Global Factors:

Global economy:The global economy appears to be slowing down with a number of

bearish macroeconomic data points emerging in recent weeks. Oil demand is highly

correlated to economic growth, therefore a slowdown in the global economy is negative for

oil and tanker demand through the remainder of 2012 and into 2013:

 

o  US economic growth slowed to 1.5% in Q2-12 from 2.0% growth in Q1-12. The

official US GDP growth forecast for 2012 has been lowered from 2.9% to 2.4%.

o  The Chinese economy grew at the slowest pace in three years during Q2-12 at 7.6%

(down from 8.1% in Q1). China has cut its growth target for 2012 to 7.5%.

o  In Europe, the UK has cut its growth forecast for 2012 to 0% from 0.8% growth

previously. France has warned that it will slip back into recession in Q3-12 as the

economy is expected to contract by 0.1% for the second quarter in a row.

 

Oil / bunker prices:Crude oil prices have strengthened in recent weeks as lower

Iranian production due to sanctions and a series of non-OPEC supply outages have

tightened global oil supply. Brent crude is currently trading at ~$112 / bbl, up from a low

of $89 / bbl in June. High oil prices are potentially negative for oil / tanker demand and

also lead to higher bunker costs (currently ~$655 / tonne in Singapore).

 

Global refinery throughput: Global refinery throughput is set to peak in Aug’12

before the onset of seasonal maintenance work from September. In addition, an erosion of

refining margins due to higher crude oil prices, weakening oil demand in China and

unplanned outages in the US and Japan are likely to weigh on refinery throughput during

Q3-12 (the IEA recently lowering its Q3 throughput forecast by 0.3 mb/d).

 

Asian imports of WAF crude: Asian imports of West African crude are set to increase

by 340 kb/d in Aug’12 to reach 1.84 mb/d, the highest level since May and the second

highest monthly total on record. The steep rebound in WAF-Asia movements is largely due

to an increase in Indian imports with 21 cargoes booked for Aug’12 versus 12 cargoes in

Jul’12. This is positive for tanker ton-mile demand and VLCCs / Suezmaxes in particular.

 

Atlantic:

North Sea oil production: Crude oil exports from the North Sea are set to decline by

60 kb/d in Aug’12 and by a further 312 kb/d in Sept’12. This equates to a decline of 1.9 mb

during August (the equivalent of ~3 fewer Aframax size cargoes) and 9.7 mb in September

(the equivalent of ~16 fewer Aframax size cargoes). The steep decline is due to seasonal

maintenance on the Buzzard and Troll oilfields.

 

 Azeri oil exports: Exports of Azeri crude oil via the Mediterranean port of Ceyhan

are set to decline by 1.2 mb in Aug’12 (the equivalent of ~2 fewer Aframax or ~1 fewer

Suezmax size cargoes). However, exports are expected to recover by 0.8 mb/d in Sept’12.

 

 Russian seaborne oil exports:Russian seaborne oil exports via Baltic Sea ports

are set to increase by 53 kb/d in Aug’12 or 1.6 mb over the course of the month (the

equivalent of ~2-3 extra Aframax size cargoes). The increase is largely due to additional

volumes from the new port of Ust-Luga. Exports via Black Sea ports are set to fall by 33

kb/d in Aug’12 or 1.0 mb over the course of the month (the equivalent of ~1 fewer

Suezmax size cargo) due to lower volumes from Novorossiysk.

 

Hurricane activity: The National Oceanic and Atmospheric Administration (NOAA)

has raised its forecast for the 2012 hurricane season and is now expecting 12-17 tropical

storms versus its earlier forecast of 9-15 storms. Tropical storm activity has had little

impact on US Gulf oil production / refining / shipping activity so far; however the most

active period of the storm season is yet to come (August to October).

 

Pacific:

China fuel prices: The Chinese government has increased fuel prices by ~5% in

response to rising crude oil costs following three price cuts in the period May-July. Higher

retail prices will improve refiners' margins and potentially encourage an increase in crude

runs and imports, which would be positive for regional crude tanker demand.

 

India power blackouts:Recent power blackouts in India have led to a surge in

diesel demand for power generation. In response, state refiners are reportedly buying extra

diesel volumes from private refiners which could lower Indian diesel exports, potentially

reducing supply for the product tanker market. Strong diesel demand could also lift crack

spreads and prompt refiners to raise throughputs, which could lift Indian crude imports and

offer some extra support to the crude tanker market.

 

Japanese refinery outages:A series of unplanned refinery outages in Japan could

lead to a reduction in Japanese crude oil imports over the coming weeks, but may lead to

increased product imports (negative for Asian crude tanker demand / positive for products).

O  JX Nippon has shut its 240 kb/d Mizushima-B refinery for an indefinite period after

the discovery of falsified inspection reports. Latest estimates are for the refinery to

remain offline until October or November at the earliest.

o  Cosmo Oil closed down two crude distillation units (CDUs) with a combined

capacity of 220 kb/d at its Chiba refinery in late June following an asphalt leak into

the sea. The CDUs are unlikely to be restarted until mid-September at the earliest.

 

Australian refinery closures:Shell is to close its 79 kb/d Clyde refinery near

Sydney in Sept’12 while Caltex Australia recently announced the closure of the Kurnell

refinery from 2014. Both will be converted to import terminals. The closure of Australian

refineries will lead to an increase in Australian fuel imports to meet growing demand,

which is positive for Asian product tanker trades. However, it is negative for crude tankers

as it will mean a reduction in crude oil imports to Australian refining centres.

 

From: Market Sources