Crude Oil Tanker Market Outlook · Confidential. © 2019 IHS Markit®.All Rights Reserved. Opec...

Confidential. © 2019 IHS Markit®. All Rights Reserved.Confidential. © 2019 IHS Markit®. All Rights Reserved.

Crude Oil Tanker Market Outlook

Volatility after the big Recovery … what to expect ahead of 2020

Fotios Katsoulas, Principal Analyst

Confidential. © 2019 IHS Markit®. All Rights Reserved.

2

Market fundamentals to only improve in the second half of 2019

VLCC Rates under severe pressure since end of 2019-Q1

0

20

40

60

80

100

120

TD3-TCE TD3C-TCE TD2-TCE

VLCC Spot Rates: MEG to East, TCE

© 2019 IHS Markit

US

D k

per

day

Source: IHS Markit, Baltic Exchange

0

10 000

20 000

30 000

40 000

50 000

60 000

2017 2018 2019

VLCC Spot Rates: MEG to China (Seasonality)

© 2019 IHS Markit

US

D p

er

day



Opec production cut directly affecting demand for VLCCs

3

0

5

10

15

20

25

30

35

40

45

50

jan.18 apr.18 jul.18 okt.18 jan.19 apr.19

Far East SE Asia

VLCC liftings from MEG to Asia

Source: IHS Markit, Commodities at Sea © 2019 IHS Markit

Mn

to

nn

es

0

3

6

9

12


Smax to Europe VLCC to Far East

WAF liftings by sizeclass and destination


Mn

to

nn

es


4

But US sanctions on Venezuela increased domestically absorbed US volumes and reshaped the direction of flows

VLCC Rates earlier supported by increased US and Caribs liftings

25

30

35

40

45


Ballast Laden

VLCCs in Arabian Sea by Status

Source: IHS Markit, Market Intelligence Network © 2019 IHS Markit

nu

mb

er

of

sh

ips

45

50

55

60

65

70

75


Ballast Laden

VLCCs in USG and Atlantic by Status


nu

mb

er

of

sh

ips


5

9

12

15

18

21


ME WAF USG & Caribs

VLCC liftings of crude oil in major exporting regions

© 2019 IHS Markit

Mn

bp

d

Source: IHS Markit, Commodities at Sea

600

625

650

675

jan.19 feb.19 mar.19 apr.19

Oil on VLCCs (excluding domestic movements)

© 2019 IHS Markit

Mn

bb

l

Source: IHS Markit, Commodities at sea


Increased liftings from USG & Caribs caused % Laden Fleet to decline

6

48%

50%

52%

54%

56%

58%


Crude Oil Tanker Utilisation Status, % of Laden Fleet

© 2019 IHS MarkitSource: IHS Markit


7

Country set to turn into a net exporter by 2020, with production to reach 13.5 to 14.5 million bpd by end of next year

US Shale Boom to continue reshaping direction

-20

-10

0

10

20

30

40

TD1-TCE TD22-TCE

VLCC Spot Rates: MEG to USG vs USG to China TCE

© 2019 IHS Markit

US

D k

per

day


0

1 000

2 000

3 000

4 000

5 000

6 000

jan.18 mar.18 mai.18 jul.18 sep.18 nov.18 jan.19 mar.19

imports exports

Crude oil trade flows to/from the US

© 2019 IHS Markit

k b

pd



8

Nigerian production expected to decline due to first disruption in months

WAF loadings affected by instability and geopolitics

0

10 000

20 000

30 000

40 000

50 000

60 000

jul.18 okt.18 jan.19 apr.19

TD15-TCE

VLCC Spot Rates: WAF to China

© 2019 IHS Markit

US

D p

er

day


0

3

6

9


WAF to Europe Black Sea to Europe

Suezmax liftings by major route


Mn

to

nn

es


9

But fundamentals remain rather positive for the second half of the year. Disruptions like those in Africa affect loadings.

Sharper decline in Suezmax rates after the rapid increase in 2018 Q4.

