Global Oil Forum discussion, Oct.

30, 2014: Tanker Market

11:00:00 Christopher Johnson thomsonreuters.com Oil Forum Discussion: Tanker Market Outlook
Welcome to an oil forum session on the outlook for the oil tanker market
11:00:22 Christopher Johnson thomsonreuters.com We have been joined by Peter Sand, Chief Shipping Analyst at independent
international shipping association Baltic and International Maritime Council
(BIMCO)
11:00:30 Christopher Johnson thomsonreuters.com And also by Jonathan Saul, Reuters senior oil and commodities shipping
correspondent
11:00:37 Christopher Johnson thomsonreuters.com Hello Peter and Jonathan
11:00:57 Peter Sand
bimco.org
Hi Christopher
11:01:11 Peter Sand
bimco.org
Hi Jonathan
11:01:23 Christopher Johnson thomsonreuters.com We are talking at a time of relatively low oil prices after a 25 percent fall in crude
since June
11:01:23 Jonathan Saul
thomsonreuters.com Hi Peter, thanks for joining us.
11:01:33 Christopher Johnson thomsonreuters.com How are lower oil prices affecting the tanker market?
11:01:39 Christopher Johnson thomsonreuters.com Are they impacting demand for tankers?
11:02:08 Peter Sand
bimco.org
lower oil prices works in two ways for the tankers
11:02:23 Peter Sand
bimco.org
firstly lower commodity prices should spurs demand
11:03:07 Peter Sand
bimco.org
but the reason behind the drop in prices - being global economic worries are bad so any positive, may just offset the negatives already seen
11:03:47 Peter Sand
bimco.org
lower oil prices also mean cheaper bunkers - however fuel cost still remains the
single most significant cost item of all in shipping
11:04:35 Peter Sand
bimco.org
Current demand for tankers is strong as seasonal strength seems to kick in early
this year
11:05:06 Jonathan Saul
thomsonreuters.com Do the lower bunker fuel costs also help explain the recent rise in tanker rates,
especially for VLCCs on the crude side?
11:05:25 Peter Sand
bimco.org
only to a limited extend if at all
11:06:00 Peter Sand
bimco.org
VLs are strong due to fundamentals improving over recent years with a constant
slowing of supply inflow
11:06:31 Peter Sand
bimco.org
for 2015 BIMCO see this trend continue - before 2016 could see increased
pressure from supply side again
11:06:54 Christopher Johnson thomsonreuters.com Where are VLCC rates now in historic terms?
11:07:26 Peter Sand
bimco.org
current level around $30,000 per day can be compared to:
11:07:54 Peter Sand
bimco.org
98,000 a day in 2008
11:08:12 Peter Sand
bimco.org
60,000 a day in 2007
11:08:33 Peter Sand
bimco.org
But also 15,000 in 2011
11:08:50 Jonathan Saul
thomsonreuters.com Can I pick up on what you noted, do you have any visibility on whether we may
see another deflationary rate cycle for tankers post 2016? Could it be as bad as in
recent years?
11:08:50 Christopher Johnson thomsonreuters.com Was that the low in recent years?
11:10:39 Peter Sand
bimco.org
During 2010, 2011 and 2012 we were touching USD 1,000 per day
11:11:21 Peter Sand
bimco.org
looking beyond 2016
11:12:19 Peter Sand
bimco.org
the doldrums of past years were heavily influenced by the big delivery years of
2010,2011,2012
11:12:58 Peter Sand
bimco.org
in 2016 that will not be the case despite supply growth already estimated at 3% in
2016 by BIMCO
11:13:53 Peter Sand
bimco.org
Supply side growth in crude oil tankers for 2010 and 2011 - respectively:
11:14:15 Peter Sand
bimco.org
6.3 and 4.9% yoy
11:14:40 Jonathan Saul
thomsonreuters.com Many thanks. Can you give a freight rate assessment of the wider tanker
segments including suezmaxes on the WAF side and also products tankers?
11:15:40 Peter Sand
bimco.org
In coming month or two:
11:15:45 Peter Sand
bimco.org
VLCCs are expected to firm around USD 18,500-37,500 per day
11:16:00 Peter Sand
bimco.org
Suezmax crude oil tankers at around USD 20,000-40,000 per day

