Hellenic Shipping News: Oil Market Rebalancing on the Cards, Could Spell New Reality for Tanker Markets

27 June 2016: “In a recent weekly note, Poten & Partners referred at the EIA’s (US Energy Information Administration) analysis, which noted that ‘unplanned global oil supply disruptions reached 3.6 million barrels per day (mb/d) in May 2016, the highest level since they started tracking this in January 2011’. “According to Poten, ‘it is not difficult to identify the culprits; we have discussed a number of them in our recent tanker opinions: Canadian forest fires, production and transportation disruptions in Nigeria as well as continued problems in Libya have been some of the most high profile ones. As these disruptions have taken a bite out of global supply, oil demand keeps chugging along, helped by solid growth in most developing economies, in particular in Asia. Last week we discussed the rapid expansion of crude oil demand and imports by independent Chinese refiners, which have provided a boost to the tanker market, in particular the VLCCs. The combination of production outages and continued demand growth have pushed oil prices above $50/bbl, their highest level since the first half of last year’. “The shipbroker added that ‘this, in turn, may have brought the independent shale oil producers in the U.S. back to life. Last week, data showed an unexpected increase in active rigs in the U.S. and oil production rose by 10,000 b/d. A small increase, but nevertheless significant, because it follows a long period of steady declines in U.S. production. The question for tanker owners is: are we at the beginning of the long-awaited market correction or is this just a combination of random factors that does not indicate a new trend? While the problems in Canada are weather related and the production outages have already started to subside, most of the other supply disruptions are due to political disputes or conflicts and are expected to last longer’. “According to Poten, ‘in terms of world crude oil production, the Canadian wildfires have had the biggest impact (average supply disruption of 0.8 Mb/d in May), but the problems in Nigeria have a more profound and (potentially) longer lasting impact on the tanker market. Disruptions resulting from political unrest tend to last much longer and these made up 90% of the unplanned production outages in 2016 to date. The increase in outages at other producers has more than compensated for the reduction in unplanned outages when the Iranian sanctions were lifted earlier this year. It once again shows how quickly the oil markets can change as a result of geopolitical events or factors such as weather, natural disasters or labor conflicts. Most of these factors are highly unpredictable as to timing and duration’. “For example, ‘although everybody expected U.S. production to recover with rising oil prices, the speed of this turnaround caught many pundits by surprise, but it might still prove to be a false dawn. Also, let’s not forget that U.S. production has declined by approximately 0.9 Mb/d over the last 12 months, so there is a lot of ground to make up. Nevertheless, the change is remarkable and it may have dismayed OPEC members that it already started happening when oil prices barely breached $50/bbl. We will need to look at a few more weeks of data to see if this was a one-off or if we are witnessing a trend. Generally, tanker owners should look at these developments with a smile on their face. The oil continues to flow and the tanker industry is, by its nature, well equipped to deal with changes in tradeflows as a result of supply disruptions in various parts of the world. Disruptions create inefficiencies and bottlenecks, which are generally good for tanker rates. And the early boost in U.S. production? If it continues, it will increase overall world crude oil supply, counter disruptions elsewhere and keep oil prices from rising too quickly or to levels that may choke off demand. Over time it may even stimulate more U.S. crude oil exports’, concluded Poten.”