Four VLCCs heading to US Gulf to store crude

Spanish Market: Crude oil, Freight
19/05/20

At least four empty very large crude carriers (VLCCs) booked for floating storage are on their way to the US Gulf coast and will likely add to the tally of VLCCs storing US crude.

The four tankers are part of a flurry of floating storage bookings that occurred amid a growing oil glut on sharply lower demand from Covid-19-related restrictions on travel. The oversupply combined with an oil price crash resulted in high demand for crude storage.

The glut persists, but rising prices have eased some of the pressure on storage capacity. The Nymex WTI June futures contract closed today at $32.50/bl, compared with the -$37.63/bl close of the May contract on 20 April.

The Blue Nova, chartered by US oil producer Hess, is scheduled to arrive on 24 May, per data from oil analytics firm Vortexa. The Maxim, chartered by fellow US crude producer Occidental, is set to reach the US Gulf coast on 31 May. The remaining two VLCCs, the Occidental-chartered Sea Ruby and the Hess-chartered Leonidas, are scheduled to arrive on 3 June and 24 June, respectively.

Hess said it has chartered a third VLCC for storage. Occidental has no other known floating storage bookings.

The four tankers were chartered for 9- to 12-month durations at an average rate of $89,500/d, according to the Argus floating storage bookings database. VLCC short-term time charter rates have since dropped to around $75,000/d as the Opec+ cuts lower cargo demand and free up tonnage supply.

Excess US crude and limited land-storage capacity have already prompted traders to exercise floating storage options on at least four additional VLCCs with US crude. The Eliza, Maran Corona, and Maran Apollo, all chartered by Shell, have not moved far since loading full cargoes at Louisiana Offshore Oil Port (LOOP) at various points stretching back to early April. The Vitol-chartered Hunter Saga VLCC is sitting near Rotterdam with a US crude cargo at $100,000/d.

Other tankers — some of smaller sizes — are also sitting idle with US crude cargoes, though the reason may be port delays. The Agios Nikolas, a VLCC that Trafigura chartered on 6 February before the pandemic sapped oil demand, has been sitting idle in Taiwan for over a week, despite being initially booked for a standard US-Asia journey, not a short-term time charter.

Traders have booked at least 75 VLCCs, 47 Suezmaxes, and 36 Aframaxes on short-term time charters that include floating storage options, according to the Argus database.

By Nicholas Watt

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31/12/24

US crude output at record 13.46mn b/d in Oct: EIA

Calgary, 31 December (Argus) — US crude production in October rose to a record high 13.46mn b/d on sustained strength in Texas and New Mexico, the Energy Information Administration (EIA) said today in its Petroleum Supply Monthly report. Output rose from 13.2mn b/d in September and from 13.15mn b/d in October 2023. The prior record of 13.36mn b/d was set in August. Texas, home to 44pc of the country's crude production, pumped out a record 5.86mn b/d in October, up from 5.8mn b/d in September and up from 5.57mn b/d in October 2023. New Mexico, which shares the prolific Permian basin with Texas, produced 2.08mn b/d in October, ticking down by 5,000 b/d from record highs set in August and September but up from 1.8mn b/d in October 2023. US offshore crude output in the Gulf of Mexico rebounded to 1.85mn b/d in October after hurricane activity in September cut production to 1.57mn b/d. Still, US Gulf of Mexico output was down from 1.94mn b/d in October 2023. Monthly production changes inland were mixed, with North Dakota falling to 1.16mn b/d in October from 1.21mn b/d in the month prior. Bakken shale basin producers had to contend with wildfires during the month and effects are still lingering for some, state officials said earlier this month. Colorado output rose in October to the highest in more than four years at 499,000 b/d. This was up from 476,000 b/d in September and the highest level for the state since March 2020. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: 2025 Hardisty heavy diffs may remain strong