11:16:15 Peter Sand

bimco.org

11:17:02 Peter Sand

bimco.org

11:17:37 Peter Sand

bimco.org

11:17:54 Peter Sand

bimco.org

11:18:17 Peter Sand

bimco.org

11:18:46 Peter Sand

bimco.org

11:19:38 Peter Sand

11:20:41 Jonathan Saul

bimco.org
thomsonreuters.com

11:20:44
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Peter Sand
Peter Sand
Peter Sand
Peter Sand

bimco.org
bimco.org
bimco.org
bimco.org

11:23:29
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Peter Sand
Peter Sand
Peter Sand
Christopher Johnson

bimco.org
bimco.org
bimco.org
thomsonreuters.com

11:24:43 Peter Sand

bimco.org

11:24:57 Christopher Johnson thomsonreuters.com

11:25:33 Peter Sand
bimco.org
11:26:06 Jonathan Saul
thomsonreuters.com

11:26:34 Peter Sand

bimco.org

11:27:16 Dominick Chirichella emimail.org

11:27:17 Peter Sand
11:27:46 Peter Sand
11:28:18 Peter Sand

bimco.org
bimco.org
bimco.org

11:28:56 Peter Sand

bimco.org

11:29:21 Jonathan Saul

thomsonreuters.com

11:29:54 Peter Sand

bimco.org

11:30:15 Peter Sand

11:30:43 Peter Sand
11:31:19 Peter Sand

bimco.org
bimco.org
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11:31:36 Peter Sand

11:32:23 Peter Sand

bimco.org
bimco.org

and Aframaxes could be reaching USD 35,000 per day at the high end and USD
15,000 per day at the low end of our interval in a volatile market
Product tankers have already surprised a bit on the upside with BIMCO estimates
being at:
Handysize rates are seen holding more upside and thus improve steadily in the
USD 7,500-15,000 per day - we said that two weeks ago
MR average rates already enjoying a lift and thus forecast to be in the interval of
USD 10,000-16,000 per day
Going forward - as regards to product tankers - a lot depend on the demand from
European
will Russian refineries continue to supply that or will longer haul us exports step in
- lifting ton miles
Out of WAF increasing demand for VL is seen but also strong demand for Suezmax
Peter, how do you see the political turmoil in Libya impacting on the
aframax/suezmax Med market - is this affecting rates?
In crude oil segment the demand side is less volatile
as regards Libya
the exports volumes are highly volatile
even though we have seen oil production going up to around 1 mb/d - exports
have not followed suit
cross med Aframax - Libya-France Aframax doing 14k a day last week
that was double up from a month ago
but only half of TWO months ago
@ Peter: As you will know, the Brent crude oil market is now in contango, with
futures prices at big premiums to prompt spot rates
the owners going there are very much aware of the extra risk - achieving a
premium for that
Has the contango led to any demand for floating storage?
we have not seen any widespread floating storage yet
A follow up to Chris's question on the contango, do you think owners are still
opting for higher spot gains rather than locking in longer charters with floating
storage?
in spite of a contango situation in the Brent market - most observers tend to
believe that oil prices will not go sky-high again
Hello Peter do you have any views as to the outlook for the FFA market going
forward? Thanks Dominick
I believe all owner are seeking cover if the charter rates are at the right level
Hi Dominick
As regards to the FFA market - in my view is remains a poor provider of foresight
into actual future freight rates.
Having said that - it is of course due to the fact in simply states the current
uncertainty about the future
There is growing focus on the change to sulphur content regulations within
Europe (and other jurisdictions) from January. What impact is this having and
likely to have on the tanker market and on rates?
as we move into 2015 i could see FFA for cal2015 go up - but as we move further
into the year cal16 is likely to be lower
on the sulfur regulations
it is likely to make trading more specialised
as MGO is the expensive option - you would seek to take advantage of installing a
Scrubber
but that would easily set you back USD 5-7m
so you need your vessels to perform as many trips on ECA-waters as possible to
recoup the investment

