The impact of the US oil and products exports is gradually making waves in the tanker market, shifting the market’s dynamics. In its latest analysis, shipbroker Charles R. Weber said that “the U.S. has transformed itself nto a fossil fuel export express! In their latest Short Term Energy Outlook the EIA estimates that U.S. crude oil production averaged 9.7 million barrels per day in November, up 360,000 b/d October. Most of the increase is in the Gulf of Mexico, where production was 290,000 b/d higher than in October as production returned post hurricanes. The EIA forecasts total U.S. crude oil production to average 9.2Mnbd for all of 2017 and 10Mnbd in 2018, which would mark the highest annual average production, surpassing the previous record of 9.6Mnbd set way back in 1970”.

According to CR Weber’s John M. Kulukundis, “for dry natural gas production the EIA forecasts an average 73.5 Bcf/d in 2017, a 0.7 Bcf/d increase from the 2016 level. In 2018 they forecast that nat gas production will be 6.1 Bcf/d higher than the 2017 level. In 2016 LNG exports averaged 15,323MMcf vs 51,587MMcf Q1‐Q3 2017. On the dry side, U.S. coal exports for the first three quarters of 2017 were 69 MMst, 68% (28 MMst) higher than exports for the same period in 2016. This total for the first three quarters of 2017 is already 14% (8 MMst) higher than total annual coal exports in 2016. The EIA expects that exports will total 89 MMst in 2017 and 74 MMst in 2018. After a weak 2H16 (+1% y/y), which curtailed annual 2016 growth to just 2.8%, growth in US refined product exports have been accelerating through 2017 (+7.1% y/y based on trade statistics up to third quarter 2017). The momentum was maintained despite the damage caused by Hurricanes in late August, indeed third quarter growth (+9.2% y/y) was the highest since 2Q16”.

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Kulukundis added that “naphtha has been by far the best performing product export up 34% y/y. Gasoil/diesel has been the next best performer up 10.5% y/y followed by kerosene/jet fuel (+7% y/y), and gasoline (+5% y/y). Focusing on the top 30 largest trades of 2017 for the year to date, the most important growth trades include gasoil/diesel exports to Brazil (+200% y/y) and gasoil/diesel to Peru (+60% y/y). There are a number of factors underlying the strength of US product exports, not least the discount of WTI to other crude benchmarks and the resurgence of US shale production against improving oil prices. The latest US Total production figures for week two of December hit a new all‐time high of 9.78Mmbd, a sixth consecutive week when the record had been broken ‐ having initially surpassed the previous record set 5 June 2015 of 9.61Mmbd in early November. Strong domestic demand coupled with rising production has seen refinery throughputs hit record levels. The strength of the post hurricane recovery, along with the continued growth in US production ‐ with the EIA predicting an increase of 700,000 b/d in US production next year – suggests that the acceleration in US product export growth might have further to run and “The American Energy Express” may be gaining momentum”, he concluded.

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Meanwhile, over the past week, CR Weber noted that “the VLCC market experienced a strengthening of demand in the Middle East market and a surge in West Africa demand to a six‐year high. The Middle East market observed 33 fixtures, representing a 27% w/w gain. In the West Africa market, 13 fixtures were reported – the most since late 2011 and ten more than last week’s tally. Monday’s halting of the Forties crude network due to the discovery of a crack stoked a firmly open arbitrage window for US crude exports and raised expectations of a surge in USG regional demand; however, these failed to come to fruition with a number of participants noting US tax disincentives to loading crude cargoes before year‐end. It is unclear if US export fixtures will rise in the coming week as charterers move further into January loading dates though with Forties operator Ineos declaring force majeure on Thursday, noting that repairs are likely to take weeks, the economics of US crude exports seems to be bolstered. EIA data shows that US crude production rose last week for an eight‐consecutive week, extending a directional rise that has seen volumes rise by 10% since the start of the year. After surging in October, VLCC demand to service US crude exports pulled back sharply in November but have been expected to normalize towards the YTD trend line in the coming months, which raises prospects for a modest improvement in rates during Q1”.

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The shipbroker added that “meanwhile, the supply‐side looks equally promising during Q1, when VLCC newbuilding deliveries will offer a temporary respite. We are projecting six deliveries during the quarter (including slippage of remaining 2017 units) before rebounding to 11 and 17 units during Q2 and Q3, respectively. Already, fundamentals have narrowed slightly. The number of surplus Middle East positions we project for the conclusion of the December program has dropped to 18 from 22 a week ago, reflecting draws to West Africa above expectations. On this basis – and provided that demand remains elevated during the upcoming week as charterers seek to cover remaining December and early‐January cargoes ahead of the holidays – rates could experience further modest gains during the upcoming week”, CR Weber concluded.

Source: Hellenic Shipping News.