Viewpoint: Clean tanker recovery hopes for Europe
Positive signs lie ahead for product tanker owners, as chartering rates ticked up significantly in the fourth quarter of 2018, and bunker prices fell at the same time. Fleet growth slowed compared with last year, and forecasts put oil demand growth slightly higher in 2019.
The incoming International Maritime Organisation (IMO) 2020 regulations will add tonne-mile demand as greater quantities of compliant fuels move ahead of implementation. The combination of these factors should help owners with their bottom line in 2019.
Chartering rates remained relatively low from July to October 2018, but a surge in demand forced rates upwards significantly just before the winter. Demand was high on both sides of the Atlantic, which helped maintain rates for tankers loading in the US or Europe. This kept many Medium Range (MR) tankers trading in the Atlantic Ocean, which effectively limited available tonnage for non-transatlantic business.
At the same time, Handysizes were trading actively in northern and southern Europe. Consequently, charterers had to meet their cargo delivery obligations by either booking larger Long Range (LR) tankers or continuing to work with a limited pool. This was a perfect storm for charterers, who faced some of the highest rates recorded in the past few years.
Product demand also supports higher chartering rates, with the IEA forecasting global oil demand to increase by 1.4mn b/d in 2019, up from an estimated 1.3mn b/d in 2018, a metric that correlates with product tanker demand. While the growth in demand is modest, oil trade movements outpaced oil demand growth, according to BP's Statistical Review of World Energy. The average growth rate of oil consumption from 2010 to 2017 was 1.7pc; oil trade movements, facilitated largely by tankers, grew by an average 2.8pc in the same period. The same pattern should hold true in 2019 with movements growing disproportionally to the demand increase.
IMO 2020 might further shipowners' gains. Brokers and owners expect the new fuel grade requirements will drive up demand for moving compliant fuels on product tankers, and boost rates accordingly. In the OECD, fuel oil stocks already fell to a historic low as refiners are gearing up to provide compliant fuel.
MR owners opted for west Africa-destined cargoes when transatlantic voyages were unfavourable, however charterers decided to opt for larger LRs when MR west Africa rates started climbing in November and December. As a result, MRs and LRs achieved higher earnings. West Africa will continue to be a destination of choice in 2019 when other markets are softening, but shipowners' timing will be key because ballasting back to Europe when transatlantic rates climb could hurt their bottom line.
Fleet growth slowed in 2018, as shipowners did not order as many tankers as previously. According to brokerage Howe Robinson, clean product tanker tonnage grew by 4pc in 2018, a decrease from 2017's growth of 6pc to 7pc. Howe Robinson estimates a net product tanker fleet expansion of 4pc in 2019. These lower growth numbers are positive for shipowners, after two years of oversupply.
MR owners enjoyed a recovery in rates in late 2018. Chartering activity picked up in November, pushing freight costs to some of the highest levels seen in the past few years. The UK continent to US Atlantic coast rate was 28pc higher on average in in the fourth quarter of 2018 compared with a year earlier; the second half of 2018 was 14pc higher year-on-year.
Freight rates for transatlantic routes in both directions remained high until mid-December. Charterers made a lot of cargoes available starting in November and at the same time, many tankers were already booked to sail from Europe to west Africa, effectively limiting available tonnage. Rates out of the US Atlantic coast and US Gulf increased even more than in Europe — the US Gulf to UK continent $/t cost even surpassed that for the UK continent to US Atlantic coast voyage in November. These developments drew tankers to the US Atlantic coast; others were on their way to west Africa and this reduced the number available to charterers.
The UK continent to US Atlantic coast rate for MRs was at $14.87/t on 2 July 2018; the rate maintained an average of $17.11/t from then until 2 November, before a rally to $27.24/t on 12 December. The market might cool slightly in the short term because of a more favourable tonnage list for charterers, but the fundamentals are there for average freight costs to stay above 2018 levels.
MR freight rates for the UK continent to west Africa route reached a three-year high on 11 December, when Argus' assessment closed at $32.45/t. The average on the route was 12pc higher in the second half of 2018 than in 2017; costs were 27pc higher year-on-year in the fourth quarter. Demand on the route will remain high for as long as Nigeria is stockpiling gasoline ahead of February elections.
Howe Robinson estimates the order book at around 12pc of the fleet, slightly higher than 11pc in January 2018. The brokerage also estimated around 100 tankers will be delivered this year, potentially increasing the fleet by around 7pc. With 29 of these to hit the water in the first quarter, this might put a slightly lower ceiling on MR rates in early 2019.
Handysize rates on cross-Mediterranean routes averaged just below $7/t from June to September in 2018 and 2017. However, the category benefited from high demand in all regions during the fourth quarter and rates rallied in November. The cross-Mediterranean rate reached $13.23/t on 14 December, the highest since March 2017. Freight on the route averaged $9.98/t in the fourth quarter, 19pc higher year-on-year. In the Baltic, where diesel movements made up most of the fixtures, freight to the UK continent averaged $13.88/t in the fourth quarter, 20pc higher year-on-year.
Brokers estimate the Handysize fleet order book to remain steady at around 4pc this year.
LR rates made a recovery from November onwards. The UK continent to west Africa voyage for an LR1 reached as much as $24/t, the highest since Argus started assessing the route in 2016. LR rates increased in parallel to MRs, so charterers decided it was worthwhile to load larger 60,000- 90,000t cargoes and pay less in $/t terms than to load two or three MRs. Some shipowners decided to load dirty cargoes early in the third quarter, to take advantage of more attractive Aframax rates. These tankers were then out of the market for clean cargoes and limited supply.