-10

0

10

20

30

40

50

60

70


TD6-TCE TD20-TCE

Suezmax Time Charter Equivalents

© 2019 IHS Markit

US

D k

pe

r d

ay


34%

36%

38%

40%

42%

44%

46%

48%

50%

52%

0

10

20

30

40

50

60

70

80

90


Ballast Laden % Laden

Suezmaxes in Black Sea & Med by status


nu

mb

er

of

sh

ips


10

In parallel to the recovery experienced in the freight market in late 2018 and the increased utilisation

VLCC Asset Values for vessels older than 10 YO improved

0%

3%

6%

9%

12%

15%

18%

21%

24%

27%

30%

0

10

20

30

40

50

60

70

80

90

100

NB Resale 5 Yo 10 Yo 15 Yo 20 Yo Scrap

Apr-19 % dif since Dec-18 (RH Axis) % dif since Apr-18 (RH Axis)

VLCC Asset Values and % difference since 2018

Source: IHS Markit © 2019 IHS Markit

US

D M

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

5 Yo 10 Yo 15 Yo 20 Yo

2017 2018 2019

VLCC Depreciation Curve

© 2019 IHS MarkitSource: IHS Markit


11

Deliveries remained strong, while demolitions slowed down since early 2018 Q4.

Fleet growth still significant for VLCCs, more balanced for smaller ships

8,7%

0,7%

2,1%

6,3%5,8%

14,8%

1,9%

5,9%

3,9%

0%

3%

6%

9%

12%

15%

18%

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016 2017 2018

Orders % of fleet

Tankers orders vs active fleet capacity


Mn

Dw

t

33 232 990

6 244 591

10 794 704

VLCC SUEZMAX AFRAMAX

Current fleet orderbook structure



12

But “clean” maiden voyages and floating storage for products as we approach 2020 to support the market

Fleet growth marginally above demand growth

0

2

4

6

8

10

12

Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

VLCC Suezmax Aframax

Quarterly deliveries and scheduled orderbook


Mn

Dw

t

Scheduled orderbook

400

410

420

430

440

450

460

470

2018 2019 2020 2021

Forecast – active fleet


Mn

Dw

t


13

Iron price having a significant impact on residual values in parallel to other parameters

Limited interest to scrap during the recovery in 2018 Q3

400

410

420

430

440

450

460

470


Scrap Steel Price for Dirty Tankers

© 2019 IHS Markit

US

D p

er

Ld

t

Source: IHS Markit

19,0

19,5

20,0

20,5

21,0

21,5

22,0

22,5

23,0

23,5

24,0

0

2

4

6

8

10

12

14

16

18

2010 2011 2012 2013 2014 2015 2016 2017 2018

10-15 Years 15-20 Years 20-25 Years

25-30 Years 30> Years Average age of breaking(secondary axis)

Tankers demolition age structure


Millio

ns d

wt

More ships demolished in the first half of 2018 than in all

2012.

Confidential. © 2019 IHS Markit®. All Rights Reserved.Confidential. © 2019 IHS Markit®. All Rights Reserved.

Crude Oil Trade Flows


Key Messages

• Washington’s most recent announcement on halting waivers on Iranian sanctions will reshape the direction of crude oil trade flows.

• The Trump administration looks rather aggressive, but needs to decide between tough foreign policy and low oil prices

‒‒ Supply turning tighter, even if US produces 12 million barrels per day (bpd). Political unrest in North Africa

• OPEC+ determined to reduce output, with Saudi Arabia producing less than ten million bpd. They would first test oil prices before any action.

• Russia not expected to follow Opec+’s plan after June, not comfortable with that high oil prices and skeptical on US - Saudi Arabia dialogue

• Massive pressure against Venezuela and Iran to last. Output and exports to fall faster than earlier anticipated

• Strong US production cannot substitute Venezuela and Iran in 2019 H2, without Saudi’s cooperation.