31/12/24

Viewpoint: 2025 Hardisty heavy diffs may remain strong

Calgary, 31 December (Argus) — Heavy crude spot differentials in Alberta are expected to remain strong into next year, even with growing oil sands production and possible US import tariffs. After years of cost-overruns and construction delays, the 590,000 b/d Trans Mountain Expansion (TMX) commenced on 1 May, nearly tripling the capacity of crude able to reach Canada's Pacific coast and providing Alberta oil sands producers with increased access to buyers on the US west coast and Asia-Pacific. Extra egress capacity for Alberta crude westward has pulled previously apportioned volumes away from Enbridge's 3mn b/d Mainline system — Canada's main method of export to ship crude south to US refiners in the midcontinent and Gulf coast. In the fourth quarter, apportionment averaged just over 1pc for both light and heavy crude on the Mainline, significantly lower than the average apportionment of 21pc for lights and heavies in the fourth quarter last year. While president-elect Donald Trump's looming blanket tariff on all Canadian imports would re-direct more Albertan crude westward via TMX to Asia- Pacific buyers, many believe the tariff would be too harmful to US midcontinent refiners for Trump to actually carry out his threat. Prior to TMX's commencement, high apportionment combined with rising crude production heading into the winter months forced more crude onto railcars, which typically requires a $15/bl to $20/bl spread between Western Canadian Select (WCS) at Hardisty Alberta, and Houston, Texas, for uncommitted shippers to profit. With the redirection of apportioned volumes to buyers in the west, Canadian heavy spot differentials in Alberta have strengthened in a quarter when discounts have generally widened in recent years. Argus's WCS Hardisty assessment averaged a $12.08/bl discount to the CMA Nymex WTI during fourth quarter Canadian trade cycle dates, $11.52/bl stronger than the $23.61/bl discount averaged in the fourth quarter a year prior. Yet, crude output in Alberta's key oil sands is expected to rise heading into 2025, with production levels reaching record-high levels this year. Alberta crude output was 4.2mn b/d in October, according to the latest Alberta Energy Regulator (AER) data, up by 9.4pc year from a year earlier and the second highest monthly production on record. Alberta oil sands producers, meanwhile, have increased their crude production guidance for next year. Suncor expects to pump out 810,000-840,000 b/d across its upstream sector in 2025, up by 5pc from 2024. Cenovus expects to increase production next year by 4pc to between 805,000-845,000 b/d of oil equivalent (boe/d), and Imperial Oil plans to boost upstream production by 2pc to 433,000-456,000 boe/d. Egress capacity remains ample despite rising production heading into 2025. Total crude pipeline egress capacity out of Alberta is expected to be over 4.6mn b/d in 2025, with shippers still yet to utilize uncommitted space on the 890,000 b/d Trans Mountain pipeline. About 712,000 b/d or 80pc of the system is reserved for contracted shippers, with the remaining 20pc available for uncontracted shipments. With unconstrained egress capacity expected to persist, Suncor and Cenovus have both assumed WCS at Hardisty will average a strong $14/bl discount to WTI in 2025. In the near term, Trump's plans to impose a blanket 25pc tariff on all Canadian imports would threaten some US demand for Canadian crude. Yet, while some traders are pricing in the reality of US tariffs, most market participants are skeptical of whether Trump's tariff plans would extend to Canadian crude due to the co-dependency between Albertan producers and some US refiners. US midcontinent refiners, many of whom were financial backers of Trump's 2024 presidential campaign, are dependent on Canadian crude given a lack of access to alternative heavy sour crudes suited for their refineries. Canadian grades represent approximately 70pc of the US midcontinent refinery feedstock, with the remainder largely sourced in the US. US importers may take more crude from countries including Saudi Arabia, given the country has plenty of spare capacity to increase the production of heavy sour crude favored by US midcontinent refiners. However, replacing Canadian crude with waterborne supplies would result in a substantial increase in tanker demand. In August, only around 370,000 b/d of the 3.8mn b/d of Canadian crude imported by US refiners moved on tankers, Vortexa data show. Even if US refiners can replace Canadian and Mexican heavy crude, they are expected to face higher landed costs and, potentially, less reliable supplies. By Kyle Tsang Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US Supreme Court tees up more energy cases

