A significant boost for product tanker owners could be in the cards, as a result of increased exports of US refined products

According to the latest weekly report from shipbroker Charles R. Weber, during the second quarter of 2016, the relative cargoes were up by 5.6% on the year. “Our estimate for full year growth has been revised up to 5.4% from 2.7% last quarter. This is broadly in line with rates of growth observed during 2014 and 2015, although the double‐digit growth returned in the early years of the shale revolution are now firmly in the past”, said the shipbroker.

According to CR Weber, “at the start of the year, falling domestic production triggered by low oil prices coupled with high stock levels seemed to threaten the continued healthy expansion of the US product export trade. As of July, OECD product stocks were around 150MnBbls higher than the average for 2011‐15. However, this headline number gives a misleading impression because most of the exceptional stock build belongs to the “other products” category composed mostly of gas liquids, and chiefly US propane. The build in refined liquid products, namely gasoline, gasoil/diesel and fuel oil was actually reported to be just half the seasonal norm in July”.

The shipbroker added that “US exporters face significant downside risk from the global economic outlook. Although the market response to Brexit has been orderly to date, it remains an unfolding event. The IMF felt confident enough to leave its forecast for global economic growth unchanged from its July estimate at 3.1% in 2016 and 3.4% in 2017. However, negotiations to formalize the UK’s separation from the EU will take two years, which presages a two‐year period of global economic uncertainty. Gasoline remains the star performing export commodity, although the dominant gasoil/diesel market also performed reasonably in 1H16. The other principle seaborne export commodities have all gone backwards this year.

We have observed significant retrenchment in established regional markets ‐ namely South America and Europe, which now account for 92% of US exports up from 90% in 2015. There is little evidence that US exporters are able to build traction in more distant markets. Even in its traditional markets, performance has been very mixed. In Europe, the Netherlands has provided the bulwark for demand. In South America, Brazil has developed as an important resurgent market”, CR Weber concluded.  Meanwhile, in the VLCC tanker market, CR Weber noted that “following two consecutive weeks of sluggish demand, charterers in the Middle East market sought to take advantage of the corresponding erosion of owners’ confidence by holding back on fresh cargoes this week. Though the weekly fixture tally in the Middle East rose 33% w/w to 20 fixtures, the tally was 20% below the 52‐ week average – and far below the stronger demand levels participants had expected to accompany further progression into the November program. Charterers’ strategy succeeded and aided by the presence of a number of disadvantaged units competing aggressively, allowed rates to observe stronger downside. The AG‐FEAST route fell to as low as ws50 from last week’s closing assessment of ws65. However, with many of the disadvantaged units having been fixed, managers of more competitive units were showing stronger resistance at the close of the week, allowing a paring of the earlier losses with a closing assessment of ws59”.

Elsewhere, CR Weber added that “the West Africa market was busier, having pared last week’s six‐month low tally to return to exceed the 52‐week average with six fixtures. The rebounding demand in the region contributed to the end‐week resistance being shown by owners and a sustaining thereof should prove useful to owners next week when charterers have little choice but to accelerate their pace of November Middle East cargo coverage. Overall, the near‐term structure of the VLCC market appears healthy – and, in fact, fundamentals have improved. In the Middle East, 54 November cargoes have been covered thus far, leaving an expected 28 cargoes likely uncovered through the second‐decade of the month. Against this, there are 37 units available and once accounting for likely West Africa draws, the estimated surplus at the conclusion of the month’s second decade is just four units. This compares with 14 surplus units at the conclusion of the month’s first decade and is comparable to the 1Q16 average end‐month surplus of 7 units, when VLCC earnings averaged ~$62,060/day. Average earnings presently stand 36% lower at ~$39,974/day. Though overall fundamentals have narrowed markedly since Q3, rates have been more vulnerable to downside in recent weeks due to an uneven distribution of Middle East cargoes between each month’s three decades.

November is showing a similar distribution to October, characterised by a light first‐decade and progressively longer second‐ and third‐decades. Moreover, coming on the back of the 3Q16’s strong headwinds, owners’ confidence has been heavily eroded leading to more aggressive vying for cargoes during the lighter 1st decade periods – which also delays rate upside thereafter. Nevertheless, we expect that rate upside will accompany next week’s stronger demand and, thereafter, when charterers progress concertedly into the month’s final decade, tighter fundamentals will be plainly evident and lead to a stronger pace of rate upside to bring earnings back towards levels dictated by the overall supply/demand positioning. Given earlier West Africa demand strength, Middle East position replenishment will be lower once charterers move into December dates, which should end the pattern of headwinds accompanying each month’s first decade, assuming no significant pull‐back to overall crude supply” the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide