VLCC and Suezmax ship owners could benefit from latest oil import policy adopted by India

2014-09-08

India’s government adopted a new policy this week, choosing to refil its oil reserves in order to take advantage of the low oil prices. This is just one more parameter added to the oil market landscape, which is constantly shifting, making it harder to tanker owners to assess future demand. In its latest report, shipbroker Gibson noted that “it’s hard to recollect all of the supply disruptions experienced by the oil markets in recent years, particularly when reviewing the general stability in oil prices since 2011. Libya, Iran, Syria, South and North Sudan, Yemen and even Nigeria have all suffered production setbacks yet the world has remained well supplied. US production has increased approximately 1 million b/d year on year and Saudi Arabia has served to offset disruptions within OPEC”.

According to the shipbroker, “whilst oil markets initially reacted to the advance of Islamic State, with Brent exceeding $115/barrel, the oil price reached a 16 month low this week of $101.34/barrel before rebounding to $101.83/barrel on Thursday indicating limited supply concerns in the short term. Despite the ongoing instability, Libya has been able to hold production in excess of 600,000 b/d in recent weeks adding further supply to the global oil markets. If Libya can maintain or even increase production,, which it appears to be doing so at present, it will be interesting to see how Saudi Arabia and other OPEC members react to a ‘low’ oil price”.

Gibson went on to mention that “despite this relative stability, not everyone is comfortable in the long term security of crude supplies, particularly India, who is dependent on imports for 80% of its crude oil demand. News broke this week that India will commence filling its Visakhapatnam facility in December and India will hope to benefit from persisting relatively low crude prices to fill its reserves. With a reported capacity of 9.9 million barrels India’s import volumes could temporarily swell during the filling period with VLCCs and Suezmaxes likely to be the beneficiaries. A question mark remains as to how quickly India will seek to fill these reserves and from what sources. It is understood that the reserves can segregate up to 7 grades allowing a wider range of crudes to be stored. The close proximity of the Middle East to the Indian Subcontinent makes for the shortest voyage, although increasing Indian buying of West African crude in recent months may point to the Atlantic as the primary source. A contango has prompted traders to seek storage opportunities and whilst the current forward oil price is insufficient to make floating storage profitable, the case appears to be different for land based storage. Recent fixtures show Mercuria fixing two Suezmax cargoes, one from the Teesport and another from Nigeria to discharge at South Africa’s Saldanha Bay which could serve as a feedstock for Indian reserves”, Gibson said.

It concluded by saying that “it is worth noting that the Visakhapatnam facility will be followed by two further storage complexes, expected to come online in 2015. An 11.2 million barrel facillity in Mangalore and an 18.7 million barrel facility in Padur will lift short term crude demand in the second half of 2015 when these facilities are due to come online. India’s ambitious plans to hold 900 days reserves by 2020 could see ongoing stockbuilds for years to come and implies a potential strategic reserve of over 400 million barrels, although fiscal constraints may play a part in adjusting this timeframe. With China’s implied stockbuilding appearing to decline in recent months, and demand growth slowing, India’s own storage activities may well come as a relief for the tanker market although this will be dictated by the speed at which India looks to build its stocks in the longer term and whether planned investments in more storage come to fruition”, said the London-based shipbroker.

Meanwhile, in the crude tanker markets this week, in the Middle East, “VLCC Owners did their best to regroup, but volumes stayed upon the low side, and availability remained easily adequate… it also remains easily adequate for the anticipated demand through the balance of

the month. Rates became ‘conference’ at ws 43 to the East, and around ws 25 to the West, and with Holidays in China and Korea at the start of next week, the near term prognosis is for nothing better to develop for Owners.. Suezmaxes huffed and puffed, but also had too many mouths to feed, and on a thin diet too. Rates moved to an average ws 30 West, and just above ws 60 to the East, where they are likely to stay for a while yet. Aframaxes had a very quiet time of it, and the next deals to be concluded are expected to show a noticeable downward correction into the low ws 90’s to Singapore”, Gibson said.

The shipbroker added that in the North Sea, there were “no fireworks for Aframaxes. No change at all in rate structure from last week. 80,000 X-UKCont runs at ws 92.5 – ish, with 100,000 by ws 65 the mark from the Baltic. VLCC fuel oil ‘arb’ economics didn’t work, again, for either party but in theory Owners would turn a head at $4.5 million for Singapore”, it noted.

Source from : Hellenic Shipping News

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