- Tensions due to the arrest of vessels in July, saw a very minimal impact on freight rates and crude prices.
- When all British flagged carriers are taken out of the total trading tanker pool, the loss might be only 2% of the global fleet, posing a very low risk to traders.
- IEA reported that Q1 2019 global oil demand growth slumped to 310,000 b/d, the lowest figure recorded since the end of 2011.
- IEA also estimates a stronger second half of 2019 due to economic activity output improving and new plants ramp up, that would support prices later in the year.
- Benchmark Brent crude price reached a yearly high of $74/bbl in April and VLCC rate – TD3 – dropped 6 WS points to WS42 ($1.21/mt) since July despite tensions.
The IEA has reported that Q1 2019 global oil demand growth slumped to 310,000 b/d, the lowest figure recorded since the end of 2011, reports Gibsons.
Minimal impact on rates
During the first week of July, the tensions due to the arrest of vessels ‘Grace 1’ spike between Iran and the West, and Iranian retaliations to arrest a British flagged Stena Impero sparked tales of the Suez Crisis and the Gulf War, saw a very minimal impact on freight rates and crude prices.
There has not been any major disruption to flows through the region.
Those looking to operate in the region that are not British linked may feel the current situation, poses a lower risk to them to trade.
When all British flagged product and crude carriers are taken out of the total trading tanker pool, the loss is only 2% of the global fleet.
Slowdown of global demand
The IEA has reported that Q1 2019 global oil demand growth slumped to 310,000 b/d, the lowest figure recorded since the end of 2011.
Although factors in the market such as limited output from Iran and Venezuela and OPEC+led production cuts should suggest a bullish tone, slower global economic growth and trade wars between major economies present a downside demand risk.
Stronger second half of 2019 estimated?
The IEA has estimated a stronger second half of 2019 due to economic activity output improving and new plants ramp up, which could support prices later in the year.
As the world remains oversupplied, the extended cut in OPEC+ production. In June, world oil supply topped the 100 mb/d mark for the first time since January, according to the IEA.
Calls to cut crude production
There have been calls for OPEC+ to cut crude production to 28 million b/d, the lowest since 2003, down from current levels of approximately 30 million b/d in an attempt to rebalance markets.
Global inventories and stocks are still deemed too high. The benchmark Brent crude price briefly reached a yearly high of $74/bbl in April.
Crude price volatility
The recent events in the Middle East Gulf have affected crude price volatility by only 4%, with prices barely moving from the mid-$60/bbl levels throughout.
In comparison, when OPEC announced their first round of production cuts back in December, Brent moved 8% overnight. Production cuts have had a knock on effect for tanker rates.
Business as usual
The benchmark VLCC rate – TD3 – has fallen 6 WS points to WS42 ($1.21/mt) since the start of July despite tensions in the Middle East Gulf.
At the moment owners have a sit and wait policy whilst acting with precaution throughout the region. The global knock on effect for the tanker market at the moment seems to be fairly muted: at present it seems business as usual.
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Source: Gibsons
