Emerging massive stimulus for oil tankers

Tankers generally, but VLCCs in particular, will benefit spectacularly as Europe’s energy trades transform and the ban on Russian crude oil imports comes into effect in December 2022.

According to New York broker, Poten & Partners, the ton-mile demand generated by European imports rose by 32% as a result of reducing Russian imports to 2.0 million barrels per day (bpd) from 2.5 million bpd.

“Finding alternative sources of supply for another 2.0 million bpd will provide another massive stimulus to ton-mile demand and tanker rates,” the broker declared.

Over the five-year period from January 2017 to January 2022, Europe imported at an average of 2.7 million bpd of Russian crude oil by sea, 26% of the seaborne total but only 14% in terms of ton-miles.

Most of the oil imported into Europe was carried on smaller tankers running short-haul trades across the Baltic and Black Seas. Between March and August, however, crude oil imported by sea from Russia fell to 19% and, in ton-mile terms, shed two percentage points to 12%.

Since the start of the war, Europe has pivoted away from Russian crude, replacing supplies with imports from the US Gulf, South America (Brazil, Guyana), West Africa, and the Middle East. Imports from the US Gulf have doubled from 6% to 12%. This has led to a significant increase in ton-mile demand, and is a welcome shot in the arm for the recently weak large tanker sector.

The broker also noted that Russia will look for other customers for its displaced two million barrels of crude, most likely in Asia, China and India in particular. This will provide a further boost for ton-mile demand. “The tanker market is in for a wild ride,” Poten predicted.

MOL orders first VLCC

Dalian Cosco KHI Ship Engineering has announced a contract to build two dual-fuel VLCCs for Mitsui O.S.K Lines (MOL).

This is the first LNG-fueled VLCC ordered from a Japanese tanker operator, and the first VLCC newbuild order from global market since July last year, said Dalian Cosco KHI Ship Engineering. 

According to brokers Poten & Partners in a recent report the last VLCC newbuilding was ordered in June 2021, while there have been no contracts for Suezmaxes since July last year. Tanker markets have endured a torrid couple of years which has seen owners refrain from ordering new tonnage.

This VLCC pair for MOL, measuring 339.5 metres in length and 60 metres breadth, meeting the Phase 3 regulation of EEDI, will be able to reduce 25-30% carbon emission as compared to the traditional vessel. 

The newbuild VLCCs are scheduled for delivery from 2025 through 2026.

Turkey doubles Russian oil imports

Turkey has doubled its import of oil from of Russia this year, shows Refinitiv Eikon data. Both the countries are set for broader cooperation in business, especially energy trade despite western sanctions against Moscow.

Trade between Turkey and Russia has been booming as Turkish companies did not stop from dealing with Russian counterparts and stepped in to fill the gap created by EU businesses leaving Russia after being of war in Ukraine earlier this year. Russia calls its actions in Ukraine 'a special military operation.'

Turkey increased oil imports from Russia, including Urals and Siberian Light grades, beyond 200,000 barrels per day (bpd) this year as compared to just 98,000 bpd for the same period of 2021.

Turkey did not sanction Russia due to its actions in Ukraine, saying it remains reliant on Russian energy supplies.

Russian President Vladimir Putin and Turkish President Tayyip Erdogan met early in August and agreed to boost business cooperation.

Turkey's main refiners Tupras and Azerbaijan's SOCAR's STAR refinery significantly increased intake of Russian Urals and Siberian Light oil this year, while decreasing purchases of North Sea, Iraqi and West African grades.

Over the last few years, STAR refinery increased purchases of Norway's Johan Sverdrup and Iraqi oil grades, which are close in quality to Urals as Russian oil has been growing in price.

This year, Russian oil prices fell to historical lows against Brent benchmark, while North Sea and Iraqi oil grades prices increased.

STAR refinery is expected to purchase about 90,000 bpd of oil from Russia during January to August 2022 as compared to 48,000 bpd during the same period of the last year.

Tupras refineries will buy about 111,000 bpd of oil from Russia in January to August this year compared to just 45,000 bpd during the same period last year, according to the data.

"The choice for Turkey's refiners was obvious as they have no limits on Russian oil buying", a trader in the Mediterranean oil market said, who declined to be named as he is not authorized to speak to the press.

He added that good Urals oil refining margins supported profits of Turkish refiners.

 

Oil prices being manipulated by western media

This morning I picked up this news item from Reuters. It covers some of the usual mantras i.e. deal with Iran, inventory data, supply disruptions. I am forced to infer that ‘media drives oil prices’ and the sponsors are famous seven sisters, who have now reduced to ‘big four’ after the successive mergers. 

They love to keep prices high to maximize their profits. Since many of them are of ‘US Origin’, I have reasons to believe that they enjoy the support of the US administration.

Crude oil prices pulled back slightly on Tuesday on the latest progress in last-ditch talks to revive the 2015 Iran nuclear accord, which would clear the way to boost its crude exports in a tight market.

