Thursday, July 23, 2020

Shipping: "Tanker rate puzzle gets even harder to solve"

From FreightWaves, July 20:

Variables pile up: OPEC+ cuts, COVID, geopolitics, floating storage
Predicting tanker rates has always been part science, part art, part wild guess. This year calls for even more artistry and wild guessing than usual.

Rates for very large crude carriers (VLCCs, tankers that carry 2 million barrels of crude oil) currently average $32,800 per day, up 130% year-on-year, according to Clarksons Platou Securities data. VLCC rates are averaging more than 3.5 times higher year-to-date than during the same period last year.
But where do they go next? On one hand, more production from the OPEC+ coalition could push more oil to sea. Ships available for spot deals could remain constrained by floating storage and Chinese congestion. If so, rates would rise.

On the other hand, OPEC+ export volumes could remain effectively unchanged. Congestion and storage could ease, pushing more ships into the spot trade. If so, rates would decline. Or it could be some combination of the above and rates would end up somewhere in between.

OPEC+ cuts: headline vs actual numbers
The OPEC+ coalition has targeted production cuts of 9.7 million barrels per day (b/d) since June. It confirmed last week that cuts would be pared to 7.7 million b/d starting in August.

The agreement “to bring back 2 million b/d of production … is expected to bring more seaborne cargoes to market, which we view as a positive,” Clarksons Platou Securities Managing Director of Research Frode Mørkedal said on Monday.
This assumes additional production will in fact go to sea. It may not.

According to Argus Media, Saudi Arabian oil minister Prince Abdulaziz bin Salman said that most of the extra 2 million b/d would either be used domestically, and not exported, or be counterbalanced by the compensation mechanism.

Coalition members that overproduced in May would theoretically compensate for doing so by cutting their production by the same amount in August. Due to compensation agreements, bin Salman estimated that actual cuts in August would be 8.1-8.3 million b/d, not 7.7 million b/d.

That would imply an extra 1.4-1.6 million b/d in August over July. However, the Saudi oil minister maintained that most of this will be used to cover seasonally higher power demand in the Middle East, for air conditioning, etc. In other words, it wouldn’t be loaded on tankers en route to Asia.
“Mark my words: Not a single barrel will be additionally exported than what we are exporting in July,” bin Salman affirmed....

He might be right. See Arabian Business, July 22:

Saudis set for record summer oil burn to meet air conditioning demand 
Electricity consumption always soars around July and August, but it's set to be higher this year with the coronavirus pandemic forcing many Saudis to cancel their summer holidays abroad