Oil tanker market soars

As the cliché goes, “the tanker sector is on fire.” Charter hires have reached stratospheric levels on the back of longer voyages for crude oil and for refined products, as well as small and large gas carriers.

The team at Deutsche Bank - Amit Mehrotra and Charles Robertson, who has recently joined - put it nicely, “Looking ahead, we expect continued strength in the tanker segment into next year, especially in light of upcoming EU sanctions against Russian crude and refined oil products imports. We believe minimal fleet supply growth coupled with expanding ton-mile demand for tankers will result in stronger rates for coming quarters.”

An important index of tanker health is the Baltic Dirty Tanker Index (BTDI), which has surged from just under 1,500 points to over 1,800 points during October. Researchers at tanker broker Poten have pegged period hires for economical VLCCs at US$47,500 per day for one year, end 2023, and US$39,000 per day (end 2024) for two year periods. Spot hires for VLCC’s in the BTDI, for AG to Far East were estimated to be north of US$70,000 per day

The listed equities have responded in kind. International Seaways, which the Deutsche Bank analysts had placed a target of US$40 per share on around October 10, 2022, when they began coverage, has been a standout. With INSW having now reached above this target in less than three weeks after starting to follow it, the analysts have now moved the target up to US$50 per share, based on cash flow estimates for 2023- 2024 being revised upwards. Each new pricing pinnacle represents an all-time-high for the tanker owner, with its previous highs set in early 2020 at around US$30 per share.

Importantly, the Mehrotra/Robertson duo say, “We believe INSW shares are now trading above net asset value (NAV).” Other owners have also noted the owner’s strength. Besides a prescient investment in INSW by Frontline in late April, which has now nearly doubled in value, investors tied to insiders Ofer and Navig8 both took stakes during October.

The potential for dramatic increases in demand for handling Russian oil export oil movements is bolstering tanker optimism as origins and destinations begin a big pivot in the wake of sanctions, and, possibly, price caps on oil moving out of Russia.

One extreme trade-rearrangement boosting ton miles, cited by one news service contemplated that oil from eastern Russia was being supplanted, in the case of several cargoes recently fixed hauling Brazilian crude into China.

Once the sanctions begin, observers expect that what’s euphemistically known as the fleet of shadow tankers or dark tankers will haul at least a portion, but not all, of the Russian crude to buyers, complemented by owners staying out of the European Union trades.

Analysts at shipbroker Braemar who looked at projected export volumes against available Russian and Russian-trading tankers still came up with a deficit. Their calculations suggest a shortfall of 110 tankers (mainly Aframaxes and Suezmaxes) needed to haul Russian crude if volumes remain around 3.5 million barrels per day. Brokers Gibson, while not putting a number on needed vessels echoed a similar notion of a shortage, and, said that if the Russian trading fleet is undersupplied, which would drive increased S & P activity and potential support secondhand values even higher.

While the optimism is raging now savvy players are taking money off the table. Besides tanker owners entering into period charters to lock in the highs, at least one large INSW shareholder has been cashing out. Regulatory filings show that entities linked to Craig Stevenson, a Director of INSW, who headed up Diamond-S, which was merged into INSW last year, had sold a large block of owned shares though still maintaining a substantial holding. Stevenson was heading up the old OMI Corp, which sold its fleet for US$2.2 billion, divided between Teekay and Torm, in 2007, at the height of a previous tanker boom.

US oil production nears 12 million barrels/day

According to Reuters, oil production in the United States rose to nearly 12 million barrels per day (bpd) in August 2022, the highest since the onset of the COVID-19 pandemic; even as shale companies have said they do not see production accelerating in coming months.

US crude prices have hovered around US$85/barrel after surging into triple-digits this year and boosting fuel costs for consumers. President Joe Biden has called on oil companies to boost production to reduce fuel prices.

Overall US output peaked at 13 million bpd in late 2019, and has not returned to that level since the pandemic started as rigs have been shut in and as costs for equipment and labor increased rapidly.

Several US shale producers recently said well results are disappointing, and production is falling short of forecasts.

"You'll see production tick higher, but I don't think we're going to go ripping higher to 13.1 million barrels," said Bob Yawger, Director of Energy Futures at Mizuho in New York.

A little over two years after the pandemic wrecked havoc on demand and slashed profits, four of the five largest global oil companies brought in roughly US$50 billion in net income in the most recent quarter.

Most major oil majors and large, listed producers are focused on returning profits to shareholders through share buybacks and dividends.

US upstream oil companies are expected to bank a 68% increase in free cash flow per barrel in 2022, while output growth lingers at 4.5% year to date, Deloitte said last week.

Crude production rose 0.9% to 11.98 million bpd in August, highest since March 2020, the US Energy Information Administration (EIA) said in monthly figures.

Natural gas production in the United States hit another record, with gross output in the lower 48 states rising 0.6 billion cubic feet per day (bcfd) to 110.6 bcfd in August. That topped the prior all-time high of 110.0 bcfd in July.