Brent futures fell 14 cents to US$96.51 a barrel at 0404 GMT, paring a 1.8% gain from the previous session. US West Texas Intermediate (WTI) futures declined 16 cents to US$90.60 a barrel, after climbing 2% in the earlier session.

"The specter of a US-Iran nuclear deal continues to hover over the market," ANZ Research analysts said in a note.

The European Union late on Monday put forward a "final" text to revive the 2015 Iran nuclear deal, awaiting approvals from Washington and Tehran. A senior EU official said a final decision on the proposal was expected within "very, very few weeks".

"While the details around the timing of the resumption of Iran's oil exports remain uncertain even if the accord is revived, there is certainly scope for Iran to increase oil exports relatively quickly," Commonwealth Bank analyst Vivek Dhar said in a note.

He said Iran could boost its oil exports by 1 million to 1.5 million barrels per day, or up to 1.5% of global supply, in six months.

"A revival of the 2015 nuclear accord will likely see oil prices fall sharply given that markets probably don't believe a deal will be reached," Dhar said.

However, signs that demand may not be dented as much as feared are keeping a floor under the market for now, following stronger-than-expected trade data from China on the weekend and the surprising acceleration in US jobs growth in July.

The oil market has remained under pressure recently over global recession fears, with Brent prices suffering their biggest weekly drop last week.

China, the world's largest crude oil importer, brought in 8.79 million barrels per day of crude in July, 9.5% lower from a year earlier but up from June's import volumes, according to China's customs data.

Traders will also be watching out for weekly US oil inventory data, first from the American Petroleum Institute on Tuesday and then the Energy Information Administration on Wednesday.

Five analysts polled by Reuters expect crude stockpiles fell by around 400,000 barrels and gasoline stockpiles declined also by about 400,000 barrels in the week to August 5, while distillate inventories, which include diesel and jet fuel, were unchanged.

Biden advisers weigh Saudi Arabia trip for more oil

According to Axios, President Joe Biden’s advisers are discussing a possible visit to Saudi Arabia this spring to help repair relations and convince the Kingdom to pump more oil.

A hat-in-hand trip would illustrate the gravity of the global energy crisis driven by Russia's invasion of Ukraine. Biden has chastised Saudi Arabia, and the CIA believes its de facto leader, Crown Prince Mohammed bin Salman, was involved in the dismemberment of Washington Post columnist Jamal Khashoggi.

The possibility also shows how Russia's invasion is scrambling world's alliances, forcing the United States to reorder its priorities — and potentially recalibrating its emphasis on human rights.

Biden officials are in Venezuela this weekend to meet with the government of President Nicolás Maduro. Some Republicans and Democrats in Washington suggest Venezuela's oil could replace Russia's, according to the New York Times.

Any visit to the Persian Gulf would come amid a busy presidential travel schedule during the next few months.

Biden will likely take trips to Japan, Spain, Germany and, potentially, Israel, Axios has also learnt.

A White House spokesperson told Axios, “We don’t have any international travel to announce at this time, and a lot of this is premature speculation.”

President Obama visited Saudi Arabia more often than any of his predecessors, a total of four trips, but relations frayed over the wars in Yemen and Syria, as well as differences about how to deal with Iran.

President Trump made restoring the relationship a priority, and boasted about arms sales to the Kingdom.

He questioned the CIA's conclusion bin Salman was involved in Khashoggi's murder and defiantly refused to condemn him. "Maybe he did and maybe he didn’t!” Trump wrote on Twitter.

During the 2020 campaign, Biden called the Kingdom a "pariah," and early in his term, released an unclassified report assessing MBS approved the operation to "capture or kill" Khashoggi.

Bin Salman isn't making it easier on Biden to repair their relations.

He appeared to go out of his way to aggravate the White House during an interview with the Atlantic published last week.

“We don’t have the right to lecture you in America,” he said. “The same goes the other way.”

Sanctions against Russia's oil exports, including a possible ban on importing Russian oil into the US, would both elevate worldwide gas prices and stoke domestic inflation.

Biden officials want to preserve options for the president, including the chance to make amends with the Saudis and persuade them to increase their oil production.

Discussions about a potential visit are still in the early phases and officials cautioned a visit is far from finalized and may not happen.

Russian actions are also factoring into the president's other planned travel.

The invasion has sparked an international refugee crisis and raised worldwide prices, so the president wants to ensure US allies remain united. His in-person attendance at summit meetings also highlights how concern about COVID-19 has waned.

Biden's first trip this year is likely to Japan, potentially in May. He's set to meet with the other leaders of the Quad: Japan, India and Australia.

In June, he's scheduled to attend a G7 meeting in Germany. That will be followed by a NATO summit in Spain.

The European itinerary could also be expanded to include a stop in Israel, where Biden told Prime Minister Naftali Bennett he wanted to visit this spring.