Trading Tankers: Where and Why?

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Trading Tankers: Where and Why?

In a lackluster market, trading a vessel in the right route is vital. In its latest weekly report, shipbroker Gibson said that “where to position tonnage has always been a key question for tanker owners. Having exposure to the right market can make the difference between a profitable or a loss making voyage. In the dynamic product tanker market, choosing the right place to be, at the right time can be even more challenging. So where should owners position their tonnage for the balance of the year? The Atlantic, the Middle East, or the Far East?”

The shipbroker said that “in the Atlantic, traditionally the focus has been on US driving season. US buying activity had certainly picked up over the past month, with imports in the US Gulf and Atlantic coasts recently hitting a 7 month high as traders replenish stocks ahead of peak demand season. However, with higher domestic refining runs, and stock builds well underway, is there really much prospect for significant buying to lift freight levels substantially over the coming months? Although hurricane season is of course, always a wildcard”.

According to Gibson, “the focus therefore shifts towards West Africa and Latin America. With elections in February, the Nigerian government is focused on keeping gasoline stocks inflated. Yet, with shore based inventories full and floating storage high, imports may be constrained. However, buying activity could remain erratic, occurring as and when NNPC can accommodate more product imports. The issuance of the delayed crude for product swap quotas should also be supportive for product tanker demand, as more independent offtakers participate in import activity”.

The shipbroker added that “Latin America has proved to be the primary outlet for US refined products in recent years. However, this demand could be threatened. Higher prices have forced the Brazilian government to introduce subsidies, increasing the differential between local and international prices, potentially complicating products trading into the region in the short term. Mexico, which has been particularly reliant on the US over the past few years, is on a drive to reduce it’s import dependence. In April the country managed to increase gasoline, diesel and kerosene production to 463,000 b/d, the highest in 9 months as the Salina Cruz refinery came back online. If refining runs continue to grow, US exports to Mexico could come under continued pressure for the balance of the year. In crisis stricken Venezuela, refining runs will continue to fall; however, the impact on product import demand is likely to be constrained by the country’s ability to pay for supplies. These factors combined signal that buying activity may be different for the balance of 2018, compared to 2017 activity levels. Looking East, having exposure to the Middle East product tanker market over the summer would seem a sensible choice. Seasonally high exports around July/August, coinciding with stronger demand for jet fuel to the West and naphtha to the East often generates a spike in rates over the summer period, even if the next few weeks see somewhat of a lull in activity”.

According to Gibson, “much depends on product demand from Asia, with both demand into the region and domestic supplies being a key determinant. Fundamentally, Chinese product exports should see continued growth this year, having soared by 800,000 b/d since 2012. However, export quotas are currently flat year-on-year, suggesting no export growth from this major source of supply. It remains to be seen whether the government will issue further quotas as the year progresses. Whilst lower growth in Chinese exports might be somewhat bearish for tankers operating across Asia, it could create opportunities for tankers trading cargoes into the region, particularly with 650,000 b/d of new naphtha reformer capacity due to come online in China this year. This development should also encourage demand for the naphtha flows from the Middle East and West, perhaps lending support to the West – East naphtha arbitrage which has been limited in recent years. On the other hand, potentially flat product exports from China, coupled with more flows from other regions, could pressure returns for intra-regional and backhaul opportunities, particularly when competition from newbuild crude tankers are accounted for”, the shipbroker concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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