In top oil producing states, monthly output rose 1.6% to 5.10 million bpd in Texas and 0.6% to a record 1.58 million bpd in New Mexico, but fell 0.5% to 1.06 million bpd in North Dakota. Texas's output is at a level not seen since April 2020.

In top gas producing states, monthly output rose 0.9% to a record 31.3 bcfd in Texas and fell 1.5% to 20.4 bcfd in Pennsylvania, lowest since November 2020.

 

 

Indian rupee marks biggest monthly losing streak since 1985

The Indian rupee has declined in each of the ten months this year to notch its biggest losing streak in almost four decades as the US Federal Reserve's hawkish stance on monetary policy catapulted the dollar to two-decade highs.

The dollar index is up 16% this year, having scaled 114.8 levels last month to trade near its 2002 peak. Its ascent has pressured currencies globally, especially ones in emerging Asian markets.

The Indian rupee fell 1.8% against the dollar in October, taking its slide for the year to nearly 11%.

Surging oil prices due to the Russia-Ukraine conflict and weakness in the Chinese yuan have only piled on more pressure on the rupee and helped send it to a record low of 83.29 per dollar earlier this month.

The rupee's losses have been deeper in the past two months, with market participants reckoning that the Reserve Bank of India let the currency slide after having helped hold it at the 79-80 levels for a long time.

Almost all traders and economists expect there will be no let-up in the pressure on the rupee for the rest of the year as the Fed stays on its aggressive rate-hike path after making fighting inflation its priority.

"This week, the Fed's upcoming meeting would be crucial for the rupee outlook. It could come under pressure in case Fed indicates aggressive tightening path in the future," HDFC Bank economists wrote in a note.

"Broadly, 81.80 to 82.00 seems a strong support zone for the USD/INR pair. As long as it trades above this convincingly, one can expect a U-turn towards 82.80 to 83.00 levels," said Amit Pabari, managing director at consultancy firm CR Forex Advisors.

Can Black Sea grain deal survive without Russia?

According to a Reuters report, United Nations, Turkey and Ukraine pressed ahead to implement a Black Sea grain deal and agreed on a transit plan for Monday for 16 vessels to move forward, despite Russia's withdrawal from the pact that has allowed the export of Ukrainian agricultural products to the world markets.

Russia, which invaded Ukraine on February 24 this year, on Saturday halted its role in the Black Sea deal for an indefinite term, cutting shipments from one of the world's top grain exporters, because it said it could not guarantee safety of civilian ships travelling under the pact after an attack on its Black Sea fleet.

The move has sparked an outcry from Ukraine, NATO, the European Union and the United States, while the United Nations and Turkey, two main brokers of the July deal, scrambled on Sunday to save it.

UN Secretary-General Antonio Guterres was deeply concerned about Russia's move and delayed a foreign trip to try and revive the agreement that was intended to ease a global food crisis, his spokesperson said.

Following Russia's move, Chicago wheat futures jumped more than 5% on Monday as both Russia and Ukraine are among the world's largest wheat exporters, analysts said.

More than 9.5 million tons corn, wheat, sunflower products, barley, rapeseed and soy have been exported since July. Under the deal, a Joint Coordination Centre (JCC) - made up of UN, Turkish, Russian and Ukrainian officials - agrees on the movement of ships and inspects the vessels.

No ships moved through the established maritime humanitarian corridor on Sunday. But the United Nations said in a statement that it had agreed with Ukraine and Turkey on a movement plan for 16 vessels on Monday - 12 outbound and 4 inbound.

It said the Russian officials at the JCC had been told about the plan, along with the intention to inspect 40 outbound vessels on Monday, and noted that "all participants coordinate with their respective military and other relevant authorities to ensure the safe passage of commercial vessels" under the deal.

During Sunday's session among the grain deal delegations, Russian officials said Moscow will continue the dialogue with the United Nations and the Turkish delegation on pressing issues, the UN said in its statement.

Turkish Defence Minister Hulusi Akar was in contact with his Russian and Ukrainian counterparts to try and salvage the agreement and had asked the parties to avoid any provocation, the Turkish defence ministry said.

NATO and the European Union have urged Russia to reconsider its decision. US President Joe Biden on Saturday called Russia's move purely outrageous and said it would increase starvation. US Secretary of State Antony Blinken accused Moscow of weaponizing food.

On Sunday, Russia's ambassador to Washington snapped back, saying the US response was outrageous and made false assertions about Moscow's move.

QatarEnergy keen in acquiring 30% stake in Lebanon offshore gas project

State-owned QatarEnergy is in talks with the Lebanese government to take a 30% stake in an offshore exploration block and is also negotiating with TotalEnergies and ENI on this matter, CEO Saad al-Kaabi confirmed on Sunday.

According to Reuters, TotalEnergies and the Lebanese government have reached a deal handing the French oil major temporary majority control of the block and paving the way for negotiations with Qatar over a stake in the gas project.

"We are in the process of discussing that with the government of Lebanon and the partners, Total and ENI for a participation of around 30% ownership of that exploration block," Kaabi said.

