Shifting Oil Market Dynamics Key to Tanker Trade Prospects -MSI

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The Q3 2017 tanker market is proving vexatious for owners still struggling with the effects of fleet oversupply. But in its latest monthly forecast, Maritime Strategies International (MSI) observes that changing trade patterns could help stabilize the market toward year-end and into 2018.
 
With all-OPEC crude exports setting record highs in July, the cartel’s attempts at lowering production are clearly open to question. There was a reduction in flows from OPEC’s Gulf producers while China’s imports tumbled to seven-month lows in July.
 
Exports are seeing a divergent trend in the group though, with African volumes of lighter grades on the rise while Middle Eastern medium/heavy crudes have been receding.  China’s decline could signal the potential start of a slowdown in imports, yet the July figure was still up by 12 percent from a year prior and the ongoing downtrend in China’s domestic crude output should continue to lend support to imports.
 
With Saudi Arabia pledged to cut September crude allocations to Asia by 10 percent, Asian importers may buy more longer haul crudes from the Atlantic Basin to fill the gap, according to MSI Analyst Sierra Highcloud.
 
“Though the remainder of Q3 will be weak, fleet growth has now moved past its peak which should have some stabilizing effect as we look to 2018. Despite falling in June, T/C rates are set to see a modest improvement over our forecast.
 
However, liquidity is thin and should the upside expected in Q4’s spot market not materialise, the period market could move lower as owners look to protect against spot market downside.”
 
Other factors are in play too. India has been able to buy more US crude after recent upgrades which have allowed refiners to easily switch between running light and heavy crudes. African OPEC volumes of lighter grades have tracked higher while Middle Eastern medium/heavy crudes have been receding.
 
In Venezuela, where output has already seen a dramatic decline due to political turmoil, any possible oil-related sanctions would invariably have numerous and far-reaching impacts across the tanker market, adds Highcloud.
 
“There would be winners and losers within the different tanker segments, and were the flow of 750,000 bpd between Venezuela and the US to dry up, Aframaxes would suffer and likely cede trade to larger vessels as the bulk of these volumes would be diverted to Asian buyers. Equally, the U.S. would have to source replacement grades from further afield, giving an additional leg of support to ton-mile demand.”

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