11:32:59 Peter Sand

bimco.org

11:33:19 Christopher Johnson thomsonreuters.com

11:33:24 Christopher Johnson thomsonreuters.com
11:33:52 Peter Sand
bimco.org

11:34:30 Peter Sand

bimco.org
11:35:05 Christopher Johnson thomsonreuters.com
11:35:05 Peter Sand
bimco.org
11:35:24
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Christopher Johnson
Peter Sand
Christopher Johnson
Peter Sand

thomsonreuters.com
bimco.org
thomsonreuters.com
bimco.org

11:36:28 Peter Sand

11:36:37 Jonathan Saul

bimco.org
thomsonreuters.com

11:37:24 Peter Sand

bimco.org

11:37:42 Peter Sand

11:38:07 Peter Sand
11:38:29 Rania Elgamal

bimco.org
bimco.org
thomsonreuters.com

11:38:52 Peter Sand

bimco.org

11:38:59 Peter Sand

11:39:12 Rania Elgamal

bimco.org
thomsonreuters.com

11:39:24 Peter Sand

11:39:54 Peter Sand
11:40:35 Peter Sand

bimco.org
bimco.org
bimco.org

11:41:21 Peter Sand

11:41:39 Peter Sand

bimco.org
bimco.org

11:41:52 Rania Elgamal

thomsonreuters.com

11:42:10
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thomsonreuters.com
bimco.org
bimco.org
bimco.org

on top of that the higher the cost difference between HSFO and MGO is - the
faster you will get benefits from your investment
Can you help us non-tanker market people with the initials there?
ECA? MGO?
As we are currently in an oversupply situation for all tanker segments - passing on
the extra fuel costs to your costumers will be a matter of negotiation skills and
contractual agreements
High Sulfur Heavy Fuel oil - 380 cst - the tradition bunker oil
Yes, got that one, it was the others ...
Marine Gas Oil - distillate that you can burn inside an ECA while complying with
the regulation
And ECA is?
Emission Control Area
Ah, many thanks
If you want to use the cheaper HSFO inside an ECA you need an exhaust gas
cleaner (=scrubber)
sorry about that - hope it is now clear
Given the possibility of a nuclear deal between Iran and the West and the
expectation of a lifting of sanctions gradually, is the tanker market ready for the
(potential) return of Irans fleet especially given more vessel supply in 2016?
I think it is fair to say that the Iranian fleet have been taking care of some oil
business in the past too
will the (potential) return negatively affect the markets?
no - I still believe that trade will remain special for some time.
@Peter, just have a question of Gulf oil producers when it comes to crude
storage, anything interesting happening there these days given all geopolitical
uncertainty in region? Do you see a move towards filing up overseas storage
tanks?
but on the assumption that Iran's fleet did nothing before and now can trade
more freely - it works in the wrong direction naturally
Hi Rania
Hi Peter sorry didnt say that first
no worries
oil price is still within their conform zone
but the recent unrest in financial markets may certainly have brought around a
few contingency plans in case of a further slide in oil prices
but no breaking news on the MEG as regards to storage from what I know of
MEG - Middle East Gulf

Rania Elgamal
Peter Sand
Peter Sand
Peter Sand

11:44:12 Peter Sand

was trying to figure that one out

Thanks but you are saying contingency plans, can you elaborate a bit?
India is reported to fill a few extra tanks as prices are low - china too
contingency plans like: supply cuts - floating storage etc
EIA does foresee higher oil demand next year - but we got used to constant
downgrades of that in recent years

bimco.org

BIMCO_MGOvsScrubbers_in_ECA_2013-04-25.pdf
11:44:15 Rania Elgamal
thomsonreuters.com true
11:44:34 Peter Sand
bimco.org
sharing BIMCO analysis of the Business Case: Scrubber vs MGO
11:45:07 Christopher Johnson thomsonreuters.com @ Peter: Has the tanker industry been affected by increased domestic oil

production within the United States?