In the Mediterranean and the Black Sea, charterers moved a number of naphtha cargoes to Japan, but had to pay a higher price as many LRs were east of Suez in the fourth quarter. The lump sum rate for an LR2 loading in the Mediterranean and sailing to Japan reached $2.750mn, the highest point since Argus began assessing the route in May 2016.
For LR2s loading in the Mideast and sailing to the UK continent, rates reached at $2.85mn — the highest since September 2015. Mideast Gulf countries are poised to expand their refining capacities significantly in 2019, which should help maintain rates well above the lows seen in 2016 and 2017.
According to Howe Robinson estimates, the LR orderbook represents 11pc of the existing fleet, with 15 LR1 and 31 LR2 deliveries scheduled for 2019.
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Canadian rail workers vote to launch strike: Correction
Canadian rail workers vote to launch strike: Correction
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Shell's 1Q profit supported by LNG and refining
Shell's 1Q profit supported by LNG and refining
London, 2 May (Argus) — Shell delivered a better-than-expected profit for the first quarter of 2024, helped by a strong performance from its LNG and oil product businesses. The company reported profit of $7.4bn for January-March, up sharply from an impairment-hit $474mn in the previous three months but down from $8.7bn in the first quarter of 2023. Adjusted for inventory valuation effects and one-off items, Shell's profit came in at $7.7bn, 6pc ahead of the preceding three months and above analysts' estimates of $6.3bn-$6.5bn, although it was 20pc lower than the first quarter of 2023 when gas prices were higher. Shell's oil and gas production increased by 3pc on the quarter in January-March and was broadly flat compared with a year earlier at 2.91mn b/d of oil equivalent (boe/d). For the current quarter, Shell expects production in a range of 2.55mn-2.81mn boe/d, reflecting the effect of scheduled maintenance across its portfolio. The company's Integrated Gas segment delivered a profit of $2.76bn in the first quarter, up from $1.73bn in the previous three months and $2.41bn a year earlier. The segment benefited from increased LNG volumes — 7.58mn t compared to 7.06mn t in the previous quarter and 7.19mn t a year earlier — as well as favourable deferred tax movements and lower operating expenses. For the current quarter, Shell expects to produce 6.8mn-7.4mn t of LNG. In the downstream, the company's Chemicals and Products segment swung to a profit of $1.16bn during the quarter from an impairment-driven loss of $1.83bn in the previous three months, supported by a strong contribution from oil trading operations and higher refining margins driven by greater utilisation of its refineries and global supply disruptions. Shell's refinery throughput increased to 1.43mn b/d in the first quarter from 1.32mn b/d in fourth quarter of last year and 1.41mn b/d in January-March 2023. Shell has maintained its quarterly dividend at $0.344/share. It also said it has completed the $3.5bn programme of share repurchases that it announced at its previous set of results and plans to buy back another $3.5bn of its shares before the company's next quarterly results announcement. The company said it expects its capital spending for the year to be within a $22bn-$25bn range. By Jon Mainwaring Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
New US rule may let some shippers swap railroads
New US rule may let some shippers swap railroads
Washington, 30 April (Argus) — US rail regulators today issued a final rule designed to help customers switch railroads in cases of poor rail service, but it is already drawing mixed reviews. Reciprocal switching, which allows freight shippers or receivers captive to a single railroad to access to an alternate carrier, has been allowed under US Surface Transportation Board (STB) rules. But shippers had not used existing STB rules to petition for reciprocal switching in 35 years, prompting regulators to revise rules to encourage shippers to pursue switching while helping resolve service problems. "The rule adopted today has broken new ground in the effort to provide competitive options in an extraordinarily consolidated rail industry," said outgoing STB chairman Martin Oberman. The five-person board unanimously approved a rule that would allow the board to order a reciprocal switching agreement if a facility's rail service falls below specified levels. Orders would be for 3-5 years. "Given the repeated episodes of severe service deterioration in recent years, and the continuing impediments to robust and consistent rail service despite the recent improvements accomplished by Class I carriers, the board has chosen to focus on making reciprocal switching available to shippers who have suffered service problems over an extended period of time," Oberman said today. STB commissioner Robert Primus voted to approve the rule, but also said it did not go far enough. The rule adopted today is "unlikely to accomplish what the board set out to do" since it does not cover freight moving under contract, he said. "I am voting for the final rule because something is better than nothing," Primus said. But he said the rule also does nothing to address competition in the rail industry. The Association of American Railroads (AAR) is reviewing the 154-page final rule, but carriers have been historically opposed to reciprocal switching proposals. "Railroads have been clear about the risks of expanded switching and the resulting slippery slope toward unjustified market intervention," AAR said. But the trade group was pleased that STB rejected "previous proposals that amounted to open access," which is a broad term for proposals that call for railroads to allow other carriers to operate over their tracks. The American Short Line and Regional Railroad Association declined to comment but has indicated it does not expect the rule to have an appreciable impact on shortline traffic, service or operations. Today's rule has drawn mixed reactions from some shipper groups. The National Industrial Transportation League (NITL), which filed its own reciprocal switching proposal in 2011, said it was encouraged by the collection of service metrics required under the rule. But "it is disheartened by its narrow scope as it does not appear to apply to the vast majority of freight rail traffic that moves under contracts or is subject to commodity exemptions," said NITL executive director Nancy O'Liddy, noting it was a departure from the group's original petition which sought switching as a way to facilitate railroad economic competitiveness. The Chlorine Institute said, in its initial analysis, that it does not "see significant benefit for our shipper members since it excludes contract traffic which covers the vast majority of chlorine and other relevant chemical shipments." By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
First TMX cargo booked on Aframax to China
First TMX cargo booked on Aframax to China
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