Suez Canal might feel the pain of Qatar. Qatar’s diplomatic crisis deepened Tuesday and jitters could be seen across shipping and crude oil markets in Asia. Immediate concerns were on shipping and the chaos that could ensue as several Middle East ports began placing restrictions on Qatar-flagged and Qatar-owned vessels. Some went a step further, saying any vessel traveling to and from Qatar would not be allowed to dock at their ports.
Qatar’s foreign minister said Tuesday his government would not escalate a diplomatic dispute with its Arab neighbours by retaliating to measures to cut ties.
* Fujairah, the Middle East’s main bunkering port, has imposed a ban on vessels flying flags of Qatar or vessels heading to Qatar or arriving from Qatari ports. The move is expected to have a significant effect on the bunker market and shipping movements.
* The UAE port of Khor al Fakkan has imposed a similar ban as Fujairah. In the past, when there have been stringent regulations governing shipping in and out of Fujairah, shipowners and charterers have used the Khor al Fakkan as a conduit for storage, repairs and other miscellaneous shipping works.
* Bahrain has also banned vessels moving from and to Qatar from calling on its ports.
* Saudi Arabia has said that Qatar-flagged and Qatar-owned vessels will not be allowed to enter Saudi waters. It went on to say that Qatari cargoes are not allowed to be discharged at Jubail and Ras Tanura.
* Egyptian port authorities have not yet made any announcement. This is not surprising given that Egypt sources a bulk of its LNG needs from Qatar. Egypt is expecting its next Qatari LNG delivery to arrive by June 10 and another on June 11. According to Platts trade flow software cFlow, as of 1515 Singapore time (0715 GMT), both vessels were sailing off the coast of Yemen at a normal speed of 14-15 knots towards the Egas-operated Ain Sukhna LNG terminal in Egypt.
* Qatar’s three main crude grades, Al Shaheen, Qatar Marine and Qatar Land, travel almost exclusively to refiners in Asia/Far East.
* At least one of the world’s largest oil importers changed its VLCC loading plans overnight to steer clear of issues arising from the diplomatic impasse. The VLCC was due to load partial cargoes, first in Qatar and then in the UAE, but to avoid taking chances, the importer loaded the full VLCC in Qatar itself. The parcel nominated by the UAE will load on another VLCC.
* There are dozens of cargoes that are partially loaded in Qatar, Bahrain and Saudi Arabia. Shipping executives are hoping the impasse will be resolved in a week, otherwise, in the words of one VLCC broker: “It will be a mess.”
* One North Asian buyer of Qatari crudes said it would be “extremely difficult” to take Qatari grades if it cannot bunker its VLCCs at Fujairah as it normally tanks up at the port before or after entering the Persian Gulf.
* Although buyers of Qatari crudes may not find it difficult to substitute the grades, they may run into contractual difficulties with Qatari suppliers. The North Asian buyer said there is a lot of “confusion from the lack of information.”
* One option, though not entirely economical, is for crude buyers to bring in Qatari crudes on Suezmaxes and Aframaxes, which could bunker in Singapore on the way back from the Persian Gulf.
* According to cFlow, of a total 918 vessels that called at Fujairah in May, 38 came from Qatar and 98 were on their way there.
* Industry estimates put marine fuel sales in Fujairah at around 12 million-15 million mt in 2016. Port authorities do not provide any official data.
* According to industry sources, the Fujairah port authority’s ban on vessels to and from Qatar could result in a drop in bunker sales of 170,000 mt/month at the very least. Some estimates have put the volume much higher.
* Bunker suppliers also expect to see some pressure on prices at Fujairah port due to the potential drop in sales volume.
* With bunkering at Qatar and Iran not considered an attractive option, market players expect demand to shift to Singapore for vessels going east and to Gibraltar and/or Rotterdam for vessels going west.
The resurgence of Libyan oil production will offer support to Suezmax and Aframax tankers, in terms of demand, but in the short-term, prospects aren’t that rosy. Libyan crude production posted strong gains during May, rising from 700,000 b/d at the end of April to a three‐year high of 800,000 b/d early during May and subsequently concluding the month at 827,000 b/d, according to the country’s National Oil Company. The gains follow a restart of production at the Sahara oil field late during April after a weeks‐long closure and a restart of the El Feel (Elephant) field during May after having been offline for two years. A technical issue led to a short blip in production at the Sahara field – the country’s largest – during mid‐month likely implies that the average production rate for the month will be lower than the headline figures suggest, but directional improvements and multiple‐year highs imply a positive demand‐side development for Aframax and Suezmax tankers servicing regional cargo flows.
A fresh influx of cargoes during late May proved quite supportive of Aframax rates – if only briefly. Aframax TCEs on the MED‐MED route jumped from just $10,700/day at the start of the month to over $25,500/day by May 24th. Contributing to the gains were modest supply gains from Ceyhan, as well as coverage of prompt cargo purchases of North Sea crude grades (during a brief Brent contango futures structure ahead of the OPEC production cut extension) which simultaneously propelled NSEA‐UKC Aframax TCEs to over $30,000/day. Suezmax rates in the same markets rallied in tandem as they have been trading at an effective floor dictated by Afrramaxes, with $/mt rates matching those of the smaller class. Any cheer among owners was short‐lived, however, as Aframax TCEs have largely corrected: presently, the MED‐MED route yields ~$9,776/day and the NSEA‐UKC route yields ~$11,977/day.
The outlook for the remainder of Q2 and the start of Q3 doesn’t appear particularly rosy, despite potential for Libya to yield a steadier and elevated export flow during the coming months. Natural Aframax demand in the North Sea market is set to decline m/m during June, and the July program shows the fewest loadings of 2017. Meanwhile, Ceyhan loadings are unlikely to observe much further upside following May’s gains. Adding to prospective negative pressure, Suezmaxes appear poised for a wider supply/demand imbalance in the West Africa region, which could elevate vies by Suezmax units for Aframax cargoes. Nigeria’s Forcados crude stream is poised to return following repairs to the pipeline linking fields to the Forcados terminal. Though notionally positive for Suezmaxes (the traditional workhorse of West African exports) the return of Forcados could weaken regional crude differentials to Brent. This would make West African crude more attractive to Asian buyers seeking to offset a lack of supply growth in the Middle East due to extended OPEC production cuts with purchases elsewhere, thereby supporting VLCCs at the expense of Suezmaxes.
On a YTD y/y basis, VLCC demand in West Africa has grown by 28% while Suezmax demand has shrunk by 25%. Meanwhile, both the Aframax/LR2 and Suezmax fleets are grappling with extraordinarily high net fleet growth rates as a massive newbuilding delivery program is ongoing amid limited phase‐outs of older units. The Aframax/LR2 fleet is has expanded by 2.7% YTD and is projected to conclude the year with a net annual growth rate of 6.9% for 2017 while the Suezmax fleet has expanded by 5.4% YTD and is projected observe a net annual growth rate of 10.0%. Moreover, the majority of this year’s newbuildings have yet to enter the Atlantic basin. Our analysis of AIS and fixture data shows that the average Suezmax newbuilding does not appear in the West Africa market for 95 days after delivery – and of the 26 Suezmax units delivered since 1 Jan, just five have traded cargoes from West Africa so far. To put the volume of recently delivered units that have yet to enter the region into perspective, there are around 10 spot market‐serviced Suezmax loadings and 17 total Suezmax loadings in West Africa, per week.
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