15

Oil prices have moved below USD 70 per barrel, with supply tightening and demand remaining strong


16

However, we expect flows to China, major driver of global demand growth, to recover as we approach 2020

South Korea has been absorbing most US barrels since late 2018 Q3

0

100

200

300

400

500

600

700

800

900

jan.18 feb.18 mar.18 apr.18 mai.18 jun.18 jul.18 aug.18 sep.18 okt.18 nov.18 des.18 jan.19 feb.19 mar.19 apr.19

Korea (South) China Taiwan Japan

US Crude oil shipments to Far East

© 2019 IHS Markit

k b

pd



Losses primarily for Saudi Arabia and Iraq Brazil and Colombia replacing Venezuela after sanctions

17

Flows from MEG further down Short distance flows remain strong

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800


Saudi Arabia Other MEG

MEG Crude oil shipments to the US

© 2019 IHS Markit

k b

pd


0

500

1 000

1 500

2 000

2 500


Mexico Canada Venezuela & Islands Other LATAM

Crude oil shipments from Americas to the US

© 2019 IHS Markit

k b

pd



Long-term relation prioritized as competition intensifies Brazil lower than in 18Q4, but strong. US still avoided

18

Saudi focusing on flows to China China still imports from Venezuela

Iranian exports close to allowance, but set to decline

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000


MEG WAF Maghreb Red Sea

Crude oil shipments from Middle East and Africa to China

© 2019 IHS Markit

k b

pd


0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000


South America Caribs North America

Crude oil shipments from Americas to China

© 2019 IHS Markit

k b

pd



0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

MM

b/d

Venezuela exports (sanctions)

Iran exports (Sanctions)

Canada (Curtailment)

Libya (Civil war)

Iraq (KRG pipeline exports)

Infrastructure attacks (Nigeria,Colombia)

Weather/operational outages(temporary)

Conflict/War (Yemen, Sudan(s))

Neutral Zone

Global supply disruptions

Notes: Iran sanctions impact vs 1H2018 average exports


Iran

Iran

Venezuela

Libya

Global supply disruptions are at 3 MMb/d, not seen since 2015

19

Neutral Zone


Instability remains high for the Maghreb and Nigeria Despite Opec cuts, Angola improves its market share

20

Volatility for African exporters More African barrels for China

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000


China Med NW Eur India SE Asia USA

African Crude oil shipments by Destination

© 2019 IHS Markit

k b

pd


0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000


Nigeria Angola Egypt Libya Algeria Other

African Crude oil shipments by Origin

© 2019 IHS Markit

k b

pd



21

North Africa replacing Venezuela in Europe, while the US remain interested in some WAF grades.

Market Share of WAF and NAF improved after US sanctions on Venezuela

12%

14%

16%

18%

20%

0

2

4

6

8


North Africa West Africa Market Share (RH Axis)

African Crude Oil Loaded


mil

lio

n b

/d

12%

13%

14%

15%

16%

17%

18%

0

30

60

90

120

150

180


North Africa West Africa Market Share (RH Axis)

African Crude Oil on Water


mil

lio

n b

arr

els


22

Angola’s output in steep decline due to maturing fields and lack of investments

Nigeria: more disruptions, impact for Suezmaxes

0

500

1 000

1 500

2 000

2 500


NW Europe Mediterranean India North America SE Asia Far East C&S America Africa

Nigerian Crude Oil Imported by Region

© 2019 IHS Markit

tho

us

an

d b

/d


0

250

500

750

1 000

1 250

1 500

1 750

2 000


China India Mediterranean Other Asia NW Europe North America C&S America Africa

Angolan Crude Oil Imported by Region

© 2019 IHS Markit

tho

us

an

d b

/d

Source: IHS Markit


23

Algeria heavily relying on oil and gas. But exports fragile without maintenance

Libya Back on Disruption Watch, Concern due to Civil Conflict

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Libya crude production outlook