31/12/24

Viewpoint: US Supreme Court tees up more energy cases

Washington, 31 December (Argus) — The US Supreme Court is on track for another term that could significantly affect the energy sector, with rulings anticipated in the new year that could narrow environmental reviews and challenge California's authority to set its own tailpipe standards. The Supreme Court earlier this month held arguments in Seven County Infrastructure Coalition v Eagle County, Colorado , a case in which the justices are being asked to decide whether federal rail regulators adequately studied the environmental effects of a proposed 88-mile railway that would transport 80,000 b/d of crude. A lower court last year found the review, prepared under the National Environmental Policy Act (NEPA), should have analyzed how building the project would affect drilling and refining. Business groups want the Supreme Court to issue an expansive ruling that would limit NEPA reviews only to "proximate" effects, such as how rail traffic could affect nearby wildlife, rather than reviewing distance effects. The court recently agreed to hear a separate case that could restrict California's unique authority under the Clean Air Act to issue its own greenhouse gas regulations for newly sold cars and pickup trucks that are more stringent than federal standards. Oil refiners and biofuel producers in that case, Diamond Alternative Energy v EPA , say they should have "standing" to advance a lawsuit challenging those standards — even though they could now show prevailing in the case would change fuel demand — based on the alleged "coercive and predictable effects of regulation on third parties". These two cases, likely to be decided by the end of June, follow on the heels of the court's blockbuster decision in June overturning the decades-old "Chevron deference", a foundation for administration law that had given federal agencies greater flexibility when writing regulations. Last term, the court also limited agency enforcement powers and halted a rule targeting cross-state air pollution sources. This term's cases are unlikely to have as far-reaching consequences for the energy sector as overturning Chevron. But industry officials hope the two pending cases will provide clarity on issues that have been problematic for developers, including the scope of federal environmental reviews and the ability of industry to win legal "standing" to bring lawsuits. Two other cases could have significant effects for the oil sector, if the court agrees to consider them at a conference set for 10 January. Utah has a pending complaint before the court designed to force the US to dispose of 18.5mn acres of "unappropriated" federal land in the state, including oil-producing acreage. Utah argues that indefinitely retaining the land — which covers about a third of Utah — is unconstitutional. In another pending case, Sunoco and other oil companies have asked for a ruling that could halt a series of lawsuits filed against them in state courts for alleged damages from greenhouse gas emissions. President-elect Donald Trump's re-election could create complications for cases pending before the Supreme Court, if the incoming administration adopts new legal positions. Trump plans to nominate John Sauer, who successfully represented Trump in his presidential immunity case, as his solicitor general before the Supreme Court. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Capesize peaks to be limited by low Panamax