"In due course when we get that basically finalized as an agreement, and we sign that agreement, we will announce it."

The initial exploration license was held by a three-part consortium of TotalEnergies, Italy's Eni and Novatek. Beirut announced in September that Novatek, which held a 20% stake, would exit.

Lebanon's cabinet issued an unpublished decision on October 21, assigning Novatek's stake to a firm called Daja 216 and transferring TotalEnergies's 40% stake to another company, Daja 215. It is believed that Daja 215 and Daja 216 were TotalEnergies vehicles.

The sources had said that the understanding between TotalEnergies and Lebanon was that the French group would enter negotiations with QatarEnergy over the former Novatek stake. Qatar was seeking a 30% stake, comprised of Novatek's former stake and a 5% stake from each of TotalEnergies and Eni.

Offshore areas in the eastern Mediterranean and Levant have yielded major gas discoveries in the past decade. Interest in them has grown since Russia's invasion of Ukraine disrupted gas supplies.

 

Russia intends to suspend grain export deal

Russia expresses intent to suspend its participation in the agreement to ensure the continuation of Ukrainian grain exports — vital for food supplies to poor countries — linking the decision to a drone attack on Russian ships in occupied Crimea on Saturday morning. The Defense Ministry announced the move, and it was also reported by the state news agency TASS.

"Taking into account the terrorist act carried out by the Kiev regime with the participation of British experts against ships of the Black Sea fleet and civilian vessels involved in the security of grain corridors, Russia suspends its participation in the implementation of the agreement on exports of agricultural products from Ukrainian ports," the Russian Defense Ministry announced on Telegram.

The move comes a day after UN Secretary-General Antonio Guterres urged Russia and Ukraine to renew the deal that has seen more than nine million tons of grain exported from Ukraine and brought down global food prices.
The Ukrainian president's chief of staff, Andriy Yermak, accused Russia of blackmail and invented terror attacks on its own territory — an apparent response to Russian accusations that Ukraine was behind the blasts.

An adviser to Ukraine's Interior Ministry, Anton Gerashchenko, claimed in his Telegram channel that "careless handling of explosives" in occupied Crimea led to explosions aboard four warships belonging to Russia's Black Sea Fleet.

Regarding the UK, the Russian Defense Ministry also blamed British specialists based in Ochakov, Mykolaiv region for preparing a terrorist act and training Ukrainian military personnel.

It also said British navy personnel blew up the Nord Stream gas pipelines last month, without providing any evidence. Britain's Defense Ministry said the Russian claims were false and designed to distract from Russian military failures in Ukraine.

Lebanon plunging into constitutional chaos

Outgoing Lebanese President Michel Aoun told Reuters on Saturday his nation could be sliding into constitutional chaos, with an unprecedented situation of having no one in line to succeed him and a cabinet that is operating in a caretaker capacity.

Aoun is set to leave the presidential palace on Sunday, a day before his six-year term ends, but four sessions in the nation's fractured parliament have failed to reach consensus on a candidate to succeed him.

Aoun said in an interview an 11th-hour political move to address the constitutional crisis might be possible, but added there is no final decision on what that could involve.

Aoun's presidency is inextricably linked in the minds of many Lebanese to their country's worst days since the 1975-1990 civil war, with the financial crisis that began in 2019 and the deadly Beirut port blast of 2020.

In the days after the blast, Aoun said he had received a report about the roughly 2,700 tons of ammonium nitrate stored at the port of Beirut weeks before they detonated and killed some 220 people.

Aoun's son-in-law Gebran Bassil, who was put on a sanctions list by the United States in 2020 for alleged corruption, has presidential ambitions, according to political sources.

Bassil has denied the allegations of corruption, and Aoun said on Saturday the sanctions would not stop Bassil from eventually being a presidential candidate.

Once he's elected president, the sanctions will go away, Aoun said, without elaborating.

In his final week as President, Aoun signed a US-brokered deal delineating Lebanon's southern maritime border with Israel - a modest diplomatic breakthrough that would allow both countries to extract natural gas from maritime deposits.

He said powerful Iran-backed armed group Hezbollah, which sent unarmed drones over Israel and threatened to attack its offshore rigs multiple times, had served as a deterrent that had helped keep the negotiations going in Lebanon's favour.

"It wasn't coordinated (with the government). It was an initiative taken by Hezbollah and it was useful," Aoun said, adding that the Lebanese army "had no role" in this regard.

He said the deal paved the way for gas discoveries that could be Lebanon's last chance at recovering from a three-year financial meltdown that has cost the currency 95% of its value and pushed 80% of the population into poverty.

Lebanon has otherwise made slow progress on a checklist of reforms required to gain access to US$3 billion in financing from the International Monetary Fund.

Aoun said he would stay involved in politics in Lebanon even after he leaves office, particularly to fight Central Bank governor Riad Salameh, one of the president's main political adversaries.

Salameh is being investigated in Lebanon and at least five countries abroad on charges of corruption and embezzlement of public funds, charges he denies.