- Tanker operators are set to gain from OPEC’s recent decision to increase production, according to shipbroker Gibson.
- Gibson believes the main force driving demand will be the path of the pandemic and with many Western economies putting their vaccination programmes to the test.
- The next few months will be key in determining whether higher vaccination rates can fend against renewed movement controls.
A Riviera news source says that tanker rates to benefit from OPEC’s increased production.
What does the latest Gibson report state?
In its latest report, Gibson noted the OPEC+ alliance has settled on an agreement to manage supply. “The disagreement centred on production baselines from which OPEC+ cuts were assessed, with the United Arab Emirates (UAE) feeling its baseline had been set too low and demanding an increase, with a compromise eventually found.”
OPEC+ will now add an extra 400,000 b/d each month from August to December ramping up output by about 2M b/d in total by the end of the year.
Those monthly production increases will continue next year, with OPEC+ saying it has extended the deal until December 2022 from April 2022.
Other factors driving supply
In addition, there are other factors driving supply – for instance if the United States continues with sanctions on Iran and Venezuela or chooses to relax them, or rising output from non OPEC+ sources.
This month, Washington issued a limited waiver allowing LPG sales to Venezuela but the crude export ban remains.
Issue of discontent
Then, there is the issue of discontent within the group regarding quota allocations to members.
In recent years the UAE has invested in improving its production capacity and under the new agreement, the production baseline will rise from its current 3.2M b/d output to 3.5M b/d.
Both Saudi Arabia and Russia will increase their baselines by 500,000 b/d to 11.5M b/d while Iraq and Kuwait will raise theirs by 150,000 b/d to 4.8M b/d and 3M b/d respectively.
OPEC slashed production last year
Last year, at the height of the pandemic, OPEC slashed production by almost 10M b/d but has slowly added production back as economies reopen.
Brent crude touched a three-year high of US$77 a barrel this month as economies continue to recover but with traders warning the market is tightening rapidly.
About 5.8M b/d of output remains off the market and demand is expected to continue rising.
Gibson’s conclusion
Gibson concluded, “OPEC+ production increases are always music to tanker owners’ ears. Assuming production levels increase across the member states, then demand for the larger-sized tankers is anticipated to increase, albeit gradually. As always, it’s all eyes on OPEC.”
OPEC’s next meeting is scheduled for 1 September.
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Source: Riviera