31/12/24

Viewpoint: Capesize peaks to be limited by low Panamax

London, 31 December (Argus) — Capesize rates on the key routes are set to finish 2024 close to their lowest levels in two years, in stark contrast to most of this year. Volatility in the market increased throughout 2024 and this is likely to continue into 2025. But low rates for the Panamax class and below will likely temper any probable future spikes in Capesize rates, as charterers will look to split cargoes rather than hike their Capesize bids. The average annual Capesize freight rate from west Australia to Qingdao, China, surged in 2024 year on year by 16pc to $10.09/t. And on the Tubarao, Brazil, to Qingdao route by 18.5pc to $24.95/t. But there was significant volatility throughout the year as the average voyage time increased significantly on the back of more traffic between west Africa and east Asia, which meant that short-term shortfalls of tonnage in specific regions was increasingly common. The only sustained rally for Capesize rates this year was from late-August to early-October. But this was when the market first started to split Capesize cargoes onto smaller vessels, which remained inexpensive. This primarily took place in the coal segment, and Capesize tonne miles (tmi) for coal cargoes dropped in October by 37pc to 103.4 trillion tmi, compared with October 2023, Kpler data show. At the same time, Panamax tmi for coal cargoes rose by 14.6pc to 200.5 trillion tmi. This trend is also likely to ramp up in 2025 as Panamax rates have been under sustained pressure in 2024 and are likely to remain a cheap alternative when Capesize rates surge. But this will affect coal to a greater extent than iron ore as coal companies can switch between Capesizes and Panamaxes quickly, while for iron ore producers in Australia and Brazil this option is typically not viable. The most pressing question now is: how long will any particular period of low Capesize rates last? Capesize rates fell sharply in early 2024, reaching a low in January before rallying again in early February. But a repeat of this pattern is unlikely in 2025 because it was driven in 2024 by the late onset of the rainy season and low precipitation in Brazil. This year's rainy season started earlier and precipitation is ample. Also, China's and India's lower currency rates and high stocks in China's ports will probably cap trading activity for some time. Iron ore exports from Brazil could remain low until the end of the rainy season, likely in March-April. This is despite the recovery of the Carajas railway after a December blockade and the expected restart of Vale's CPBS terminal in Itaguai in January following maintenance. As a result, the Capesize market is expected to follow seasonal patterns and remain low in the first quarter of 2025. But a rebound may occur in the second quarter. In Brazil, when the rainy season ends, increased iron ore volumes on the long-haul route will push Capesize tmi higher. This could trigger a rally in the Capesize market, as the order book is still low and the tonnage supply remains inelastic. The Capesize market saw several brief rapid jumps, followed by equally rapid crashes, at year end. This trend will likely continue in the second quarter of 2025 after the market recovers from the usual first-quarter malaise. Along with the propensity to split coal cargoes, the historically low dry bulk order book and increased shipments from west Africa to east Asia have also been a key factor as it limits tonnage availability and has made supply increasingly inelastic, driving up rate volatility. Every time iron ore demand climbs quickly — especially in the Atlantic — or adverse weather conditions occur in the Pacific and cause disruptions on the route from China to Australia — a new spike in Capesize rates occurs as the tighter vessel supply is unable to quickly respond. This Capesize-Panamax tangent might be broken under certain circumstances: if Capesize rates fall back to 2023 levels (like now) or if next year's grain harvest is higher (particularly if China increases its buying of South American grain and decreases its buying of US grain in response to Donald Trump's upcoming tariffs), which pushes Panamax rates up. The Red Sea could also be a factor in pushing Capesize tmi lower next year if it reopens, but this is highly unlikely. Shipping association Bimco assumes it may happen in 2025 or 2026, but it may last much longer, even in the case of a possible ceasefire between Israel and Palestine. Capesize rates in 2025 will also likely be supported by higher demand, along with increasingly inelastic supply. Shipbroker Howe Robinson expects global iron ore trade to reach around 1.67bn t in 2024, up from around 1.64bn t in 2023. "Volumes may further increase in 2025 as Vale and CSN commercialise their planned expansion projects," Howe Robinson said. China's rising steel and automobile exports can still offset slow domestic steel demand. The market potentially sees the first Simandou, west Africa iron ore cargoes in 2025, greatly increasing the average sailing distance for iron ore cargoes, according to industry forecasts. A further driver to overall Capesize demand will be bauxite exports from Guinea that could rebound, especially if EGA finally solves its customs problems, which is yet to be solved at year end, according to market participants. China's bauxite imports surged in August by 41pc year on year to a new record high of 15.5mn t, shipbroker Ifchor-Galbraiths said. And the volumes will keep rising as China's alumina industry needs more raw material. Global coal trade will continue to be less significant as Capesize trade, in spite of the fact that is projected to increase in 2024 by 1.9pc to 1.47mn t, according to Howe Robinson. Bimco predicts that the trade may start shrinking next year and beyond, falling by 1-2pc in 2025 and by 1.5-2.5pc in 2026, as the use of renewables in China rises and Indian domestic output increases. But coal will likely continue as a balancing factor between Capesize and Panamax markets. In summary, the Capesize market may continue to be slow in the first quarter of 2025, while the market fundamentally remains inflexible and undersupplied. This could trigger a series of new rallies around March-May, when the rainy season in Brazil ends and demand typically increases. But cheap Panamaxes will probably create a ceiling for any future rallies, setting a trend for a more disrupted Capesize trade for 2025, until the new harvest comes. By Andrey Telegin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: China to keep dragging on shipping rates