to a very large effect yes
Oil oil tankers primarily as US seaborne imports have been lowered drastically in
recent years
Peter Sand
bimco.org
Crude oil - not oil oil
Peter Sand
bimco.org
Fortunately for the shipping industry the barrels cut have been coming from
short-haul WAF and not long-haul MEG
Peter Sand
bimco.org
some upside to that otherwise negative story is that WAF-exporters now seek to
supply longer haul Far Eastern customers
Peter Sand
bimco.org
As regards oil products
Christopher Johnson thomsonreuters.com Is there any benefit from the increased exports of products from North America
and also the east coast trade?
Peter Sand
bimco.org

11:45:23 Peter Sand

11:45:59 Peter Sand
11:46:10
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11:48:06

coming to that now Christopher

despite a significant drop in total us imports and exports of oil products over
recent months
Peter Sand
bimco.org
oil product tankers have seen increasing opportunities in triangulation options
with United States stepping up as a large exporter of products
Peter Sand
bimco.org
the level we are currently seeing is around 5 million bpd in total ex-im
Peter Sand
bimco.org
most of the changes to oil product trade volumes have already taken place in
recent years
Peter Sand
bimco.org
going forward BIMCO expect slow but solid growth
Peter Sand
bimco.org
An illustration of our outlook can be found here:
Peter Sand
bimco.org
https://www.bimco.org/Reports/Market_Analysis/2014/0617_TankerSMOO201403.aspx
Peter Sand
bimco.org
BIMCO believes US will stay an importer of crude oil in future - as domestic
production will never completely squeeze out imports
Peter Sand
bimco.org
a lot of discussion on US export of crude oil too
Christopher Johnson thomsonreuters.com Yes, how seriously do you take that?
Peter Sand
bimco.org
BIMCO holds the opinion that if its going to happen to any significant extent it will
be in a distant future and will be implemented quite slowly
Peter Sand
bimco.org
US is not about to export the huge cost advantage they hold over the rest of the
world in terms of supplying "cheap" oil and gas to its industrial sectors
Peter Sand
bimco.org
The other natural question to raise is - who is going to buy?
Christopher Johnson thomsonreuters.com Good question
Christopher Johnson thomsonreuters.com

11:49:12 Peter Sand

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11:57:19 Peter Sand

bimco.org

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thomsonreuters.com
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Christopher Johnson
Christopher Johnson
Peter Sand
Christopher Johnson
Peter Sand

11:59:17 Peter Sand

bimco.org

12:00:01 Christopher Johnson thomsonreuters.com

12:00:06 Peter Sand
bimco.org
12:00:23 Jonathan Saul
thomsonreuters.com
12:00:32 Christopher Johnson thomsonreuters.com
12:00:36 Christopher Johnson thomsonreuters.com

Especially at the moment

it's a competitive market and one that already seems to be oversupplied - no one
really talking about peak oil anymore
No
We have just issued our monthly oil price poll
Europe is decreasing its oil consumption for four years in a row now
It shows the biggest cut for six years in oil price forecasts
Asia is also getting more fuel efficient, which is putting somewhat a lid on the
growth seen there
at the end of the day it all comes down to the right price and right quality - who is
going to supply any given demand
Many thanks indeed Peter
lower oil prices are very positive for keeping the global economic recovery on
track
Thanks for your insights too.
Well, that should encourage more demand
A really interesting overview of the tanker market

12:00:58 Peter Sand

bimco.org

consumer have more money to spent on buying other stuff than energy - and
industry may end up being more profitable, thus wanting to invest more
12:01:25 Peter Sand
bimco.org
Thanks for the invite - such a pleasure to be with you in this forum
12:01:30 Christopher Johnson thomsonreuters.com I will produce a pdf copy of this discussion
If you would like a copy, please email me:
christopher.johnson@thomsonreuters.com
12:01:39 Sam Wilkin
thomsonreuters.com thanks Peter