Tanker market could see further changes on trade route patterns and ton - mile demand

TIN news:  It has long be touted as a potential “game-changer” for the crude tanker market and it now seems to be gaining traction. US oil exports in quantities enough to make a difference on the market, appear to be on the radar for ship owners, especially after the ascension of Donald Trump in office. In its latest weekly report, shipbroker Gibson noted that “hardly had the creases fallen out of the new drapes in the Oval Office, when the new president commenced overturning several key pieces of legislation implemented by his predecessor. One item of significance to the oil trades was the decision to give a second chance to two controversial oil pipelines. President Trump signed executive orders supporting two projects, Keystone XL and the Dakota Access pipelines, both of which had been opposed by environmentalists under the Obama administration and halted as a consequence”.
In particular, according to the London-based shipbroker, “the Keystone XL pipeline will run for 1,179 miles from Alberta, Canada to Steele City, Nebraska where the pipeline will join the existing network. The new section is designed to increase capacity to 830,000 b/d from the present 550,00 b/d, providing a more direct route from Canada to the US Gulf Coast via Cushing. Following president Trump’s decision, TransCanada immediately submitted an application to the US State Dept. for approval to restart the mothballed project. The pipeline is a privately financed deal. This coupled with the desire to use US produced pipe and labour, makes it attractive to the new administration. However, this particular project may not be a done deal as it is almost certain that opposition to the project could once again cause disruption to the progress”.
Gibson added that “apart from the latest developments in terms of Canadian crude pipeline infrastructure to US, we are also likely to see a significant rise in US crude exports for several reasons. Crude exports ramped up much more quickly than expected in 2016 and we are presently seeing the all important US rig count rising. International oil prices are also rising and more efficient US shale production techniques are providing better margins for the oil producers. The new president’s policy “America first” and in particular, providing energy security as well as providing jobs for American workers was a major part of the Trump election campaign; meaning less dependence on crude imports. In this area, another Trump proposal is to bring in a “border adjustment tax” (BAT); which, if implemented, could add 20% to the price of imported crude (& products). The proposed legislation will directly have an impact on imports, primarily seaborne if the Canadian pipeline is built. Also, the same will boost domestic production. Goldman Sachs believes will lead to a ramp up in US production, resulting in a large oil surplus in 2018. Some will go into domestic refineries, but crude exports could also rise. US refineries have been running in the range 90-95% capacity for some time and, with few major enhancement projects on the horizon, any surplus of crude produced will be up for overseas sale”, said the shipbroker.
It went to note that “putting all the above together, prospects for a rapid increase in US export crude is finally beginning to look a real possibility. In addition, although the potential decline in seaborne crude imports, at first glance, sounds like bad news for tankers, existing crude exporters to the US will need to seek alternative markets but this could actually benefit our market. Venezuelan and West African barrels would in all probability be shipped to the Far-East and India, supporting tonne miles. Another issue here to consider will be the price differential between WTI and the international Brent price which will also influence imports/exports. The US is also taking steps to improve export infrastructure. One of the first cargoes, following the lifting of the export ban in December 2015, loaded at the 2 million barrel Occidental storage facility at Corpus Christi, Tx. Plans to upgrade the 300,000 b/d facility include deepening and widening the Channel to accommodate Suezmaxes. Other projects in the Gulf are also taking place. So perhaps we will see larger volumes of US crude exports, the question is how quickly this will happen and how large the volumes will be?”, wondered Gibson.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “having taken a hard hit prior to the long Chinese holidays, VLCC Owners had to endure another phase of thin interest that more definitely shifted the rate range to lows of ws 55 East for new buildings with a top of ws 70 payable to the most favoured units and to as low as ws 37 to the West. Activity did start to pick up at the week’s end, however, and a busier week to come should prevent further slippage. Suezmaxes drifted lower again on very easy supply and limited interest. Rates to the East eased to ws 72.5 with as low as ws 36 called for runs to the West and no early turnaround in sight. Aframaxes bumbled along and had to give a little ground eventually to 80,000 by ws 115 to Singapore with further drift a possibility into next week”, the shipbroker concluded.