A very merry Christmas for product tanker owners

Oil prices continue to trend downwards. Brent ended November at $86.97 and then lost ten bucks in a week, before recovering 67 cents to land at $76.82 on December 9. WTI ended November at $80.55, rose to $81.22 on December 1 but then slid without stopping to $71.58 on December 9. This was the biggest weekly loss for WTI in more than eight months. Was the fall due to recession indicators? Was it due to OPECc’s decision to leave production unchanged? Did the price cap on Russian oil drag the whole market down with it? President Putin said that Russia might cut oil production in response to the price cap, though one wonders how much production can be sustained in the light of sanctions, if Russia cannot access the parts it needs to keep its oil and gas wells operating. The cap on Russian oil roughly coincided with the EU’s ban on imports of Russian crude oil. There were plenty of voices in the market who thought that the ban, and the oil price cap, would lengthen global oil supply chains as EU imports would have to come from further afield. That was assumed to be positive for tanker freight markets. It did not turn out like that as confidence drained from the owners. The VLCC market as reported by the Baltic Exchange fell from a peak of over $75,000 a day in late November to a low of less than $28,500 on December 6, though it recovered to over $37,000 by December 9. Analysts blamed the Russian oil bans, saying that this was putting less oil on the water and draining demand out of the market. It’s a slightly odd reason as most Russian oil goes on suezmaxes and aframaxes, not VLCCs. The larger ships’ main market is China, whose president visited Saudi Arabia in December to ensure China’s oil supplies would not be interrupted by events in Ukraine. A deal was agreed to increase oil trade between the two countries, and for some trade in oil derivatives to take place in renminbi rather than dollars. Meanwhile China’s November oil imports were up 12% on October to 46.74m tonnes, or about 11.4m barrels per day, basis data from Chinese Customs. The main beneficiary was not Saudi Arabia but China’s strategic competitor, the US. A new 200,000 barrels per day refinery has opened in Guangdong province, which is expected to add long-term oil imports. And in December China has relaxed some covid regulations in some places for some people, leading to optimism about the effects on the national economy and on import trades. Suezmax operators remain happier than VLCC operators (in truth most operators have a mix of both) as the S2 TCE index from the Baltic continued its merry way in six figures in December, averaging $112,000 a day plus change in the first nine days, compared to an average of a few dollars shy of $99,000 for November. Aframax average earnings have also risen again, from an average of $64,186 for October to $98,962 for November, then $111,210 for the first nine days of December, basis Baltic Exchange data. Queues in the Bosporous are pointed to by brokers, as Türkiye seeks clarity on insurance before letting vessels through. The BDTI averages over 2,100 points for December to date, easily its best performance for years. Owners remain enthusiastic about prospects for the last weeks of the year and for 2023. Product tanker freight markets remain firm with the BCTI averaging 1,803 points for the first nine days of December compared to 1,452 for November. TC1, the Middle East to Far East voyage, continued its heady climb from November, when in two weeks it rose from 162 WorldScale points / $24,881 a day on November 9 to 303 WorldScale points / $72,421 on November 25. By December 9 it was luxuriating at 294 WS points / $71,178 even as brokers reported that many Asian buyers had covered their remaining December requirements. MR rates have steadied at high levels. The Atlantic basket rose from an average of $36,565 for October, via a dip to $34,243 on November 9, to a peak of $74,983 on December 5, and averages a chunky $70,562 for December to date. The Pacific basket leapt from $33,978 on November 9 to a peak of $65,377 on December 5, and averages a very satisfactory $63,949 for the first nine days of December. There has even been excitement in the oft-overlooked LR1 space as day rates for ships trading gasoline from ARA to West Africa reached a peak of $70,008 on November 28 and still averaged $62,683 for the first nine days of December. All in all, it looks like being a very merry Christmas for product tanker owners.

A very merry Christmas for product tanker owners

Analysts have been reading the tanker markets wrong recently.

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