- Recently, tanker demand and rates have highlighted shifting supply patterns and have sparked a bit of a worry about OPEC’s compliance rates.
- What sparked the worry was a rebound in tanker rates from a low of US$15,000 per day earlier in February to double that last week.
- It’s U.S. light crude, which is being pumped at ever-increasing rates.
- A boom in demand for the crude is expected as a result of IMO2020..
- According to a poll carried out earlier this month by Bloomberg, daily tanker rates will average US$29,200.
Tanker demand and freight rates are usually a reliable metric of oil demand patterns and trends, reports Oil Price.
What does the future hold?
These are also among the factors that taken together might suggest what the future holds for the oil industry. Recently, tanker demand and rates have highlighted shifting supply patterns and have sparked a bit of a worry about OPEC’s compliance rates. This, however, is bound to be short-lived.
What sparked the worry was a rebound in tanker rates from a low of US$15,000 per day earlier in February to double that last week. MarketWatch’s William Watts reports that this rebound caused a “knee-jerk” reaction in traders; immediately concluding that OPEC producers were failing in their production cut agreement. The agreement says higher rates mean more demand for tankers and this means more crude oil coming into the market, normally.
Light Crude Oil
Indeed, this is the case now as well, only it’s not Middle Eastern oil that’s coming in greater amounts into the market. It’s U.S. light crude, which is being pumped at ever-increasing rates; while most OPEC members cut their production to support prices, with the exception of Iraq, Iran, and Venezuela. The latter two are witnessing a decline in their production for other reasons while Iraq is advancing its plans to boost its production and exports. But it’s the only one doing this, it seems.
Tankers Going Where Needed
Bloomberg earlier this month reported that tankers are leaving Middle East ports carrying saltwater bound for the United States. Here they would load U.S. light crude and carry it to various import markets. With OPEC production falling and U.S. production rising, Bloomberg’s Firat Kayakiran noted, tankers were going where they were needed.
Yet it looks like the rise in U.S. light crude for exports will only be one-factor supporting tanker demand this year. Teekay Tankers recently forecast that demand for tankers will remain lukewarm during the first half of the year largely because of the OPEC production cuts; things will change in the second half as prices rise and stabilize at higher levels. What’s more, this year will see the addition of some 2.6 million bpd in new refining capacity. This will also strengthen the demand for crude oil carriers and crude oil itself.
IMO 2020 Effects
Another bullish factor for oil demand and tanker demand is the new set of emission regulations from the 2020 International Maritime Organization. These new rules will reduce the maximum allowed amount of sulfur in maritime vessel emissions to 0.5 percent from 3.5 percent. This means a boom in demand for low-sulfur bunkering fuel. Naturally, this would also mean a boom in demand for the crude that is used to make it.
According to a poll among analysts carried out earlier this month by Bloomberg, daily tanker rates will average US$29,200. That’s up from a previous forecast from November last year; both crude oil and tanker rates slumped to deep lows amid worries about pressure on demand from the slowing global economic growth.
In Conclusion
It seems whatever some traders choose to see in changing tanker demand patterns, the OPEC cuts will continue strengthening prices in the immediate term. Demand will receive a boost from the upcoming IMO rules and especially the demand for heavy crude. Middle Eastern producers are cutting production of heavier grades; with Venezuela’s production in a state of collapse, a shortage may be on the way further pushing prices up.
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Source: Oil Price
