Shipowners find silver lining in Atlantic crude moves

Strong shipments of Atlantic basin crude to Asia, including exports from the US, have mitigated the impact of a rapidly growing crude tanker fleet on freight rates, crude tanker owners said this week at the Capital Link International Shipping Forum in New York City.

"[Tanker] demand remains surprisingly resilient. We have been shipping a lot from the US Gulf coast to China", said Paddy Rodgers, chief executive of Euronav, one of the largest dirty tanker operators.

North American crude producers have successfully bitten into Opec's market share in Asia, as the organization's adherence to production cuts announced in November has made US and Canadian crude more attractive.

When Opec pulled back its production, it spurred demand from the Atlantic basin, said Robert Burke, chief executive of Ridgebury Tankers. "We are seeing a lot more oil out of the US", said Burke.

US crude exports have amounted to 750,000 b/d this year through 17 March, according to the US Energy Information Administration (EIA). About 40pc of the total has landed in Asia, estimated MJLF tanker analyst Court Smith, far exceeding the proportion last year.

Only 11pc of the 520,000 b/d that the US exported in 2016 went to Asian countries, consisting of China, South Korea, Singapore, Japan, and Taiwan.

US crude to Asia travels primarily on Suezmax and VLCC tonnage. Draft restrictions at US Gulf coast ports preclude these larger tankers from taking full cargoes directly from port terminals, so the ships must be filled — or topped off — via ship-to-ship transfers in the Gulf of Mexico. "We are seeing a lot of reverse lighterings", said Lois Zabrocky, the chief executive of International Seaways.

While longer voyages from the Atlantic basin to Asia are displacing some of the shorter ones originating in the Middle East, adding tonne-miles to the tanker market, the flood of new dirty tanker tonnage onto the market has worried shipowners and already pushed freight costs down.

"The orderbook is certainly problematic", said Burke. Strong tanker rates from late 2014 and through 2015 triggered a wave of tanker orders at shipyards. The new deliveries have already begun to weigh on rates, helping to drop the year-to-date average Caribbean-Singapore VLCC rate by 26pc year-on-year to $4.6mn lumpsum. It takes a shipyard roughly two years to construct a supertanker.

The rate decline for the Suezmax segment along the same route has been more modest in that period of time, falling by 17pc year-on-year to $2.9mn. Many oil companies and energy traders opt for Suezmax tonnage over VLCCs to move their US crude to Asia, as the smaller size the 1mn bl tankers make them logistically easier to charter. This additional demand for Suezmax tonnage in the US Gulf coast helps account for the more moderate rate decline compared to VLCCs.

Crude tanker deliveries will continue to hit the water at an elevated pace. Tankers representing about 11pc of the current global VLCC fleet remain on order and the Suezmax figure stands at 18pc, according to shipbroker Charles Weber.