Tanker market to be only marginally affected from OPEC’s decision to limit oil output

With so many variables into play for the tanker market, one of the most important ones, the recent decision from OPEC to limit oil production, could perhaps have the most negative impact for ship owners. However, as shipbroker Gibson points out, in the end impact is expected to be minimal.

In its latest weekly report, the shipbroker said that “last week’s announcement that OPEC has reached a provisional agreement to cut production came as a surprise to many oil market participants. Whilst we had known for some time that an informal OPEC meeting would take place on the sidelines of the International Energy Forum in Algeria, few expected any meaningful news to emerge. Yet we now know that there is an intention within OPEC to limit output within a 32.5 to 33 million b/d range, down some 0.5 to 1 million b/d from nearly 33.5 million b/d produced by OPEC in August. Yet despite this intention, the details still need to be ironed out with OPEC needing to agree, who and how much to cut. Firstly, Iran is likely to remain exempt from any deal until its production is restored to 4 million b/d, up from approx. 3.6 million b/d at present. Whilst Nigeria, which has been supportive of such an arrangement is likely to be unwilling to cap production much below 2 million b/d, from recent levels as low as 1.46 million b/d”.

Gibson noted that “equally other OPEC producers will claim their production is in recovery mode. Production in Libya is rising but well below the 1.39 million b/d produced in 2011. Venezuelan production has also been in decline, meaning they may also be unwilling to adhere to any reduction in production levels. These factors mean the emphasis is likely to be placed again on Middle East producers, with Saudi Arabia in particular focus. Saudi crude production hit 10.6 million b/d in August, following seasonal trends which typically see production increase over the summer months to meet domestic energy demand. One could therefore argue that production was always going to fall towards the end of the year as peak electricity demand faded closer to the cooler winter months. Thus a cut of 0.4 million b/d which has been muted by some analysts, may have a limited impact”.

Meanwhile, according to the shipbroker, “other Gulf states including Kuwait, the UAE and Qatar also boosted production over the summer, and may follow similar seasonal patterns. In any case, even if some OPEC member’s trim production, rising production from both within and beyond OPEC could offset any declines. Increases from Iran and Nigeria seem likely, whilst any artificial support to the oil price will stimulate non OPEC supply and could be the catalyst needed to reinvigorate the US shale industry. Shale producers have been forced into becoming far more efficient in order to survive lower prices, meaning break evens across the industry have fallen. 109 rigs have been added since May, and production may be starting to stabilize, all of this in a $40- 50/bbl price range. If oil prices are to firm further, then US drilling activity is likely to intensify”.

“Additionally, production is rising in Brazil, whilst crude flows from the Kashagan field are starting to materialize. Equally, Russia is sending out mixed signals. Russian production is at or near record levels, and whilst Russia has signaled it may be willing to freeze output, a cut could be a step to far for now. Overall, whilst such action from OPEC is typically negative for the tanker market, it may not be a disaster with the impact being marginal, offset by rising supplies elsewhere. Equally, much of the cut backs could be a reflection of lower seasonal domestic demand amongst crude producers, and thus have a limited impact on seaborne exports”, Gibson concluded.

Meanwhile, in the Middle East crude tanker market this week, Gibson said that “rampant volumes for a second week running heaved VLCCs into new, higher, Rate territory but the wealth of availability meant that although rates moved noticeably to an average ws 55 to the East and to ws 30 to the West, There remains a feeling of slight underperformance on what will prove to be the busiest month of the year. Owners are now consolidating the gain, and will look for further upward opportunity if Charterers maintain momentum into next week, and into the November programme – if. Suezmaxes merely drifted sideways, however, upon only modest enquiry, and easy looking tonnage. Rates remained at no better than ws 37.5 to the West for ‘standard’ movements, Though loadings from Iran commanded large premiums. Levels to the East also hardly broke above the previous ws 60 mark. Aframaxes became a little busier and that proved sufficient to drag rates off their bottom markers to end at 80,000 by ws 67.5 to Singapore – modest, but progress nonetheless”, the shipbroker concluded.

Source: Hellenic Shipping News Worldwide