30/12/24

Viewpoint: China to keep dragging on shipping rates

New York, 30 December (Argus) — Low appetite for crude oil and dry bulk commodities in China will keep a lid on next year's shipping rates, which are steaming toward their lowest fourth quarter since pandemic-hobbled 2021. China remains the world's top oil importer, receiving about a quarter of what oil tankers carry on a given day, but the country's oil consumption is slowing. China's turn toward electric vehicles, LNG-powered trucks and high-speed rail will continue to eat into the country's oil demand, even as its economy continues to grow. China's economy is expected to expand by 4.7pc in 2025, below this year's 4.9pc, but the country's oil demand is set to rise by only 2pc. In September-November this year, China's waterborne crude imports dropped by the equivalent of 10 2mn bl very large crude carriers (VLCCs) per month. And with the Chinese government's decision to cut rebates for refined product exports to 9pc from 13pc , the country's refiners will be further discouraged from importing crude. The lack of China-bound cargoes has lowered the average VLCC rate on the Mideast Gulf-China route to $1.64/bl so far in the fourth quarter, its lowest fourth quarter level since 2021 and down by 25pc year over year. While longer-haul tanker voyages resulting from Houthi attacks in the Red Sea and sanctions on Russian oil will continue to exert upward pressure on the tanker market into next year, barring any geopolitical breakthroughs, the lack of crude cargoes to the world's top oil importer will keep crude freight rates subdued. VLCC weakness is trickling down Rates for 1mn bl Suezmaxes and 700,000 bl Aframaxes are feeling the pain too as those segments compete with VLCCs in many regions such as the US Gulf coast, west Africa and the Middle East. Like the Mideast Gulf VLCC market, the US Gulf coast-Europe Aframax rate for 90,000t cargoes is on track for its lowest fourth quarter average since 2021 as well, falling by 20pc to $3.47/bl from a year earlier. The weakness will not be confined to the dirty tanker market. Next year, low dirty tanker rates will likely continue to encourage ship operators to move more VLCCs into clean freight service. This typically rare practice has become more common this year and is putting downward pressure on the product tanker market. So far in the fourth quarter, the Mideast Gulf to Asia-Pacific clean long range (LR1) rate is down by 31pc year over year and the US Gulf coast-Chile clean medium range (MR) rate is down by 29pc. With shipyards delivering 2-3pc of existing tanker capacity to the water next year, the tanker fleet is likely to be sufficiently supplied to meet the world's ocean-going oil transportation demands unless tanker scrapping activity accelerates. Demand for older tankers plying sanctioned trades and middling scrap steel prices are keeping mass tanker demolitions in check. Dry bulk operators feel China housing blues In the dry bulk market, fleet growth of around 3pc will be enough to accommodate what is expected to be modestly increased demand for shipping dry commodities such as iron ore, coal, and grains next year. China plays an even more outsized role in the dry bulk market because it receives nearly 45pc of the world's dry bulk cargoes. The country's bearish real estate sector threatens the dry bulk market's largest demand driver, iron ore. A 10pc decline in investment in its real estate sector this year spells weak construction demand in the next and bodes poorly for dry bulk ship operators hoping for a resurgent appetite for iron ore to make steel. Sluggish growth in China-bound iron ore shipments has already helped pull the Brazil-to-China Capesize iron ore freight rate down by 15pc to $21.30/t so far in the fourth quarter from a year prior. Capesize operator earnings have fallen below $10,000/d, near operating expense levels, for the first time since August 2023. By Nicholas Watt Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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