OPEC’s oil production freeze and tanker day rates

A rule of thumb in the shipping industry is that high oil prices are bad for shipping earnings, and low oil prices are good for shipping earnings. With Brent crude prices at US$70/b now, the shipping industry's rates and earnings are now starting to sputter again, after recovering barely 3 years ago in 2015.

To be fair, it is nowhere near the nadir that was 2013 when shippers were essentially ‘paying oil companies to transport their oil.' With crude prices at US$120/b and the shipping fleet expanding dramatically after a building spree in 2009, daily shipping rates along many major routes plunged to near zero. The absolute record low along the Middle East-Japan route was –US$8,000/day in an industry where operating costs run at some US$10-12,000 a day. That improved after the oil slump, where consolidation among the global VLCC and tanker fleet saw daily rates jump to US$65,000 for the key Arab Gulf-East Asia routes.

Things are slowing down again. OPEC's sustained attempt to eliminate the global crude glut by slashing production by 1.8mmb/d has reduced traffic along the crucial Asia route. Coupled with the supertanker market swinging back into growth – Clarksons Research expect the global fleet to grow by 4% in 2018 after 5.3% last year – this seems like déjà vu.

Daily earnings fell by more than half to US$17,500 on average last year, far below the anticipated rate of US$25,000. 2018 has started off on a worse note; some East of Suez fixtures have now been made at only US$5,000 a day, below cost level again. This has been mitigated by better returns elsewhere – in the Atlantic basin and the developing US Gulf-Asia route – but 2018 does not look good for shipping.

Adding to the vessel glut are tankers returning from use as seaside storage units, given that crude prices are currently in backwardisation. OPEC meets again in June, optimistic that it could end its supply freeze ‘if the market rebalances'. That's good for OPEC, but for shippers, that would be a welcome miracle.

New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Visit source site


Oil TankersOPECShippingCrudeTransport

More items from easwaran

Q2, 2018 - Accelerated Profit Growth in the Oil & Gas Sector

  In a quarter where oil prices were at their strongest levels since early 2015, the oil industry largely reported a healthy bump in revenues and profits. Investors and institutions had anticipated this, expecting strong results, but although numbers were healthily in the black all around, not e ...

Easwaran Kanason

Posted 2 years agoOpinion > ProfitsQ2Oil Companies +6

BP’s US$10.5bn acquisition of shale oil asset re-confirms the importance of shale oil in the energy market

  Shale oil is the most significant development in the energy industry ever since coal was replaced by oil as the principal fuel. The noteworthy rise of shale oil extraction over the last few years has taken the market by surprise. The combination of drilling techniques together with developed h ...

Easwaran Kanason

Posted 2 years agoOpinion > Shale GasTight OilOil And Gas Industry Latest News +1

Oil Royalties in Post-Election Malaysia

Last Updated: August 1, 2018   136 views    Business Trends   Here is a brief background story of the growing debate about the allocation of oil royalties in select states in Malaysia.  The election that swept the former ruling coalition out of power in Malaysia three months ago was h ...

Easwaran Kanason

Posted 2 years agoOpinion > PETRONASMalaysiaPakatan Harapan +5

List of Upstream Operators in Malaysia (PSC Contractors)

  Petronas Carigali Conoco Philips Lundin Petroleum JX Nippon Mubadala Petroleum Ophir Energy HESS Kebabangan Petroleum Operating Company, KPOC TOTAL E&P RHP Mukah  Enquest Petroleum Sapura Energy Repsol Exxon Mobil Shell PEXCO N.V. Murphy Oil Ophir Production PCPP Operating C ...

Easwaran Kanason

Posted 2 years agoOpinion > MalaysiaupstreamOil Companies

5+ Do's and Don'ts, Dress code and Interview Aesthetics for the Perfect First Impression!

  An interview offers you a chance to make an impression on a prospective employer. Since it's often the first impression that matters most, what you wear to an interview becomes a powerful tool for projecting an image of skill, competence, and experience. Every industry has expectations when i ...

Easwaran Kanason

Posted 2 years agoOpinion > Interview Dos And Don'tsInterview Dress Code
All posts from easwaran