MM

b/d

Forecast

0

100

200

300

400

500

600

700

800

900

1 000


Mediterranean NW Europe Korea (South) India Other Asia North America Other

Algerian Crude Oil Exports by Destination

© 2019 IHS Markit

tho

us

an

d b

/d



24

Primarily driven by aging infrastructure and limited maintenance investment

Supply growth expected in 2020, but marginal decline in 2021

0

250

500

750

1 000

1 250

1 500

1 750

2 000

2017 2018 2019 2020 2021

Angola Nigeria Other WAF

West African Crude Oil Exports

© 2019 IHS Markit

tho

us

an

d b

/d

Source: IHS Markit's 2019 Annual Long-Term Strategic Workbook © 2019 IHS Markit

0

200

400

600

800

1 000

2017 2018 2019 2020 2021

Algeria Libya East Africa

North and East Africa Crude Oil Exports

© 2019 IHS Markit

tho

us

an

d b

/d

Source: IHS Markit's 2019 Annual Long-Term Strategic Workbook © 2019 IHS Markit


25

China will continue importing, but India seems ready to find alternatives. Brazil and other producers step in to fill the gap.

Venezuela set to decline further if the US sanctions last

0

1 000

2 000

3 000

4 000

5 000

6 000

jan.18 feb.18 mar.18 apr.18 mai.18 jun.18 jul.18 aug.18 sep.18 okt.18 nov.18 des.18 jan.19 feb.19 mar.19 apr.19

Venezuela & Islands Mexico Brazil Colombia Ecuador Uruguay Other

LATAM Crude oil shipments by Origin

© 2019 IHS Markit

k b

pd



Iranian flows to Japan and Korea set to collapse. India willing to cooperate

with the US to replace Iran, but market fundamentals not in favour.

26

0

500

1 000

1 500

2 000

2 500

3 000

3 500

nov.18 des.18 jan.19 feb.19 mar.19 apr.19

Saudi Arabia Russia Kuwait Iraq UAE USA Iran Qatar Algeria Mexico

Major exporters to South Korea - Liftings by origin


k b

pd

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

nov.18 des.18 jan.19 feb.19 mar.19 apr.19

Saudi Arabia UAE Kuwait Qatar Iran Russia Iraq Oman USA

Major exporters to Japan - Liftings by origin


k b

pd

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

nov.18 des.18 jan.19 feb.19 mar.19

Iraq Saudi Arabia UAE Venezuela Mexico Iran Kuwait Angola Nigeria USA Russia Other

Major exporters to India - Liftings by origin


k b

pd


Replacing Iran and Venezuela across Europe Affecting direction of flows across Far Eastern destinations

27

Russian flows from Europe down in April Volatility in Sokol differentials

0

1 000

2 000

3 000

4 000


Europe Far East SE Asia Indian SC Americas Other

Crude oil shipments from Russia - Baltic and Black Sea

© 2019 IHS Markit

k b

pd


0

200

400

600

800

1 000

1 200


China South Korea Japan SE Asia Indian SC Americas

Crude oil shipments from Russia - Far East

© 2019 IHS Markit

k b

pd



The US expects Saudi Arabia, the UAE and Kuwait to

support the market, but Opec seems determined to keep oil

prices above USD 70 a barrel. Russia remains sceptical.

• Opec+ agreement might not last for much longer.

• OECD inventories of crude oil below the five-year average

• Instability in Northern Africa increasing risk for tighter supply

• US production to be affected by capital discipline across operators

• US exports could reach nearly 5 MMb/d by end-2020, primarily

sweet. As China remains the major driver of global demand growth,

trade flows between the two countries would be critical for a

balance to be achieved.

• Iranian exports not to reach zero, but as production drops closer to

2 MMb/d by end of 2019, liftings will fall below 1 MMb/d

• Venezuela’s output to collapse. Around 750 k b/d by end of 2019.

• Production of IMO-compliant fuel to cause more changes in flows,

as crude oil remains tight. Trend to last till US and MEG further

increase output.

28

Is spare Capacity enough to fill the gap?

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

okt.18 nov.18 des.18 jan.19 feb.19 mar.19 apr.19

Saudi Arabia Russia Iraq UAE Kuwait

Crude oil shipments by major MEG producers and Russia

© 2019 IHS Markit

k b

pd


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29

Crude Oil Tanker Market Outlook · Confidential. © 2019 IHS Markit®.All Rights Reserved. Opec...

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