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Iran sanctions, higher production may aid freight rates in Q4 - Platts

Logistic News - Published on Tue, 16 Oct 2018

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According to S&P Global Platts data, VLCC prices have been firm if not particularly spectacular for the last three months but have been unusually volatile at the end of the quarter and the start of Q4. Rates on the WAF-China route, basis 260,000 mt, have risen dramatically from USD 13.98 per mt on September 20 to $20.97/mt on October 5. This is the highest level seen since January 2017 and has been driven by the Persian Gulf where there has been a deluge of fresh cargoes as Eastern charterers rushed to snap up cargoes due to concerns about a supply-side squeeze ahead of the Iranian sanctions being enacted in November. WAF has been relatively quiet by comparison, but prices have followed the Persian Gulf.

Suezmax freight rates have seen also seen limited volatility in the last three months as the summer market is typically weaker than the second quarter with lower seasonal demand and few weather delays to speak of, according to industry sources.

Bunker prices have also seen relatively little change: the price of IFO 380 CST out of the port of Singapore has fluctuated within a range of approximately $40/mt over the last three months according to S&P Global Platts data and this gives shipowners little excuse to press for higher rates.

The Black Sea has been very firm in the last three weeks though and on the Black Sea to Mediterranean route, basis 135,000 mt, prices reached $8.63/mt on October 3, levels not seen since March 2017. Prices rose so quickly because of a new regulation requiring vessels over 200 meters in length to have a tug boat escort which, combined with bad weather, meant that Turkish Straits delays pushed up to unseasonably high levels.

OPEC RAISING PRODUCTION AS IRANIAN SANCTIONS TAKE EFFECT
The OPEC/non-OPEC coalition’s overcompliance on production cuts rose to 129% in August, 600,000 b/d above the coalition’s agreed 1.8 million b/d in cuts. The compliance figure will be used to justify plans by member countries with spare capacity to pump an additional 500,000 b/d in the months ahead, according to an OPEC technical committee.

This may compensate for the anticipated drop in Iranian exports when the US re-imposes sanctions on Iran starting November 5. Many buyers of Iranian crude have already begun to ramp down their purchases for fear of US penalties and will be looking at alternative sources of supply already.

However, China may even step up purchases as Iran is likely to be forced to offer discounts due to the lack of alternative buyers, whilst utilizing state-owned NITC tankers to handle delivery and cargo insurance.

What Saudi Arabia, Russia and the rest of OPEC do will have major impact on tankers as if the lost Iranian barrels are compensated for by alternative suppliers then the international tanker market may benefit as NITC ships will be unable to bid for these cargoes.

LIBYA AND NIGERIA
Production has been boosted by Libya and Nigeria, two members exempted from the cuts as they recovered from internal disruptions, who produced a combined 330,000 b/d in August above the previous month’s level, which will aid the Suezmax and Aframax market West of Suez.

There are still security concerns for some shipowners about calling at Libya as there has been a lot fighting around ports between rival militias in recent months, notably Es Sider and Ras Lanuf in June, which means some shipowners won’t lift Libyan stems. Even though the situation is calm for now, concerns persist and, according to one shipowner, “Some companies have to re-review their security policy and it takes them time to reconvene to discuss and clear.”

This means that at times Libyan crude stems can still attract a premium of Worldscale 2.5 — 5 points over cargoes loading from non-Libyan ports in cross-Mediterranean voyages, depending on how many Libya-capable vessels are open in the region, sources said.

DEMOLITION ON THE RISE
Vessel over-supply is still an issue and shipowners’ earnings remain depressed but in the first eight months of 2018, 69 crude tankers equivalent to 12.9 million dwt were reported scrapped, compared with 14 crude tankers equivalent to 2.0 million dwt reported demolished during the same period in 2017, according to Bancosta research data. This huge increase in scrappage will help to rebalance the global fleet but it still remains a very challenging operating environment for shipowners and there is still an imposing order-book of new vessels which will be delivered over the next two years. For example, there are at least 25 new VLCCs scheduled for delivery in 2018 and a further 60 next year, shipbroking sources said.

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Posted By : Rabi Wangkhem on Tue, 16 Oct 2018
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