs to load 1.2 to 1.4 million barrels. A new bridge will also allow an air draft of 25ft (62.48 m) although this does not impact Ingleside which has no air draft restrictions. Various pipeline projects (South Texas Gateway, Cactus II and another unnamed pipeline) are planned to export up to 1.5 mbd of crude to the Gulf coast, coming online from 219 subject to approvals. Tanker ket Outlook il

18 Venezuela remains a risk to tanker demand Sanctions against the Venezuelan oil sector would primarily damage Aframax demand. Talk of oil sanctions seems to have faded for now, but a risk of further declines in production threatens tanker demand. So far volumes to China have generally held up, but Aframax demand in the Caribbean is suffering. Venezuelan crude production b/d Production has fallen 5, b/d over the past year Chinese imports of North & South American crudes b/d Tanker ket Outlook il

19 Refining capacity expansions offer mixed signals New refiners in the Middle East and Africa could impact on crude exports out of these two key exporting regions. Refinery Capacity Expansions b/d 2 The last round of capacity additions in the Middle East (213-15) was partly offset by OPECs fight for market share, which saw crude exports from the region grow despite rising refining capacity Africa Far East Indian Subcont Middle East Europe FSU Latin America North America However, new capacity additions in the Middle East from 219 onwards could limit crude export growth, whilst the 6kbd Dangote refinery in Nigeria (if successfully built) is unlikely to be offset by higher Nigerian production Despite this, expanding Asian capacity will still need to be fed from overseas sources, negating at least some of the negative impact. Tanker ket Outlook il

20 Product Tanker Demand Tanker ket Outlook il 218 2

21 Product stock draws taking place, demand is good Product stocks in the US have eased in line with seasonal trends, but high refining runs could see a rebound. European distillate stocks have come down but could rise on higher imports from Russia and the Middle East, although regional refining maintenance may prevent this. It remains to be seen whether lower stocks will translate into more meaningful arbitrage opportunities. ARA Gasoil Stocks ( tonnes) USAC Gasoline Stocks ( bbls) Tanker ket Outlook il

22 Latin America and West Africa driving the Atlantic CPP market Latin America, Mexico and Nigeria driving demand for US products owing to limited refining capacity developments and economic growth. For much of 217, these two regions were the main driver of freight volatility in the Atlantic. US Gasoline & Distillates Exports to Mexico + S.America b/d 225 West Africa Gasoline Imports tonnes WS WAF Product Imports TC Tanker ket Outlook il

23 The Latin American refining sector has faced headwinds Lower refinery runs in Mexico, Brazil and Venezuela are supporting imports from the US, and occasionally Europe. Pemex plans to raise runs this year following repairs and upgrades. Venezuela remains highly uncertain and could see further declines. Petrobras needs investment to finish the Comperj (165kbd) refinery and phase II of Abreu e Lima (115kbd). However the firm is seeking to recapture market share from foreign imports. Mexico has seen Repsol, Exxon, BP, Glencore and Andeavor all make inroads into the country's fuel sector. Refinery Runs: Mexico, Brazil, Venezuela mbd 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1,,5, Venezuela Refinery Runs Brazil Refinery Runs Mexico Refinery Runs * On the West Coast, imports into Colombia have fallen following upgrades to the Cartagena refinery. Small scale expansion in Peru (3, b/d) has been delayed until 219 at best. Repsol La Pampilla (Peru) bought online a new diesel unit in 216, and has a new gasoline unit due this year, reducing import demand, but potentially supporting exports. Tanker ket Outlook il

24 Russia/FSU: Higher CPP exports, lower DPP exports expected Clean exports should see further growth from Russian ports following distillate pipeline and refinery expansions. LR1s and LR2s playing an increased role in exports from the Baltic at the expense of Handies and MRs. FSU Clean Product Exports b/d 2 Gasoil Oil Naphtha Gasoline Jet-Kerosene Primorsk Product Exports b/d Tanker ket Outlook il

25 Growth in Chinese exports supportive for regional trade However, volumes fell during - owing to maintenance but should move higher as maintenance concludes. Growth for 218 of expected to average 2-3kbd, basis current quotas. Newbuild crude tankers have taken some market share from product carriers. China: Light and Middle Distillate Exports b/d 1 Total Diesel Exports Total Gasoline Exports 9 Total Jet Kerosene Exports 8 Monthly Average Clean Tanker Earnings $/day 25 3 Spore-Australia Cln (TC7) 37 UKC-US Cln (TC2) Tanker ket Outlook il

26 Refining capacity expansions support trade from 219 Large scale expansions in the Middle East and India are positive for product tanker demand. From 219 to 222 the expansion is expected to offer support for product exports from the Middle East. However, the construction of a large refinery in Nigeria could threaten import demand IF the refinery is successful. Middle East Product Exports b/d AG RSEA 5 Source: Clipperdata Refinery Capacity Expansions Tanker ket Outlook il b/d Africa Far East Indian Subcont Middle East Europe FSU Latin America North America

27 Q2 2Q2 3Q2 4Q2 1Q21 2Q21 3Q21 4Q21 22 will see a surge in gasoil demand 22 will see a 2 mb/d shift in demand across the bunker pool. HSFO demand could fall by 2 mb/d, with VLSFO and MGO demand increasing by 1 mb/d each. However this assumes refiners will produce significant volumes of VLSFO by 22, which is uncertain. However, overtime, the IEA assume demand will swing from MGO to VLSFO as new desulphurization capacity comes on stream. Returning the clean/dirty bunker split to pre-22 levels. The IEA estimate that power generation in the Middle East and Africa could absorb 5kb/d of the fuel oil surplus. Bunker demand by grade Fuel Oil vs. Gasoil b/d $/ton 45 Gasoil VLSFO HSFO 65 HSFO Gasoil Source: IEA Tanker ket Outlook il

28 Growing product surplus in the US, Middle East and Russia 217 vs. 223 ( b/d) North America Europe -2 Middle East FSU Latin America Africa Asia Fuel Oil Gasoil/Kerosene Gasoline/Naphtha Source: IEA Tanker ket Outlook il

29 London Audrey House 16-2 Ely Place London EC1N 6SN T +44 () F +44 () E research@eagibson.co.uk Hong Kong Room 144, 14/f, Allied Kajima Building No. 138 Gloucester Road Wan Chai, Hong Kong T (852) F (852) Singapore 8 Eu Tong Sen Street The Central Singapore T (65) F (65) Beijing Room B1616, Huibin Building, No 8, Beichen East Road, Chaoyang District, Beijing 111 Houston 77 South Post Oak Lane Suite 61, Houston TX7756 United States This report has been produced for general information and is not a replacement for specific advice. While the market information is believed to be reasonably accurate, it is by its nature subject to limited audits and validations. No responsibility can be accepted for any errors or any consequences arising therefrom. No part of the report may be reproduced or circulated without our prior written approval. E.A. Gibson Shipbrokers Ltd 218. Tanker ket Outlook il